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April 2013 A pril 2013 MArkets & investMent it & Ops retAil BAnking CArds trAnsACtiOn BAnking risk & regulAtiOn

State banking Banking is too important to be left to banks – can governments do any better?

grand designs Profile: Arun Jain, founder of polaris technologies says good design leads to good technology products same day, same settlement same day payments are being adopted worldwide. What does that mean for d+1 settlement in europe? riding the OtC rOllerCOaster new rules for OtC derivatives are creating a complex cocktail of clearing, reporting and collateral requirements lOOking after the pennies

Tech personal financial management looks set to finally catch on Reg IN THIS ISSUE

CONTENTS

04 News banking technology www.bankingtech.com

April 2013 NeWs aNaLysis A pril 2013 11 heather Mckenzie: one law for the rich MArkets & investMent it & Ops retAil BAnking CArds trAnsACtiOn BAnking risk & regulAtiOn 12 Mobile apps will give boost to wealth management sector 22 13 avoiding spreadsheet hell 14 show report: FPL State 15 removing exhange barriers banking Banking is too important to be left to banks 16 don’t mention the regs – can governments do any better?

grand designs 17 corporate concerns Profile: Arun Jain, founder of polaris technologies says good design leads to good technology products same day, same settlement same day payments are being adopted worldwide. What does that mean for d+1 settlement in europe? riding the OtC rOllerCOaster new rules for OtC derivatives are creating a complex cocktail of clearing, reporting and collateral requirements lOOking after the pennies ech

T personal financial management looks set to finally catch on

Features Reg 18 state banking As well as changing the rules to encourage new entrant banks, the UK government plans an overhaul of the payments system. Will it end in tears? 22 same day, same payment? Same day payments are behind adopted in many countries worldwide. Will 33 this lead to the demise of D+1 settlement in Europe? 24 riding the Otc rollercoaster As new rules for OTC derivatives take hold in Europe and the US, banks and asset managers face a complex cocktail of mandatory clearing, reporting and increased collateral requirements. 28 electronic bonds The fixed income market has lagged behind equities and FX in electronic trading, but that is changing rapidly. 30 Looking after the pennies PFM tools have spluttered in and out of fashion, but a combination of mobile, tablet and internet banking may mean their time has come. 36 reguLars 36 Profile: arun Jain, Polaris Financial technologies Founder Arun Jain is taking Polaris into areas beyond its roots in IT service provision. At the heart of this is good design, he believes.

In partnership with

Guiding your way through global regulatory storms 38 appointments APRIL 2013 42 comments 43 industry events 48 Out of Office

Outside back cOver – regtech the latest edition of the collaboration between Banking Technology and JWg examining the technology impact of regulatory compliance looks at Jumping through hoops risk data aggregation, the unknowns in customer classification, how global Regulators are looking for proof that firms are meeting data requirements

how does your risk WelcOme tO emiR Regulating the aMld iV regulators are approaching benchmarking post-Libor, and the need to data look? –iBORs Answering questions on global risk With EMIR in force, firms are now Europe has made the first move to The new EU AML Directive looks to data requirements might be difficult wrestling with the challenge of controlling benchmark manipulation be a significant step up for firms’ without a timely self-assessment classifying customers but global co-ordination is needed KYC and monitoring teams prove you’re monitoring aML systems properly.

April 2013 www.bankingtech.com 01 IN THIS ISSUE

CONTENTS

04 News banking technology www.bankingtech.com

T personal financial management looks set to finally catch on

In partnership with

Guiding your way through global regulatory storms 38 appointments APRIL 2013 42 comments 43 industry events 48 Out of Office

April 2013 www.bankingtech.com 01

EditoRial CommEnt

Editor David Bannister, +44 207 017 4019 [email protected] Role reversal

SEnior Staff WritEr Elliott Holley, A journalist, a politician and a banker walk +44 207 017 6492 into a bar … sounds like the beginning [email protected] of a joke, doesn’t it? Feel free to submit a punchline: personally, I’m starting to think daily nEWS at SiboS Editor that it would be a very sour joke. Heather McKenzie With banker-bashing now an established Production Kosh Naran national pastime, the press having spectacularly fouled their own nest and Press Releases Send relevant releases to news@ politicians going to jail for feathering theirs, it bankingtech.com is pretty horrible to contemplate that these are people at the very top of our national life. PubliShEr Tim Banham, Not everyone who works in a bank is a +44 207 017 5218 villain, or could even be described as a banker, [email protected] come to that. I’ve met many politicians over the years who are people of great integrity; heroes some of them. And, honestly, SalES ManagEr Sadie Jones, there are more journalists who hate the grotesques of the national press than +44 203 377 3506 there are working in it. [email protected] Things have gone a little wrong, I suggest, when politicians want to make new MarkEting, circulation and rEPrintS laws to “control” the press, ignoring the fact that everything the press was doing Paul Waite, was already illegal under existing laws – illegal phone tapping, bribery of public +44 207 017 5614 officials, libel and perjury are all still illegal, aren’t they? [email protected] Same goes for bankers. I’m as sure that the last few remaining tellers at my local bank were not fiddling the Libor contributions as I am that those elsewhere SubScriPtionS and rEnEWalS in the organisation who were are guilty of fraud, at least. (Despite what it may Subscription enquiries: Customer Service Dept, Informa UK sound like sometimes, I even know some very nice barristers, and they like to use Ltd, Sheepen Place, Colchester, CO3 3LP. Tel: +44 (0)207 the phrase ‘conspiracy to defraud’, which gets you 10 years in the slammer.) 017 5533, Fax: +44 (0)20 7017 4783, Email: telecoms. Nevertheless and notwithstanding, politicians plan to fix the broken banking [email protected] Annual Subscription: UK £690, Europe system, which is fine and dandy – or it would be if they knew which bits are €860, US/rest of world $1,235. actually broken and how they might go about fixing them. ©2013 banking tEchnology “People need a basic banking service,” they say. How true, but is there anything All rights reserved; no part of this publication may be wrong with the Post Office? It has branches everywhere, even in rural areas, just reproduced, stored in a retrieval system, or transmitted in any about. There used to be a savings and investment arm too, and though that’s form or by any means, electrical, mechanical, photocopying, been hived off as National Savings & Investments. Post Offices are still where you recording, or otherwise without the prior written permission of probably go to start dealing with that side. the publisher. What about the payments system? That’s broken too. Must be, the Chancellor of the Exchequer said so in a recent speech to JP Morgan employees. Businesses Banking Technology is published 10 times a year by Informa have to wait too long –“days” – to receive payments, he said, so the payments Business Information, a trading division of Informa UK Ltd, 37- system must be fixed. 41 Mortimer Street, London, W1T 3JH, UK. Perhaps spending some money on publicising the Faster Payments service PrintEr Wyndeham Grange, might be a good idea? Governments in Australia, Singapore and even France Southwick, UK. seem to think it’s a good idea. I’m all in favour of improving the banking and payments systems – gives us iSSn 0266-0865 something to write about, if nothing else. What worries me is that I also have a www.bankingtech.com cupboard full of clocks, radios, children’s toys and assorted domestic appliances that I’ve fixed to death over the years.

David Bannister, editor an informa business

MarchApril 2013 2013 www.bankingtech.com 0103

EditoRial CommEnt

Editor David Bannister, +44 207 017 4019 [email protected] Role reversal

David Bannister, editor an informa business

MarchApril 2013 2013 www.bankingtech.com 0103 News in focus Go to www.bankinGtech.com for the latest news and comment Regulation will Firms face multimillion costs to address Online banking use falls as mobile use SEPA direct boost IT spend gaps in industry plans for T2S doubles finds Accenture study debit uptake for buy-side Implementation of Target2 – Securities will land firms with bills anks in the UK and Ireland need to re-engage customers, as the “unacceptable” of as much as €27 million says a Swift research report to adjust to changing consumer ‘human element’ of the relationship anks, asset managers and hedge Bbehaviour as customers cut diminishes,” said Peter Kirk, managing he European Central Bank says that funds will have to increase their IT here are “major discrepancies” in firms’ back on the amount of time they director of Accenture distribution and the speed of adoption of direct Bbudgets in 2013 to take account readiness for the implementation spend banking online and visiting bank marketing services in the UK and Ireland. Tdebits in line with the Single Euro of weak market growth and a raft of Tof Target2-Securities that leave branches, according to new research by “Banks’ success in rolling out efficient, Payments Area standards is “unacceptable” oncoming financial regulation, according “significant gaps” in the industry’s plans, Accenture. user-friendly digital channels and its and urged regulators and payment service to new research by Ovum. according to new research carried out by According to the survey, daily and continuing consumer trust issues may be providers to make greater efforts to push Buy-side firms will need to invest to Celent and Swift. weekly branch visits fell from 19% to 15% contributing to an increasingly arm’s- the instrument or risk damaging the ensure compliance and to reduce their The implementation of the Target2- and daily and weekly online banking length relationship between institutions reputation of the scheme. reliance on brokers, while sell-side firms Securities platform by the European Central activity fell from 69% in 2010 to 61% and their customers, which impacts their In its first Report on the Migration will increase their IT spend to allow them Bank, coupled with the impact of the in 2012. Meanwhile, inherently brief, opportunities to sell and build loyalty.” towards the Single Euro Payments Area, to offer better services. Central Securities Depositary Regulation more transactional banking activity rose One of the only ratings to show the ECB admits that the SDD core scheme Client servicing will top the buy-side proposed by the European Commission, significantly, with daily and weekly mobile positive growth was mobile banking, “so far fails to capture a substantial expenditure list, with buy-side firms keen will require market participants to banking more than doubling – from 7% in which increased from 10% in 2010 to 22% transaction volume”. It says that “given the to retain customers and avoid fallout from undertake a thorough review of their 2010 to 15% in 2012. in 2012. According to Kirk, the findings popularity of legacy direct debit payment low investor returns. At the same time, a current back office system capabilities, and The study also revealed declines indicate that banks need to focus on the instrument in certain countries and the move towards intra-day reporting will help invest anywhere between €7 million and in consumer trust in banks, from 45% customer experience, reward loyalty, challenges associated with the new SDD provide better insight into the performance €27 million each. in 2011 to 40% in 2012, as well as a and personalise how they engage with collection process, the current situation is of particular asset managers. The research, based on detailed interviews reduction from 41% to 38% in customers consumers using big data and analytics. unacceptable” “The buy-side is finding ways to increase with major participants in the European post- that believed their bank is fair and At the end of February, a separate Migration to the SDD is due to be returns by reducing the reliance on a single trade environment, found that the post-trade transparent. Consumers in the age range YouGov poll conducted by BT revealed complete by 1 February 2014, and a late broker and adopting multi-prime strategies providers most affected by T2S – CSD and A significant portion of IT investment 18-24 were the most severely affected, that customers cited peer review sections, migration would introduce risks that “could as well as direct market access,” said Rik custodians – are the most advanced in their for T2S will be driven by communication registering declines of 61% to 49% in web chat and compare my bank services damage the reputation of the new direct Turner, senior analyst, financial services preparation. However, market participants that complexity, the report finds. “Market customer satisfaction and 48% to 37% in as the most wanted tools and strong debit scheme, which could then be difficult technology at Ovum. “With EMIR and MiFID will be impacted to a lesser extent, such as participants will have to operate in trust, as well as a decline from 41% to 31% online banking services, the presence to restore”. II on the horizon, spending on compliance banks and broker/dealers, are still navigating an ecosystem that relies on disparate in those who believe their bank is fair and of a local branch and 24/7 availability The ECB suggests that countries that will remain a high priority.” the complexity of T2S. messaging formats, and where many local transparent. of banking services as the strongest already work on the basis of a creditor On the sell-side, firms are “We have found that while most market specificities remain. This situation not only “This year’s survey results underscored motivating factors that would persuade a mandate flow model should “strive to increasingly investing in post-trade participants have a good high-level generates additional cost but also raises the banking industry’s central challenge customer to change banks. BT migrate” more than 50% of their legacy operations, according to the Ovum understanding of the T2S platform, there some concerns about the operational direct debit transactions by the end of the research. Meanwhile, cloud services are some significant gaps in the industry’s risk incurred by market participants third quarter of 2013, while countries that and microwave connectivity are also T2S adaptation plan,” says Axel Pierron, the in case of communication failure and EMCF and EuroCCP merger “will cut costs” originally worked on the basis of the debtor becoming a realistic option. Late last author of the report, The European Post- mismanagement,” it states. mandate flow model (which is harder to year, Colt Technology Services opened Trade Ecosystem under T2S: Dealing with Alain Raes, chief executive for EMEA s tough new collateral requirements Based in Amsterdam and called migrate from) should strive to migrate at a new microwave service between Complexity. and Asia Pacific at Swift, (pictured) said: bring ever greater pressure to bear EuroCCP, the new entity will combine the least one- third of their transactions by the London and Frankfurt that it claimed While the long-term benefits of T2S in “Celent has clearly confirmed that many Aon banks and financial market risk management and customer service same deadline would give traders speeds 40% faster improving the efficiency of the European players require more information about participants, the union of European clearing organisation of EuroCCP with the technology “To generate a breakthrough, payment than the nearest alternative. capital markets are clear, the report looks the impact of T2S on their business models houses EMCF and EuroCCP into a new and operations infrastructure of EMCF. Chan service providers should not only make “Despite the market instability, the closely at the short-term challenges that and operations. This new report provides combined entity will help make clearing and will be chief executive and Jan Booij, the their customer servicing channels ready sell-side is still increasing its IT spend,” said banks, CSDs and custodians are facing. excellent insight on the questions market settlement more efficient, according to Diana current chief executive of EMCF will be chief for SEPA, they should also devote sufficient Turner. “With an increased reliance on It estimates that the level of investment participants must answer as they determine Chan, chief executive at EuroCCP. operating officer of the new entity. resources to familiarise end-users, both innovative technology to deliver returns required to adapt a back office to the T2S their approach to T2S readiness. It comes at “The conditions in the equity market favour “Nobody thinks having nine clearing debtors and creditors, with technical, for the buy-side, the sell-side is strategically ecosystem will range from €7 million for just the time when the industry really needs cost reduction,” Chan said. “Combining our houses in Europe is optimal,” Chan said. business and contractual issues related outsourcing previously on-premise IT a market player that modifies its existing to be able to tap into recognised sources two CCPs will help reduce settlement cost as “However, clearing interoperability can to migration to SDD,” says the report. solutions to reduce costs and remain system using a communication hub plus of solutions and expertise, to help create it’s no longer necessary to pay twice to settle. provide part of the solution, since in an “Moreover, payment service providers competitive. Although IT infrastructure adaptation layers to as much as €27 million standardised, streamlined and robust post- In addition, portfolio margining can provide interoperable system, users are able to should provide substantial assistance to investment will grow, the age-old focus for a player that decides to revamp its back trade communications infrastructures, and users valuable cost efficiencies, at a time when select the clearing house of their choice to debtors in order to explain how consumers’ on compliance will continue to dominate office systems for both settlement and support cost-effective, efficient adaptation economies of scale are growing in importance clear all of their trades, bringing major cost protection measures established under the sell-side IT spend.” BT custody. to major market change.” BT for customers.” reductions.” BT legal framework could be exploited.” BT

04 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 05 News in focus Go to www.bankinGtech.com for the latest news and comment Regulation will Firms face multimillion costs to address Online banking use falls as mobile use SEPA direct boost IT spend gaps in industry plans for T2S doubles finds Accenture study debit uptake for buy-side Implementation of Target2 – Securities will land firms with bills anks in the UK and Ireland need to re-engage customers, as the “unacceptable” of as much as €27 million says a Swift research report to adjust to changing consumer ‘human element’ of the relationship anks, asset managers and hedge Bbehaviour as customers cut diminishes,” said Peter Kirk, managing he European Central Bank says that funds will have to increase their IT here are “major discrepancies” in firms’ back on the amount of time they director of Accenture distribution and the speed of adoption of direct Bbudgets in 2013 to take account readiness for the implementation spend banking online and visiting bank marketing services in the UK and Ireland. Tdebits in line with the Single Euro of weak market growth and a raft of Tof Target2-Securities that leave branches, according to new research by “Banks’ success in rolling out efficient, Payments Area standards is “unacceptable” oncoming financial regulation, according “significant gaps” in the industry’s plans, Accenture. user-friendly digital channels and its and urged regulators and payment service to new research by Ovum. according to new research carried out by According to the survey, daily and continuing consumer trust issues may be providers to make greater efforts to push Buy-side firms will need to invest to Celent and Swift. weekly branch visits fell from 19% to 15% contributing to an increasingly arm’s- the instrument or risk damaging the ensure compliance and to reduce their The implementation of the Target2- and daily and weekly online banking length relationship between institutions reputation of the scheme. reliance on brokers, while sell-side firms Securities platform by the European Central activity fell from 69% in 2010 to 61% and their customers, which impacts their In its first Report on the Migration will increase their IT spend to allow them Bank, coupled with the impact of the in 2012. Meanwhile, inherently brief, opportunities to sell and build loyalty.” towards the Single Euro Payments Area, to offer better services. Central Securities Depositary Regulation more transactional banking activity rose One of the only ratings to show the ECB admits that the SDD core scheme Client servicing will top the buy-side proposed by the European Commission, significantly, with daily and weekly mobile positive growth was mobile banking, “so far fails to capture a substantial expenditure list, with buy-side firms keen will require market participants to banking more than doubling – from 7% in which increased from 10% in 2010 to 22% transaction volume”. It says that “given the to retain customers and avoid fallout from undertake a thorough review of their 2010 to 15% in 2012. in 2012. According to Kirk, the findings popularity of legacy direct debit payment low investor returns. At the same time, a current back office system capabilities, and The study also revealed declines indicate that banks need to focus on the instrument in certain countries and the move towards intra-day reporting will help invest anywhere between €7 million and in consumer trust in banks, from 45% customer experience, reward loyalty, challenges associated with the new SDD provide better insight into the performance €27 million each. in 2011 to 40% in 2012, as well as a and personalise how they engage with collection process, the current situation is of particular asset managers. The research, based on detailed interviews reduction from 41% to 38% in customers consumers using big data and analytics. unacceptable” “The buy-side is finding ways to increase with major participants in the European post- that believed their bank is fair and At the end of February, a separate Migration to the SDD is due to be returns by reducing the reliance on a single trade environment, found that the post-trade transparent. Consumers in the age range YouGov poll conducted by BT revealed complete by 1 February 2014, and a late broker and adopting multi-prime strategies providers most affected by T2S – CSD and A significant portion of IT investment 18-24 were the most severely affected, that customers cited peer review sections, migration would introduce risks that “could as well as direct market access,” said Rik custodians – are the most advanced in their for T2S will be driven by communication registering declines of 61% to 49% in web chat and compare my bank services damage the reputation of the new direct Turner, senior analyst, financial services preparation. However, market participants that complexity, the report finds. “Market customer satisfaction and 48% to 37% in as the most wanted tools and strong debit scheme, which could then be difficult technology at Ovum. “With EMIR and MiFID will be impacted to a lesser extent, such as participants will have to operate in trust, as well as a decline from 41% to 31% online banking services, the presence to restore”. II on the horizon, spending on compliance banks and broker/dealers, are still navigating an ecosystem that relies on disparate in those who believe their bank is fair and of a local branch and 24/7 availability The ECB suggests that countries that will remain a high priority.” the complexity of T2S. messaging formats, and where many local transparent. of banking services as the strongest already work on the basis of a creditor On the sell-side, firms are “We have found that while most market specificities remain. This situation not only “This year’s survey results underscored motivating factors that would persuade a mandate flow model should “strive to increasingly investing in post-trade participants have a good high-level generates additional cost but also raises the banking industry’s central challenge customer to change banks. BT migrate” more than 50% of their legacy operations, according to the Ovum understanding of the T2S platform, there some concerns about the operational direct debit transactions by the end of the research. Meanwhile, cloud services are some significant gaps in the industry’s risk incurred by market participants third quarter of 2013, while countries that and microwave connectivity are also T2S adaptation plan,” says Axel Pierron, the in case of communication failure and EMCF and EuroCCP merger “will cut costs” originally worked on the basis of the debtor becoming a realistic option. Late last author of the report, The European Post- mismanagement,” it states. mandate flow model (which is harder to year, Colt Technology Services opened Trade Ecosystem under T2S: Dealing with Alain Raes, chief executive for EMEA s tough new collateral requirements Based in Amsterdam and called migrate from) should strive to migrate at a new microwave service between Complexity. and Asia Pacific at Swift, (pictured) said: bring ever greater pressure to bear EuroCCP, the new entity will combine the least one- third of their transactions by the London and Frankfurt that it claimed While the long-term benefits of T2S in “Celent has clearly confirmed that many Aon banks and financial market risk management and customer service same deadline would give traders speeds 40% faster improving the efficiency of the European players require more information about participants, the union of European clearing organisation of EuroCCP with the technology “To generate a breakthrough, payment than the nearest alternative. capital markets are clear, the report looks the impact of T2S on their business models houses EMCF and EuroCCP into a new and operations infrastructure of EMCF. Chan service providers should not only make “Despite the market instability, the closely at the short-term challenges that and operations. This new report provides combined entity will help make clearing and will be chief executive and Jan Booij, the their customer servicing channels ready sell-side is still increasing its IT spend,” said banks, CSDs and custodians are facing. excellent insight on the questions market settlement more efficient, according to Diana current chief executive of EMCF will be chief for SEPA, they should also devote sufficient Turner. “With an increased reliance on It estimates that the level of investment participants must answer as they determine Chan, chief executive at EuroCCP. operating officer of the new entity. resources to familiarise end-users, both innovative technology to deliver returns required to adapt a back office to the T2S their approach to T2S readiness. It comes at “The conditions in the equity market favour “Nobody thinks having nine clearing debtors and creditors, with technical, for the buy-side, the sell-side is strategically ecosystem will range from €7 million for just the time when the industry really needs cost reduction,” Chan said. “Combining our houses in Europe is optimal,” Chan said. business and contractual issues related outsourcing previously on-premise IT a market player that modifies its existing to be able to tap into recognised sources two CCPs will help reduce settlement cost as “However, clearing interoperability can to migration to SDD,” says the report. solutions to reduce costs and remain system using a communication hub plus of solutions and expertise, to help create it’s no longer necessary to pay twice to settle. provide part of the solution, since in an “Moreover, payment service providers competitive. Although IT infrastructure adaptation layers to as much as €27 million standardised, streamlined and robust post- In addition, portfolio margining can provide interoperable system, users are able to should provide substantial assistance to investment will grow, the age-old focus for a player that decides to revamp its back trade communications infrastructures, and users valuable cost efficiencies, at a time when select the clearing house of their choice to debtors in order to explain how consumers’ on compliance will continue to dominate office systems for both settlement and support cost-effective, efficient adaptation economies of scale are growing in importance clear all of their trades, bringing major cost protection measures established under the sell-side IT spend.” BT custody. to major market change.” BT for customers.” reductions.” BT legal framework could be exploited.” BT

04 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 05 2012 Roll oF HonoUR

Best Green IT Initiative by a The Banking Technology Financial Institution News in Best Industry Infrastructure Initiative Awards 2013 Go to www.bankinGtech.com for the latest news and comment Brief www.bANkINgTEch.com/AwArds Best Enterprise Infrastructure Initiative Reference and corporate actions data Corvil, a provider of monitoring customised and functionally extended specialist Exchange Data International systems for high-performance financial within PKO Bank Polski’s project, with Best Internet Banking Services Provider has struck a deal with Derivative Partners, applications, anhsa launched the Corvil assistance from HP and Accumulate. HP a provider of risk management and Enterprise Monitoring System. The was responsible for the full project at PKO, valuation services for structured products, new solution is based on its flagship from requirement and specification, to the implementation, system integration Best Payments Systems Initiative to provide valuations for a range of CorvilNet platform and delivers the structured products and complex derivative same combination of high speed and development of the banks back-end instruments. The current service covers data capture, distributed transaction- systems. The initial IKO service supports result sets combining various asset application-network monitoring, point-of-sale payments, which will include Best Security Initiative classes including equity, indices, FX and and real-time business analysis. New support for NFC in the future; online commodities, payoffs and pricing models. enterprise application transaction payments; person-to-person transfers monitoring and an enterprise-reporting using a proxy phone number; cardless cash Best Trading Platform or Venue WorldPay, has acquired YESpay module are now included to support a withdrawal from ATMs; account balance, International, a payments services range of enterprise IT activities. transaction history and settings such as PIN provider. Using YESpay’s technology, number. Best Transaction/Wholesale Now in its 14th year the Banking Technology awards have become Banking Initiative WorldPay will offer UK clients a Information Mosaic and Thomson established as the premier event to recognise, reward and celebrate complete payment service, including Reuters have agreed to integrate the Yorkshire Building Society is to offer innovation and excellence in the use of IT in financial services. merchant acquiring, card processing latter’s ISO-based corporate actions online personal financial management Best use of IT in Retail Banking and payment terminals integrated data feed with the former’s corporate capabilities through a multi-year Each year the awards constantly evolve to better reflect the industry. with point of sale systems. The actions solution, IMActions. Customers agreement with technology provider For the 2013 awards we’re refreshing the awards categories and have acquisition, made for an undisclosed will get access to corporate actions data eWise. The eWise PFM solution offers a recruited some new names to the judging panel. For the first time we will amount, is in response to demand covering 94,000 companies in more suite of consumer services, including be opening up the awards to take entries from Asia and the Americas Best Use of IT in Investment Banking from WorldPay’s clients for integrated than 93 countries. Information Mosaic’s account data access, with private and making the Banking Technology Awards a truly global event. payment services to support the senior vice president of business strategy, secure account aggregation, account evolving needs of the “omni-channel Gerard Bermingham, said: “We view this monitoring, transaction data, spend Visit www.bankingtech.com for the latest awards news Best Use of IT in Funds/Asset Management shopper”. On completion, WorldPay as a significant step and look forward to a categorisation, net worth, single sign-on including: will acquire YESpay’s businesses and very successful relationship. For users of and the creation and management of assets including payment platforms and Information Mosaic’s post-trade platform, budgets, that give end-users a tool to • Readers Choice Awards: cast your vote for what you consider to Best use of IT in Wholesale/Transaction technologies, its 150 employees, based IMSecurities, adding additional Thomson manage their finances online. It also be the best system across a range of categories Banking in the UK, Canada and India and over Reuters data sets such as its Legal Entity features targeted offer management • Judged Award Categories: see details of how you can enter your 3,000 customer relationships. Identifier reference, and pricing will provide capabilities that help financial organisation for one of the award categories even more value.” institutions create and manage cross- • Awards Sponsorship: Get high profile branding before, during and Best Use of IT for the Purposes of Risk SEPA solutions specialist Sentenial has selling campaigns, built to deliver & Regulatory Change after the awards with one of our range of sponsorship packages completed its planned investment in the The Royal Bank of Scotland has financial benefits to each individual • Table Bookings: Book your table at the leading IT in financial Benelux Region with the opening of a fully- announced a new product intended consumer specifically. supported operational office in Amsterdam to help clients migrate to mandatory services social event and don’t miss out to the prestigious Banking Best Use of Mobile Technology in and the relocation and expansion of its SEPA standards. Called the RBS Technology and information companies Technology Awards night. Financial Services Brussels office. SEPA Accelerator, the product has CGI and Experian have partnered to Both of these offices, part of continued a feature that allows a corporate help banks and corporates meet the

outstanding Contribution by a Female in expansion and investment across Europe, implementing the SEPA XML file format requirements of SEPA direct debits. CGI will Financial Technology will be manned by local teams led by Luc to independently initiate, monitor offer Experian’s pan-European bank account Sponsored by: Vanhecke, head of sales Benelux. The Benelux and amend file testing, validation and data validation services to improves Kate Wignall operation includes functions ranging from end-to-end simulation. This ensures straight-through processing levels as IT Team of the Year Sales to Implementation and will also leverage that a corporate can self-test its SEPA much as possible. Research from Experian the company’s international network for readiness. suggests that under SEPA, many banks will clients who require multi-country solutions. not provide exception handling free of The Dublin-based firm announced a PKO Bank Polski has introduced a mobile charge. Instead, firms may have to pay for €20 million expansion across Europe last payment service that covers all payment up to 12% of all transactions, with a cost November when it opened in Brussels. Last situations. Called IKO, the service is based of payment failure at €50 per transaction. www.bankingtech.com/awards month it announced the hire of former on the Mobile Everywhere technology That would mean a corporate with 100,000 Logica sales director Jean-Pierre Arens to platform from Stockholm-based records could expect to see a cost of failure ConTACTS Follow us on Twitter: spearhead the French expansion, based Accumulate, and Pera Mobile, the global of €600,000 per monthly transaction cycle. To sponsor the awards categories, to book your table or to discuss any other www.twitter.com/bankingtechno out of recently opened offices in the La open technology standard for mobile Research shows the majority of businesses features of the Banking Technology Awards, please contact: Defence district of Paris. payment. The basic solution has been have yet to prepare for SEPA. BT Sadie Jones, T: 44 203 377 3506, E: [email protected] Join us on LinkedIn: Go to For general Awards enquiries please contact: www.bankingtech.com and click April 2013 www.bankingtech.com 07 Paul Waite, T: +44 207 017 5614, E: [email protected] on the button on our home page 2012 Roll oF HonoUR

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The Banking Technology Awards 2013 ENTERING THE AWARDS A big change is in the air for the 2014 Banking Technology Awards: in response to the WHO Can enTeR MulTIPle enTRIes enormous interest the awards have generated from around the globe, we’ve decided to The Banking Technology Awards are open to banks and financial institutions More than one category may be entered if the relevant criteria are met. remove the geographical restrictions of previous years and welcome entries regardless of operating globally. location. THe JuDgIng PROCess There are two reasons behind this thinking. Firstly, previous awards were restricted to the WHaT IT Means TO WIn All qualifying entries are considered by the Banking Technology Awards Europe, Middle East and Africa regions, but it has become increasingly difficult to judge where For banks and financial institutions, winning a Banking Technology Award judges. Judges are not allowed to comment on or vote for entries from their things originate and where they are deployed, and where the parent bank is based. proves the value of your technology investments and your skill in driving own institutions. Secondly, many of the entries submitted last year were rejected as being “out of area”, return on those investments through the endorsement of credible experts. though the projects were clearly world-class – in some cases they would have been shortlisted A Banking Technology Award is proof of the business awareness that aWaRDs PResenTaTIOn but for the geography. your firm blends with its technology expertise to deliver the best possible The shortlists for each category will be announced in September. The Some of the entries we had to reject last year came from as far away as Hawaii, China outcomes for the institution. Banking Technology Award winners will Awards 2012 will culminate in a gala black-tie dinner and Awards ceremony and Laos, while banks from some of the Central Asian countries have long tried to persuade enjoy detailed coverage in the official Awards magazine and on www. on 5 December 2012 at the Grand Connaught Rooms in London. us that they are really in Europe. bankingtech.com. You can also highlight your winner status in your internal This, by the way, only applies to the judged awards for financial institutions. The Readers’ communications and marketing materials, adding prestige and credibility COnFIDenTIalITY Choice Awards have always been open to international companies, with the proviso that their to your campaigns. Brief details of all shortlisted entries will be published on our website and in products/services should be available in the EMEA region. We’ll replace that proviso and say the official Awards brochures. Entries should include a short (50-100 word) that the products or services should have international applicability. WHaT IT Means TO Be sHORTlIsTeD description that can be published in this way. All other information will be The submission process will start at the beginning of May and run until late summer. We firmly believe that this is a significant achievement in itself and deserves treated in strictest confidence. Entries will be carried out via our website, so check www.bankingtech.com/awards at the end more recognition. of this month. We’ll also be adding guidelines for entrants and other material as we progress. The Banking Technology Awards mark the highest level of professional THe Rules Good luck to everyone. and commercial achievement in deploying and exploiting all forms of IT in For further information on entry guidelines including how to enter, the criteria financial services. Our team of judges is unique, selected for their experience for project categories and individual awards and general awards terms and David Bannister, editor in assessing technology projects and the effectiveness of IT solutions. conditions please visit: www.bankingtech.com/awards

Join us on LinkedIn: Go to www.bankingtech.com and click Fred Tingey Geoff Kates Helen Watt Senior Kieran Hines Professor Michael Ray O’Brien, Chief PJ Di Giammarino, Ian Alderton, Daniel Mayo, on the button on our home page Regulatory managing director, program manager, practice leader, Mainelli FCCA Operating Officer, founder and chief formerly RBS & practice leader, Programme Lepus JPMorgan Datamonitor FCSI executive Global Risk, HSBC executive of JWG Wachovia financial sector Financial Services chairman, Z/Yen technology, Ovum Ju D ges Panel Operations at, Group BNP Paribas

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One law for the rich Alternative payments systems and banks operate under different rules in different countries. Heather McKenzie looks at a recent study of the situation Last month, Bitcoin, a • Protect the transacting parties, improve their ability to keep payments decentralised digital particularly the most vulnerable party; regulations up to speed with the currency, hit a high • Promote a vibrant payments market innovations,” states the report. in terms of value, trading at $40, ecosystem by ensuring the health Virtual currencies are perhaps the up from $13 in January of this year of individual payment providers via “most alternative” of the categories, and just $0.05 in 2010. Observers prudential regulation and reporting writes Bareisis. Many consumer attributed the rise to a growing requirements and by focusing on protection laws do not apply to acceptance of Bitcoin among online market efficiency; and virtual currencies, or are ambiguous merchants such as Wordpress and • Safeguard broader societal interests, about them, because they may not Reddit. Bitcoin is also a volatile which acknowledges that payments be considered financial accounts. currency because the number of do not operate in a vacuum. This category also raises conceptual transactions and overall value of the Bareisis differentiates between questions about where the boundary coins in circulation is relatively low. But traditional payments and digital of financial regulation resides or ought for a growing number of people, wary payments. The traditional payments to reside. of the debasing of currencies due to include cash, cheques and electronic On one hand, virtual currencies can quantitative easing, alternatives such payments such as credit cards, debit be compared to other non-bank stored as Bitcoin are becoming more popular. cards linked to a bank account, open- value accounts. Both require pre-loading One of the main features of Bitcoin is loop prepaid cards, and electronic of funds into a provider’s ecosystem. that it is not controlled by a central bank bank transfers (debit and credit). The However, Bareisis contents that a crucial or the banking system in general. Banks, associated risk management practices difference here is the currency exchange as the incumbents of the payments and regulatory landscape are well aspect. With non-bank stored value system, are being challenged by established for these payments. accounts, the funds remain denominated competitors such as Bitcoin. Digital payments, he says, are more in a currency used by a country or group The implications of this from a difficult to define “as hundreds of of countries. With virtual currencies, “real regulatory perspective are examined offerings have been developed around money” is exchanged for “value tokens” by Zilvinas Bareisis of research firm the world, all aiming to address a gap managed and supervised by a private Celent in his report, Managing Digital in existing payments solutions or use a entity. Distributed currencies, such as Payments Risk: A Regulatory Perspective. new technology”. Bitcoin, pose more complex regulatory He says that even in markets with To help make sense of these questions. well-developed regulatory frameworks, offerings – and to help regulators “On the other hand, if we gaps and ambiguities exist in digital form policy – Celent has developed a distinguish virtual currencies, should payments regulation. taxonomy that places digital payments the category also include other value “Significant variation exists between into five categories. tokens, such as frequent flier miles, countries in terms of the presence of The categories are: which arguably can also be exchanged legislation and regulation targeted at • Traditional payment facilitation; for goods? We contend that the main digital banking and payments,” writes • Non-bank stored value accounts; difference between virtual currencies Bareisis. “In most developed markets, • Virtual currencies; and miles or loyalty points is that the regulations governing traditional • Mobile billing; and consumers use their ‘real money’ to electronic payments are well • Credit facilitation. actively buy a virtual currency, whereas established, despite being patchy in “Celent believes that the they earn miles and other points as a places and having evolved over time.” proposed taxonomy enables banks consequence of purchasing real world With new payments systems and regulators to categorise new goods,” states the report entrants and mechanisms, risks are payment offerings based on the key Banks and regulators should work becoming more complex to manage, characteristics and rapidly determine together, says Celent, to develop new he argues. Any regulatory framework the most critical risk management and regulation that are based on a specific for payments must contain specific regulatory implications. As a result, it activity performed by the payments regulations aimed at achieving will help banks and regulators around provider in the end-to-end payments three fundamental objectives across the world navigate the complexities value chain, rather than the provider’s traditional and digital payments: of new payment offerings and legal structure. BT

April 2013 www.bankingtech.com 11 PAYMENTS COMMENTARY

April 2013 www.bankingtech.com 11 NEWS ANALYSIS AdvISorY TooLS News ANAlysis sPReADsHeeT RisK

Mobile apps will give boost to wealth Avoiding spreadsheet hell management sector Spreadsheets are ubiquitous, but they are also a major source of risk, as high-profile examples have shown. Tom Groenfeldt reports on how firms ensure spreadsheet integrity Tools for advisors on the move have been around a long time, but the new generation of tablets are being embraced by wealth managers and vendors alike. David Bannister reports The JP Morgan Task Force Report of use have led to its widespread “Whenever possible we use SQL for into its Chief Investment Office’s $6 use in analytics, trading, modelling financial reporting systems, but it’s not An analysis of mobile solutions comprehensive range of functions”. MyPrivateBanking stresses that billion-plus loss found the bank’s and reporting. Excel, designed for realistic to replace spreadsheets. While for financial advisors concludes available; advisor mobile solutions have to Value at Risk was being calculated individual users, lacks controls, we have our more complex Solvency II that applications to support client • PolarisFT is singled out for bridge the needs of two different with an Excel spreadsheet that lockdowns and audit trails. data in databases, there will always be interaction and advisory services “will “incorporating excellent design categories of user, the advisor or “required time-consuming manual PWC has built an entire consulting the need to pull together information become one of the most industry- features for financial planning and other representative of the wealth inputs to entries and formulas, which practice around Excel, beginning with for presentations in spreadsheets.” disruptive, but potentially most performance viewing”. management firm and their clients. increased the potential for errors”. identification and risk measurement of Canopius found ClusterSeven rewarding” developments in the • SunGard’s “focus on smaller wealth Consequently they need to handle At another point the report found end user computing (EUC) within a firm. didn’t create problems for business wealth management sector. management businesses and very a level of complexity and a depth of “the model operated through a series “PwC recognises that EUC‘s are here to users. “Some comparable systems This is the main finding of Mobile good use of mobile visualisation tools” information that is of a completely of Excel spreadsheets, which had to stay. Rather than attempting to remove are quite invasive. This just sits in the Apps for Financial Advisors and Wealth gets it noticed by the report’s authors. different order to that required of most be completed manually, by a process them, we believe that organisations background and tracks changes. It’s Managers by Swiss research company But while each solution has unique consumer apps. of copying and pasting data from one should understand their use and make much easier to roll out software when MyPrivateBanking Research. strengths and features, “none have yet “Mobile solutions for financial spreadsheet to another”. sure that they are properly controlled,” the it doesn’t get in the way of users.” “Existing mobile solutions for realised the full potential” of mobile advisors need to enable not just JPM is not alone: more than half of company explains. It calls for developing The principle can be extended financial advisors show the potential apps. The design of most mobile single interactions but to help to c-level executive in financial institutions a governance framework and then to other off-the-shelf applications. for greatly improving the interaction solutions is still dominated by the sustain relationships that can last for say they have few or no controls over deciding when and where software ClusterSeven offers similar controls for between advisor and client by legacy of the vendors’ main wealth many years,” said Groves. “They must critical spreadsheets at their firms. should be used to monitor and control the MS Access Database, which is tucked supplying real-time information, management platforms, which run on normally be capable of a large number Nearly nine in ten (89%) rely on spreadsheets. away in thousands of organisations multi-media content and new ways of PCs and desktop computers. of different functions but they also manual oversight to maintain data Implementing spreadsheet running vital departmental tasks, often communication.” said Francis Groves, It sees three particular have to perform in a way that doesn’t integrity, while only 11% report management often uncovers material little known to anyone outside the group senior analyst at MyPrivateBanking. shortcomings in current offerings: interfere with advisor being able to automated controls policy to fully errors in a company’s accounts. In where it operates. “This makes a real difference to client • While these advisor solutions establish the all -important sense of understand changes between different helping one firm move to an ERP Another approach to improving meetings and personal interaction are generally rich in content and connection with the client.” versions of spreadsheets. system, PWC exported data out on standalone Excel is available from between advisor and client that functionality, there is plenty of scope MyPrivateBanking recommends The research, conducted by Vision of hundreds of spreadsheets and WestClinTech in the US. It has built up until now has mainly been for developing their relevance to client banks and wealth managers integrate Critical for ClusterSeven, which sells modelled the results, which uncovered XelerateDB which can operate refined dominated by heaps of paper, often meetings. For instance, six out of 10 mobile apps solutions in their advisory spreadsheet control software, seems “a number of significant errors.” Excel calculations, and additional out-dated reports and portfolio data, vendors provide a comprehensive and process and client interaction as soon to indicate a large gap between The consultancy notes that a financial calculations, inside SQL with discussions of portfolios and detailed portfolio management system as possible. In the decision making executives’ concerns and their actions number of regulations including Server where they can run up to 100 performance where little scenario and five had good performance on which mobile solution to choose to manage risk. Just over half (55%) of Solvency II, SOX and Basel III will times faster than Excel and are fully planning was possible.” reporting capabilities but only four they should pay particular attention the top executives rate spreadsheet require improved controls over protected by server security. The report looked at systems from allowed ad hoc reports. to identifying the functions required risk as either serious or very serious. spreadsheets. A commercial real estate financing Advent Black Diamond, Appway, • Existing solutions “do an excellent as well as assessing the coverage of “Financial services firms, and the In London, the FSA has required company in the US with a market cap Avaloq, Charles River Development, job in helping advisors to carry lots markets and operating systems by senior managers and executives that financial firms to manage their over $7 billion uses XLeratorDB to DST Systems; Finantix, Kony Solutions, of information into meetings but do different vendors. Testing a mobile run them, rely heavily on spreadsheets spreadsheets, especially those improve reporting and projections. MicroStrategy, PolarisFT and SunGard. less well when it comes to meeting solution under real-life conditions to for much of their business critical used to feed their capital adequacy When it relied on Excel spreadsheets, It found that all demonstrated different dynamics”. Just one of the solutions assess the benefits for advisors and processes,” said Ralph Baxter, chief modelling under Solvency II, said Mark individual asset managers in different aspects of good practice in solution researched evidenced a well-thought clients is “critically important”, as is executive of ClusterSeven. “However, Allen, head of business intelligence regions developed their ways of using design and four of the solutions were out meeting preparation component. the need to have a clear grasp of the there are significant risks associated at Canopius Managing Agents, the models, the firm’s chief information “not only well designed but had • Report publishing and customising capabilities of the solution. with this and all stakeholders are now an international insurance and officer said. particular strengths in certain areas”. client contacting functions are MyPrivateBanking analysed waking up to what these are. Risks reinsurance group based in London. It “The process was inconsistent, there • Appway was commended for “unnecessarily limited”. None of the systems against more than 30 include anything from basic ‘cut and turned to ClusterSeven. was no visibility,” he added. If a regional “outstanding support in winning new the solutions covered in the report functional criteria grouped in 10 paste’ errors to miscalculations, fraud “We have approaching 1,000 key manager failed to update quarterly clients and complying with regulations provided the kind of full and flexible categories such as CRM, onboarding and corrupted files.” business spreadsheets managed under results in Excel, that would not necessarily across different jurisdictions”. report publishing options, both for financial planning, portfolio Excel, easily the most widely ClusterSeven,” he said. “We haven’t be apparent to headquarters. “It only took • MicroStrategy’s mobile solutions standard and ad hoc reports, that management, reporting and client used tool in finance, creates risk in done all of them, and that is too many one or two managers not to update their are commended “for their highly we would hope to see available to communication (“including, of course the financial enterprise. Designed to be honest: some spreadsheets don’t numbers to realise that we needed to customisable offerings with a advisors in client meetings. the vital area of client meetings”). BT for the desktop, its power and ease have material effect.” correct this.” BT

12 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 13 NEWS ANALYSIS AdvISorY TooLS News ANAlysis sPReADsHeeT RisK

12 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 13 SHOW REPORT: FPL TRADING CONFERENCE EXCHANGES: NEW ENTRANTS

Cross asset trading to the Breaking down the barriers fore for FPL delegates in the exchange business Changes in market infrastructure and their effect on the way investment firms trade provoked The consolidation of trading venues is over and a new wave of alternatives are starting to set lively discussion at FIX Protocol’s London event. David Bannister and Elliott Holley report up shop. Elliott Holley reports on the plans of one high profile candidate.

While changes to the OTC derivatives inside FIX messages. “There is quite But even this is problematic, said Following a period of equity market talking about how to save costs, but The problem with benefiting the world grab the headlines, trading a lot of synergy between bonds and another. “Flexibility means that there’s consolidation, the time is right for few are looking at how we can make maker is that the takers go elsewhere. is moving to a cross asset world, derivatives – the commonality is OTC too much flexibility. Can we standardise a new entrant to step forward and the industry grow. We have a lot of On Aquis, everybody is on a level largely driven by regulation and trading,” said the presenter. the business process, not at a FIX transform the exchange business, innovative ideas on how to make that playing field.” standardisation – and after a few Another panellist related this back tag level but how the messages will according to Alasdair Haynes, chief happen.” The technology behind Aquis years of pain, firms may find that they to the move to cross asset trading and communicate? If there’s too much executive of start-up trading venue Aquis Exchange will depart from will be low-latency, with facilities for are better off as a result. responses to regulatory changes: “FIX variation in that process, systems will Aquis Exchange. the usual exchange practice of colocation and full interoperable clearing That was one theme to emerge at is a good way to reduce cost and time have to change. The reality is the middle “There is a need for more charging participants a percentage arrangements from launch. The exchange the annual EMEA Trading Conference to market … if we have to wait even office doesn’t have much money.” competition,” Haynes told Banking of the value of each stock they trade. also intends to make technology a organised by FIX Protocol Ltd in two or three months for changes, it is On a wider horizon, the issues Technology. “The exchange business Instead, it will charge users for the business line; Haynes confirmed that the London in March, and it dovetailed not going to work very well.” Part of the and risks associated with shortened is currently a duopoly. The market message traffic they generate, in a firm has already sold its technology to neatly into overarching issues such as reason for this is that widespread FIX settlement cycles exercised several needs a terrier to help break down the similar manner to a telecoms firm. another organisation, which is currently regulation, the relationship between adoption has led to firms also aligning participants. “We now have the barriers, to bring positive disruption There will be a low usage band for exploring opportunities in Africa. Aquis sell- and buy-side forms and the their processes along best practice impetus behind T+2 to get this going and innovation – and we are happy to small firms, an upper band for the will start out focusing exclusively on continuing complexity of connectivity lines, though there is a way to go. “Best and make it work. Multiple standards be that terrier.” largest users, and an exemption from equities, but Haynes made it clear that if as new venues emerge and disappear. practice is great for us because we across multiple asset classes is not charges for market makers when the model is successful, the exchange will While different parts of the industry might already be using it,” he said. “In going to work,” said a panellist. “The “A lot of people are talking posting liquidity. expand into other classes and become are moving at different rates – and practice, it might be quite a few years drive is to do more as close to the about how to save costs, but “Why pay more for trading “agnostic to asset class”. have different motivations – the before we get to that Nirvana state.” point of execution as we can – the GlaxoSmithKline than trading Squawker is another new trading efficiencies of cross asset trading will In the shorter term, the impact only way is to do it once, at the time, few are looking at how we can Vodafone?” said Haynes. “We are venue that is also planning to launch prove attractive in the longer term. “We of imminent changes to the OTC and FIX is the only way to do that.” make the industry grow” essentially managing message traffic across Europe with a new business definitely see the value of cross asset derivatives markets is still far from clear. For another, the issue was that – that is the job of an exchange. If this model. Christopher Gregory, co- trading,” said one panellist. “Looking In particular, delegates pointed to the the market is becoming divided in its Alasdair Haynes, Aquis Exchange model works in equities, we can help founder and chief executive of beyond the regulations there is an lack of clarity in international regulation: reaction to these changes, and with bring business back on exchange, Squawker, told Banking Technology: enormous amount of industrialisation “Differences in the rules between EMIR will bring risk and disadvantage at Before starting Aquis, as chief which is one of the objectives favoured “This is about solving a problem for [of processes] going on, and that lends and Dodd-Frank mean we’ll have to build the smaller end of the industry. “The executive Haynes was instrumental by regulators.” human beings. There is a growing itself to trading multiple asset classes, different platforms to cope with differing big investment managers are already in the success of pan-European One of the core concepts behind divergence between human and but it is not at all clear how we get regulatory requirements,” said one. there,” he said. “Securities lending trading venue Chi-X Europe, which Aquis is the idea that there is a need machine trading. Order books provide beyond the regulations.” Looking slightly further out, a and FX are most affected by bringing achieved a pan-European market to create a good ‘ecology’ between fast, thin liquidity – lots of little orders. Several sessions focussed on the panellist said that he saw three forward the settlement cycle. It’s the share of approximately 30% within different kinds of market participants. But it’s very hard to interact with the development of the FIX protocol into potential ways the market could go. smaller players that don’t have FIX – less than five years, according to To do that, Aquis abandons the maker- market as a human being, because other asset classes. Originally developed “In OTC markets in the US, reporting they will struggle. They won’t notice figures provided by Thomson Reuters. taker model used by venues including the liquidity is too shallow and is often for the equities markets back in 1992, requirements originally just covered until their trades keep failing because Prior to that, he spent ten years as Chi-X and many others in recent years. gone before you can get there.” FIX has since been widely adopted in FX credit derivatives, but have been they didn’t get ready for T+2.” chief executive at agency broker Maker-taker pricing has traditionally Squawker and Aquis Exchange markets and is now moving onto fixed broadened to include more and This is a vicious circle, responded ITG Europe, where he was involved been associated with high-frequency differ in the sense that Squawker will income and the OTC derivatives market. more instruments,” he said. “A gradual a fellow panellist. Smaller players in setting up ITG’s Posit dark pool. market making firms, which have offer a sell-side to sell-side negotiation The latter, in particular, has hitherto increase in the scope of instruments don’t have the backing or funds to In his previous positions, Haynes boosted exchange volumes but also service aimed at helping brokers to used FpML – the Financial Products falling under the new requirements is make a business case to get ready for has consistently argued for greater drawn fire from long-term institutional trade in blocks, whereas Aquis will be an Mark-up Language – developed by the the first possibility. A second possibility shortened settlement cycles. competition, including an end to the investors, who distrust HFT. Many exchange focused on creating a mixture International Securities Dealer Association. is standardisation of contracts – for Overall, however, it will reduce risk, residual monopoly national exchanges asset managers have come to favour of many different kinds of participant, Delegates heard in one session how example, having a standard coupon most felt. “Faster settlement will reduce still retain over opening and closing dark pools instead of the lit markets, including retail brokers, major sell-side the work done on extending FIX into and standard rollover dates. The third counterparty risk,” summarised one auctions and market data. increasing market fragmentation and firms and institutional investors. the bonds market has developed in possibility is that all products become speaker. “Sometimes confirmations “Where competition exists, prices reducing transparency. Aquis Exchange has submitted parallel with work on OTC derivatives, like futures, traded on a central limit aren’t achieved in three days let alone come down,” he said. “Where you “The only way back to growth is to its business application to the UK and how FPL has been working order book. Maybe we’ll transition two. If we get to T+2 it’s going to be a have monopolies, prices have risen get everybody in,” said Haynes. “You Financial Services Agency, and is with ISDA to embed FpML payloads between them. We need flexibility.” massive improvement.” BT substantially. A lot of people are need all types of flow mixing together. hoping to go live in Q3 this year. BT

14 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 15 SHOW REPORT: FPL TRADING CONFERENCE EXCHANGES: NEW ENTRANTS

14 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 15 CONFERENCE REPORT: FIA, BOCA RATON News aNalysis CORPORaTe FeaRs

Don’t mention the regs Try as they might, delegates at the FIA conference last month couldn’t avoid regulation, but they saw some hope in the East, reports Tom Groenfeldt Corporate concerns Discussion of regulation seemed of priority, be anchored by observable Despite everything, most corporate clients are happy with their banks – but they are worried to be everywhere at the Futures transactions entered into at arm’s about their banks’ stability, according to a study from Ernst & Young Industry Association’s conference length between buyers and sellers in in Boca Raton in mid-March. By order for it to function as a credible The good news is that 63% of the shoe is now on the other foot,” “A key takeaway here is listening: the middle of the second day some indicator of prices, rates or index corporate executives are “highly said Niamh Prendergast, partner in If you truly understand a client’s speakers were promising not to values”. satisfied” with the service they get banking and capital markets, Europe, needs and wants, then you can more mention it. But they usually did Among the possibilities for use as from their core banking partners; the Middle East, India and Africa, at Ernst consistently deliver a high-quality anyway. a benchmark are the overnight index bad news is less than half of them are & Young. “In Europe in particular product or service,” said Lewis. “It has Libor was the subject for Gary swaps rate, benchmark rates based confident that their banks are stable the overwhelming sense from large never been more important for banks Gensler, chairman of the Commodity on actual short-term collateralised and operating securely within their corporates is that they would like more to demonstrate commitment and Futures Trading Commission, who financings, and benchmarks based on risk parameters. information about the risk profiles and attentiveness to their corporate clients. described the industry’s reliance on government borrowing rates, he said. This is making them increasingly portfolio concentrations of the banks And this holds true throughout good Libor and Euribor as “fragile”. The transitions would be a capital is allowed to move freely: interested in the stability of the banks they work with.” and bad economic cycles.” “I believe that continuing to challenge, but a new benchmark could “The fact is that Asia is so diverse and they work with and in understanding While 63% of corporate executives Corporate executives view their reference Libor and similar benchmark run parallel to the old until its value complex across the region, yet people their risk profiles, according to a new said that the more rigorous financial primary group of banks as “thinking rates is unsustainable in the long run. A was proven. need to find value and capital needs to study by Ernst & Young. services regulations environment has partners,” a source of innovative ideas reference rate has to be based on facts, “I recognise that moving on from find a home.” Steven Lewis, lead global banking not, to date, seriously affected their and a provider of fiduciary guidance. not fiction,” said Gensler, adding that Libor and Euribor may be challenging. Regulatory arbitrage does not analyst at the firm, said: “The lingering relationships with banks, there was a While these services are highly “Libor – central to borrowing, lending It may be unpopular. But continuing to appear to be a goal among Asian after-effects of the 2008 financial crisis pervasive concern that change could regarded, 56% of respondents say and hedging in our economy – has support Libor and Euribor to maintain firms. Panelists said they do not want and the on-going challenges in the be forced upon them as banks assess that the greatest challenge in working been readily and pervasively rigged.” stability – particularly as the interbank, business that is simply trying to escape Eurozone have forced corporations profitability of certain business lines. with banks is the lack of consistency With the European banks, Gensler unsecured market is essentially rules in their home countries, in part to focus on the stability of their In response, they are taking a and quality of services across noted the misconduct took place over nonexistent – may only create more because the business is unsustainable. core banking teams. Counterparty few actions: relying less on senior geographies. The second and third several years, in offices across multiple instability in the end.” Jason Scott, managing director and risk and exposure from banks have bank facilities for future funding significant challenges were outdated countries and included several, even On the other side of the world, head of listed derivatives, APAC, for become heightened concerns for sources, turning towards European processes and systems (35%) and dozens, of people inside the banks growth is booming in Asia and the Deutsche Bank, said some regulation large corporates and as a result we capital markets more frequently and bureaucracy and inflexibility (30%) reaching into senior management. Singapore Exchange appears ready in India and China is well ahead of the predict that banks will have to be more judiciously spreading their business respectively. Problems with Libor continue, to take advantage of the absence West. He expects China will open its transparent about their risk profiles.” across a core group of systemically “Bells and whistles are superfluous Gensler said. Publicly available data of regional markets and common equities markets; when that happens, This year’s Ernst & Young corporate important financial institutions, if a proper investment in building like credit default swaps pricing are currencies to take a big chunk of the index managers will need exposure to banking survey contains data from large banks that are not systemically trust is not made,” said Lewis. at odds with Libor which often sits trading by offering contracts that China and that will drive index futures CFOs, treasurers, and senior financial important and strong regional players. “Corporates expect that top-tier banks unchanged for days or even months. provide exposure to Japan, China, and sector futures, creating a deep and executives from 20 global corporations As evidence, 70% of corporate clients come to the table with a certain “How is it that in 2012 – if we look Indonesia and Thailand among others. liquid market inside and outside China across nine industries and 11 countries. interviewed use more than five banks. depth and breadth of products and at the 252 submission days for three- With a middle class currently over the next five to seven years. Corporates want to understand banks’ Perhaps worse news is that they also services. The challenge for banks month US dollar Libor – the banks didn’t estimated at 525 million and expected Hong Kong is in an interesting risk profiles but lack key information, think that the most important thing is will be making sure that their local change their rate 85% of the time?” to growth to 1.7 billion within a few position as China evolves. Charles found the study, Successful corporate expensive: human contact. teams are communicating, aligning asked Gensler. “When comparing Libor years, Asia has a growing market for Li, chief executive of Hong Kong banking: Focus on fundamentals – while It may seem counterintuitive in the compensation and rewards to extract submissions to the same banks’ credit investment products. Exchanges and Clearing Limited, said 69% think their bank’s position and context of job cuts and belt tightening, the best work and reducing personnel default swaps spreads or to the broader But its markets remain highly the territory’s monetary policy is tied transparency on risk, liquidity and but corporate banking clients turnover to ensure consistency in markets’ currency forward rates, why is fragmented, said Rama Pillai, deputy up with the Fed, while its underlying capital, and portfolio concentration are overwhelmingly recommend that service quality and pricing across the there a continuing disconnect between head of sales and clients at the economy is tied to China, which has a important, only 27% say their banks are banks concentrate on the intangible globe.” Libor and what those other market rates Singapore Exchange, which is building different monetary policy. willing to share this information. aspects of relationship management To further stress the importance of tell us?” its business on the closed borders, “We are banking on the idea that “The single biggest disparity over tangible factors like cost, products global integration and communication, That leads to the issue of finding unconvertible currencies and lack China cannot keep its currency closed between client expectation and bank and technologies to improve their many corporate clients expect alternatives, which is something of a of instruments to trade, hedge and forever, and then we will be able to performance is around the lack of service delivery. In fact, a vast majority their banks to deliver the services work in progress. manage risk across Asia. provide a platform and products for transparency on key risk parameters. (89%) of respondents voted service requested directly and not through a Gensler said he agreed with a He predicted it would be at investors to manage risk and exposure For years banks have been evaluating quality as the most important criterion partnership network. They cited mixed January recommendation from IOSCO least 10 to 15 years before Asia gets to the two most important currencies the credit worthiness of the large for selecting and continuing their core and challenging experiences in their that a benchmark “should, as a matter harmonised in its regulation and – the Renminbi and the dollar.” BT corporates they work with, but banking relationships. responses. BT

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Conduct Authority and the Prudential hidden from view wirings that operate Regulation Authority, and the Bank of every time you get wages paid into England taking over macro-prudential your bank account, deposit a cheque responsibility for oversight of the or withdraw money from an ATM. It’s financial system. how the money flows around the The issue of choice is essentially system,” he said. about retail banking, where new rules “At the moment, a new player in about how applications for banking the industry has to go to one of the licences are handled, and reductions in existing big banks to use the payment the capital and liquidity requirements system. Asking your rival to provide for new entrants is intended to you with the essential services you encourage new entrants – “challenger need at a reasonable price is not a banks” – to the market. (see panel). recipe for success. And in other walks Concrete plans to separate retail of life, like telecoms, we don’t operate and investment banking are yet to like that,” Osborne continued. ”There be defined – Osborne’s government are no incentives on the big banks seems to be resisting calls to “electrify to deliver new and better services the ring-fence” from influential sources for users – like saving the cheque such as the Parliamentary Commission or creating new services like mobile on Banking Standards, headed by payments.” Andrew Tyrie. Osborne listed a number of failings in the existing system – several of which were at odds with reality, “The ICB was very clear – it commentators quickly pointed out was the government, not they – before delivering a surprise: “The system isn’t working for customers, who believe that the Payments so we will change it. I can announce Council should be brought into today that the Government will bring forward detailed proposals to open up the scope of regulation.” the payment systems. We will make Gareth Lodge, Celent sure that new players in the market can access these systems in a fair and transparent way.” Osborne restated this in the annual The current proposal would allow budget speech later in the month, state banking the regulator to split an individual adding that the government would Banking is too important to be left to banks. Can bank if it was seen to be crossing the consult on bringing payment systems government do any better? It certainly plans to line between retail and investment into a “competition-focused regulatory actives, but Tyrie’s Commission wants regime” where the regulator will try. David Bannister sums up the story so far … to go further and create legal powers have “strong powers to ensure that Stuart Monk / Shutterstock.com to split the operations across the entire challenger banks have the opportunity At the beginning of March, George City of London in 1986. Perhaps longer. we can make 2013 the year of change industry. to compete on a level playing field Osborne travelled to the English “Any bunch of politicians can bash in our banking system,” he continued. branch on the high street from the “The government rejected with their larger competitors by seaside town of Bournemouth to the banks, chase the headlines, court “2013 is the year when we re-set our dealing floor in the city to protect a number of important requiring that challengers can access make a speech at the JP Morgan the populist streak. But what good banking system. So the banks work for taxpayers when mistakes are made. recommendations. We have concluded the payments infrastructure”. operations centre there. would that do our country? The jobs, their customers – and not the other Third, we’re going to start, with the that the government’s arguments are HM Treasury has duly set the It wasn’t Henry V’s St Crispin’s Day the investment, the banking system way round.” industry, changing the whole culture insubstantial,” said Tyrie. wheels in motion with the publication speech, but it may well go down we all need would go with it,” Osborne He went on to list “four concrete and ethics of the business, so they Further into Osborne’s JPM speech, of the consultation document Opening as a watershed moment in the told the JPM staff. things” that are going to change this work for you. Fourth, we’re going to things took an interesting turn. Having up UK Payments at the end of March. history of the UK financial services “Let’s take the anger we feel about year. give customers the most powerful gone into detail about the four (The consultation period closes on 25 sector. Osborne is Chancellor of the banks and turn it into change to “First, we’ve got a brand new weapon of all: choice.” concrete things, Osborne said, “today, June.) the Exchequer in the UK’s coalition build the banking system that works watchdog with new powers to keep The first of these became concrete we will go further” and turned his In a previous round of consultation government, which has embarked on for us all. That is precisely what we are our banks safe so they don’t bring this month, with the replacement of attention to the payments systems. in July last year, the government said the most radical changes to the sector doing. And through the work we’ve down the economy,” he said. “Second, the Financial Services Authority with “Payments systems sit at the heart that its favoured approach was the since the Big Bang deregulation of the done, the expert help we’ve enlisted, we’ve got a new law to separate the two new regulators, The Financial of the banking system. They are the introduction of a new public body,

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FSA’S SwAnSong openS The leading Source of newS and the Payments Strategy Board, to set suggest that the ability of banks A FASt trAck For new strategy across the UK payments to access the payment systems entrAnt bAnkS industry. “Since the publication of through incumbents, and the that document, however, a number ability of the Payments Council to In future, the possibility of a bank failure will be accepted inSighT in financial ServiceS iT of developments have occurred that maintain a level playing field in as a normal market process, and barriers to entry for new have led the Government to conclude payments, were not conducive to start-ups, including capital requirement obstacles, will be that this option would not deliver its a competitive market. removed, the Financial Services Authority and the Bank of aims as set out in that document, and However, the evidence was not England have confirmed. that these would be best achieved by clear-cut, and this was not raised Potential new entrants who have “the development pursuing an alternative approach of as a substantial barrier by most backing, capital and infrastructure to allow them to set bringing payment systems under a new entrants. Therefore, the ICB the bank up at speed” – such as through subsidiarisation new regime of economic regulation,” did not make recommendations of branches or where they are able to use existing IT and says the Treasury announcement. in this area, beyond suggesting other infrastructure – will also be able to take advantage of “The Government is now proposing that the Bank of England, in an improved authorisation process that should allow them to proceed with bringing payment collaboration with the FCA and to be fast-tracked through in just six months. systems under economic regulation, OFT, should monitor access to The Bank and the FSA have published the result of a and establish a new competition- the payment systems and the review into barriers to new entrants in the last week of focused, utility-style regulator for retail effectiveness of the Payments the FSA’s existence. As of the beginning of this month, payment systems.” Council in providing adequate it was replaced by the Financial Conduct Authority and Gareth Lodge, senior consultant, governance to ensure innovation the Prudential Regulation Authority. New entrants to the payments at Celent, suggests that and competition. banking sector will have to be approved by the PRA for the consultation is simply window- prudential issues and the FCA for conduct. dressing and the government and The review of the payments systems, The review “sets out significant changes to regulatory Treasury are set to plough ahead and the role of the Payments Council requirements and authorisation processes which, taken with the new regulator – already had long been expected – even together, will reduce some of the regulatory barriers to nicknamed PayCom along the lines of the idea of a regulator with strong entry into the banking sector and, as a result, enable an other regulatory bodies like Ofcom – powers is not a new idea, but the triple increased competitive challenge to existing banks”. regardless of the responses. whammy of new legislation regarding The arrival of the double-headed FCA/PRA regulatory He points to the fact that in competition in banking, competition regime will see the enactment of a range of measures the budget statement, it says that in payments and an increase in capital intended to increase competition in the UK banking sector, the government has shown its requirements all being announced in reflecting a “major shift in approach to prudential regulation commitment to competition by the same week was unexpected. of banking start-ups”. adopting the recommendations of the “I am not suggesting a review is a The PRA’s philosophy of regulation is that “the Independent Commission on Banking bad thing, nor even that PayCom itself possibility of bank failure should be accepted as a normal in full. is a bad thing. Unless the industry market process provided there are clear mechanisms Yes, says Lodge, up to a reflects on what it does well and in place to resolve banks smoothly without threatening Established in 1984, Banking Technology is the leading provider of news and insight for the financial IT point. “While it did accept the what it doesn’t well, it cannot ensure financial stability”. services sector, providing independent reporting and expert comment. The Banking Technology website recommendations in full, the Treasury that it fixes what needs fixing and Specifically the changes will involve removing the keeps over 12,000 unique monthly users up to date through international coverage of transaction, also seems to be including things preserve what doesn’t,” said Lodge. additional requirements that were previously applied to investment and retail banking – making it the essential online resource for any global financial IT that weren’t recommended – the ICB “And that’s my fundamental issue. reflect the uncertainties inherent in start-ups, and which often professional. report clearly states that it did not find The Government has prescribed the resulted in capital requirements for start-ups being higher evidence that access to the payment medicine, ignoring the advice of the than for existing banks. On top of that, the Basel III regime Banking Technology offers an extensive range of So if you are looking to reach senior decision makers systems was a barrier to entry, nor did specialists it had appointed (i.e. the will be implemented by applying to start-ups only the 4.5% commercial solutions through different channels within the financial IT sector, our highly targeted media the report recommend a PayCom,” he ICB, the Cruickshank report, the OFT minimum Core Tier 1 capital requirement instead of the 7% such as webinars, print products, ezines, show daily solutions and access to executive opinion of unrivalled said. “The ICB was very clear – it was and its latest consultation), and is to 9.5% requirement that will apply to major existing banks. newspapers, list rentals, careers, events and custom breadth and depth will ensure that your marketing the government not they who believe about to forcibly administer it, yet has New entrants will also benefit from reduced liquidity made opportunities. message reaches the right audience. that the Payments Council should be neither articulated the diagnosis nor requirements and no automatic new bank liquidity brought into the scope of regulation.” listened to the symptoms. PayCom premium. cannot ever succeed unless it is clear Changes to the authorisation process will see the PRA www.bankingtech.com He quotes the ICB: what it is trying to achieve, why it and FCA introduce “a significant level of up-front support” In its interim report, the ICB seeks to achieve those goals, and to firms during the pre-application stage. Where an raised possible concerns about what the measures of success are. We applicant firm is able to deliver a complete application form the ability of small banks to can only hope that the forthcoming with all supporting materials, the PRA and FCA “will work access the payment systems. It consultation provides some together to complete all of the assessment and decision said there was some evidence to reassurance.” BT making within six months”. For more information please contact Sadie Jones on Tel: +44 203 377 3506 or Email: [email protected] April 2013 www.bankingtech.com 21 Cover FoCus GoverNmeNt & BaNks

question relating to whether there is a NACHA IAT, 95% of the volume is from cost wins hands down over speed at a need to update their current systems only two banks. higher price. becomes the focus, and can be argued But with over 70% of votes in For certain transaction types, Same day, same settlement? on a number of fronts. Is there a favour, the scale of demand is evident. separating the consumer experience demand from the market for example? As evidence continues to emerge, for from the clearing and settlement may Same day payments are being adopted in many countries worldwide. Neil Burton and Gareth Lodge Some forms of same day ACH do example from the UK where Faster even improve it. For example, most wonder if this will lead to the demise of D+1 settlement in Europe. exist of course, such as the FedACH Payments is evidently replacing consumers would consider credit card SameDay service launched in August cheque and paper volumes, the transactions to be ‘real-time’; the point- The Payment Services Directive in scale of the benefit far outweighs the strongly for the transaction banking 2010 – currently being upgraded. business case can only strengthen. of-sale experience is, but the settlement Europe mandated next-business- cost. And, unencumbered by legacy business of the world’s largest firms. Yet, whilst there are thousands of And a narrow focus on the cost of process takes place much later. Online day settlement – D+1 – for payment systems and participants seeking to banks using the FedACH service, the making the payment itself may be Banking ePayments also separate the transactions between EC states from protect established positions, payback Further afield numbers using the same day service misleading. Banks make far more two: OBePs enable a merchant to receive Jan 2012. But with some European is fast. McKinsey estimates the initial A number of countries have taken the count in low double figures, and most money from services adjacent to the immediate and irrevocable notice that countries already using faster operating ROI would be somewhere between 6 view that a faster payments clearing of those banks are relatively small. transaction itself, and from the long settlement will occur; the settlement standards, is D+1 good enough? months and a year. system is absolutely critical, and are The biggest challenge to uptake is term nature of the sticky relationships itself may happen a day later. The real- For example, the Netherlands This transformation of India’s acting accordingly. This is the case in that banks are unsure whether such with their customer, to worry time requirement here is the certainty operates in 30-minute windows. This is payment infrastructure will turn into a Brazil and Mexico, and the process a service could cannibalise their Wire overly about preserving outdated that the money will come; not the receipt why the UK government insisted that strong competitive advantage in the is also being undertaken in Canada. revenue. But if the UK’s experience methods. Sooner or later, faced with of the funds. the banks invested in a near real-time years to come. Poland has announced that it will is anything to go by, this concern is overwhelming benefits to consumers Tied up in this requirement is far system, UK Faster Payments, that has a introduce a faster payments system misplaced. CHAPS – the UK domestic and businesses and slow action by the more than the payment; merchants higher operating standard than the (at Easier to build than renovate? and Singapore is in the final stages RTGS – volumes have actually industry, the regulators will step in. need to know what a payment is for. It that time expected) EC mandate. This For mature economies, because of of testing its near real-time payment increased since the introduction of Had transparency been implemented is of little help if the funds arrive more reduces settlement risk, highlights the the need to adapt to existing systems system. Other countries such as Faster Payments (though it isn’t yet sooner, perhaps a better and cheaper quickly, but cannot be linked to the settlement positions (and therefore the and processes, payback takes much Australia, Lithuania and the Hong Kong clear whether this is linked to the approach to Dodd Frank Section 1073 transaction. In that case the payer will capital to be held) much more clearly, longer. Many mature economies are region are already following suit. launch of Faster Payments). could have been found. continue to be chased, and may even and reduces bottlenecks. therefore frequently continuing to These changes are driven by a So, are things about to change? be penalised for late payment, when So D+1 is likely to be gradually rely on infrastructures developed last number of reasons, including improving In September 2011, Nacha put out Hold on – not so fast … all the time the funds were sitting in reduced because initially it sets a century. The challenge is not only risk management in financial systems. a consultation document for a rule Not all payments need to, nor should, an unapplied receivables account minimum standard; it is the starting in the massive investment required, Whilst it may raise the bar in terms of change proposal. This proposal sets go faster. When consumers are asked if somewhere. And where consumers point, not the aspiration. but also in the demand on scarce operational controls – for example out the changes required to create they’d like things faster, or immediate, seek change, corporates soon follow. Countries like India, which are resources which are typically already the need to ensure better AML and a same day processing window, the answer is of course yes. Since I Many consumers become SMEs or essentially building payments fully deployed on maintenance and anti-fraud controls in sending payments and potentially several processing can IM someone on the other side of corporates the second they sit behind infrastructure from scratch, believe that mandatory regulatory compliance. – it also means that a bank’s position windows. In order to drive enough the world immediately, and I can ship the desk in the morning. a faster payments service is a necessity This results in a systemic aversion to in terms of central bank settlement scale to realise the economies which a parcel to another country reliably Not all payments should be made today rather than at some point in strategic investment. accounts is far more transparent. This are a critical success factor for any and predictably, and I can pay for my faster. But, as the UK’s Faster Payments the future. For India, while the costs Such short-termism may no longer provides more visibility of potentially clearing and settlement systems, the pizza from my mobile phone without has shown, new services can widen in implementing are huge, the longer serve well. To quote another McKinsey failing banks; which in turn makes service was proposed to be mandatory waiting for a waiter, what’s so hard the market – by ‘electronifying’ term benefits are even more so. The study, “in 2010, 100 of the world’s isolating a failing bank far easier. for all participants (the Fed service is about payments? transactions previously made by cash programme covers, among other things: largest companies headquartered in So where does this leave the US, opt-in). Indeed. But making payments and cheque and by catalysing the • Implementing a new and feature- mature economies derived just 17% the largest payments market? The vote took place in Q1 2012, involves substantial costs and risks, launch of new services. rich RTGS system of their total revenue from emerging Statistically, the US is somewhat with a majority of banks voting for it, and there are multiple failed projects The evidence is mounting; not • India Card – a domestic debit card markets – though those markets lagging behind other countries but failing to reach the 75% required for every successful one. Market only is the absence of a same day • A 24/7 near real-time faster accounted for 36% of global GDP and which have already undertaken to proceed. Rumours abound, but research can easily be misleading, settlement scheme an economic payments service are likely to contribute more than investments in same day payments the picture emerging is that some of if not thoroughly conducted. If the inhibitor; the existence of one can be • Upgrade of the ACH 70% of global GDP growth between at governmental level or because of those who voted against or abstained question was ‘how much would you an economic accelerator. • Creation of a dedicated mobile now and 2025”.1 As fast-growth regulatory pressures, or because their were concerned about the cost versus pay, how much is it worth to you’ then payments settlement network nations invest in payments systems existing systems were due substantial the benefit they would bear. Many the response is far more granular. For Neil Burton is head of product strategy Any one of these items is typically a which leap-frog those of the mature investments. As yet, the regulatory believe that whilst they all paid for the predictable payments, such as bill at Earthport and Gareth Lodge is senior once-in-a-generation project. But the economies, they will surely compete drive does not exist for the US. The investment costs of implementing payments and salaries, certainty at low analyst, payments, at Celent

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1 www.mckinsey.com/features/30_trillion_decathlon MARKET INFRASTRUCTURE: OTC CLEARING MARKET INFRASTRUCTURE: OTC CLEARING Riding the OTC

These concerns have been echoed has identified as “not unusual” the Technology. “Is it the case that there’s rollercoaster by other long-term investors. “If you requirement for CCP-eligible collateral not enough collateral, or is it just reduce the ability to absorb risk, you equivalent to 20% of the investment that we need to use collateral more increase the amount of risk,” said Patrik value of test portfolios to be able efficiently? Breaking down siloes and Roos, managing director at Swedish to meet initial and variation margin resolving inefficient usage of collateral hedge fund Vanna Capital at the TSAM obligations on typical OTC derivatives should be a priority.” conference in London last month. “In strategies under mandatory clearing. Some efforts are already underway the current low volume environment, at using collateral in new ways. In I’m not sure that’s something we A lack of collateral January, central securities depositories should be doing.” Other problems arising from the new in Germany, Spain, Brazil, South Africa Lack of choice has also been cited rules include the difficulty of sourcing and Australia formed the ‘Liquidity as a problem by Anthony Belchambers, sufficient collateral to cover the clearing Alliance’. The five companies – chief executive of the Futures and process. Many market participants Clearstream, Iberclear, Cetip, Strate Options Association, who warned that expect that when coupled with Basel and ASX respectively – will meet each high margin calls on illiquid contracts III requirements that banks should hold quarter to work out the most efficient could make using a CCP uneconomic. more capital, EMIR will result in a collateral way of dealing with collateral and “However, if the instrument is required shortfall. Research by analyst firm Celent to discuss partnerships, commercial to be CCP-cleared by law, market has estimated the deficit could reach as opportunities and key issues. participants will have no choice,” he high as $2 trillion. said. For Belchambers, the risk is that “There will be a conflict between regulation may be going too far. CCPs’ need to sustain high levels of “We could be sowing the seeds Alluding to a speech in which former safety for controlling risk, and pressures of the next financial crisis” British diplomat and Barclays vice from intermediaries who need more chairman David Wright called for a collateral,” said Belchambers. “There Bob Almanas, SIX Securities Services As new rules for OTC derivatives take hold in Europe and in the US, banks and asset managers much more granular approach to may be pressure on regulators to face a complex cocktail of mandatory clearing, reporting and increased collateral requirements. looking at the economic impact of accept collateral that is not quite as “The Liquidity Alliance believes Elliott Holley reports a super-safe regulatory agenda, he liquid as one might require, simply that forging partnerships with other added that it may be time to call a to keep the markets operating. Some like-minded infrastructures is the most Under the European Commission’s “There will be futurisation,” said Jaki process itself may remove choice from sanity check on the regulatory reform clearing houses are now accepting sustainable way of extending reach European Market Infrastructure Walsh, head of EMEA OTC product at end-users and potentially increase agenda [see panel]. gold, for example. At the same time, and enabling cross-border collateral Regulation, enacted in the UK CME group. “We recently launched risk as participants attempt to use “Some form of increased cost is regulatory pressure on credit ratings optimisation on a short time-to- in January, the majority of OTC deliverable swap futures in the US. It’s instruments that do not cover their inevitable, after the financial crisis,” agencies is pushing them to be market basis,” said the group in an contracts will have to be centrally about ease of access to the market. If hedging needs as closely as an OTC said Belchambers. “But the underlying super-safe in rating products. That official statement. “This is key if market cleared and reported to a trade we can make futures that provide the contract would. According to Ido question is, are we putting in so much means products will have low ratings participants are to meet the new repository. In addition, contracts kind of exposure clients want, perhaps de Geus, head of treasury and client safety into the markets that we are – which automatically hits collateral. requirements and find effective global deemed sufficiently liquid will have to that will provide them with an easier portfolio management at Dutch asset compressing innovation and the cost The problem is, a lack of access to solutions to this ongoing global problem.” be executed multilaterally, i.e. on an way to access the market than paying manager PGGM Investments, high basis is going up to a point where we the kind of collateral needed under Meanwhile earlier the same month, exchange or organised trading facility. more for a complex bilaterally-traded initial margins will lead to less hedging are going to damage other public the new regime may kill the ability of Citi established a set of alliances The intention is to increase OTC product.” – creating an environment where risk policy objectives about our ability to participants to trade in the market.” with Clearstream and Euroclear Bank transparency and reduce systemic risk CME Group is currently planning to is no longer effectively controlled and manage risks?” In response, in December the Basel that will enable the tripartite agent in OTC markets. A CCP acts as a central launch the CME Europe exchange later minimised. According to research published Committee on Banking Supervision managing collateralisation to instruct risk repository, reducing the danger to this year, which will provide it with a “As the buy-side we need to shout by BNY Mellon and Rule Financial agreed to broaden the definition of collateral moves on behalf of broker- the market if a counterparty goes bust. springboard to launch new contracts, harder to be heard,” said de Geus. in December, the amount of initial assets considered ‘high-quality’ collateral dealers, potentially making the whole Major financial institutions such including hybrid futures and products “Billions of euros of high quality margin that will have to be sourced – a step intended to reduce the pressure process easier. as CME Europe have positioned that combine elements of both assets will have to sit there doing can be substantial – around 1-3% of on financial institutions struggling to “Optimising collateral means themselves to take advantage of exchange-traded and OTC derivatives. nothing and that’s going to be very the notional value of the contract for source adequate collateral and ease fears creating and using the widest possible the migration of large quantities of These will be marketed at participants expensive. There’s no benefit to clear a typical 5-year vanilla interest rate of a liquidity drought. collateral pools without jeopardising formerly OTC derivatives contracts on- that had previously used customised swaps yet, it’s only going to cost you swap. For long-dated or complex However, the move has been individual and country-specific exchange. An impending ‘futurisation’ bilaterally traded derivatives for initial margin. The fact that clearing contracts, the amount of collateral criticised by some observers, who requirements and the liquidity alliance of the derivatives markets has been hedging purposes. members often ask for additional required increases substantially suggested that the concept of a is a major step in delivering a truly widely touted, with participants collateral on top of the already high because of the greater potential future collateral shortfall was misleading. “We global liquidity and collateral pool,” expected to use standardised ‘vanilla’ A lack of choice initial margins is incredible. It says that exposure, to around 10% of notional could be sowing the seeds of the next said Stefan Lepp, chief executive at futures to hedge their positions rather However, many participants have clearing members don’t trust the initial for a 30-year and 15% of notional financial crisis,” Bob Almanas, head of Clearstream Banking. than more expensive customised objected that mandatory clearing of margin levels of the CCPs. If they don’t for 50-year tenors. In addition, the collateral management strategy at For Andrew Lamb, chief executive at contracts. instruments and the standardisation trust, why should we?” Investment Management Association SIX Securities Services told Banking CME Clearing Europe, the argument that

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there will be a collateral shortfall does A lack of clarity estimated three possible courses for “The lack of clarity over the final rules 20 trade more than five times a day. The leaving only 19% who believed the have some legitimate points – but he Aside from the question of user OTC derivatives reform: a gradual on OTC derivatives is forcing financial problem then becomes, how do you industry was ready to meet the new insists that any pain will be short-term choice and the availability of increase in the scope of instruments institutions to spend more resources than obtain any degree of certainty about rules. The lack of preparation belies and offset by greater transparency and collateral, representatives of large falling under the new requirements; necessary,” said Best. “At the same time, pricing, with such an illiquid instrument? the current scale of OTC derivatives market participation eventually. global banks and brokers have also standardisation of contracts through differences in the rules between EMIR Participants really need to make sure trading; some 94% of the firms that expressed serious concerns about the standard coupon and standard and Dodd-Frank mean we’ll have to build they talk with their counterparties to responded to the survey are already uncertainty that remains over exactly rollover dates; and a transformation different platforms to cope with differing understand where price transparency trading OTC derivatives or plan to do “The collateral requirement will which contracts will be covered by the of all products to become like futures, regulatory requirements.” will come from, how initial margin is so in the next six months, while 74% new rules. The difficulty of predicting traded on a central limit order book. It Lack of clarity over pricing calculated, and what the methodology expect their firms’ trading volumes to be a shock at first, but central what mode of business will prevail in remains unclear which scenario will be has also been highlighted as was to get that price.” increase in the next year. clearing will also provide markets the new regulatory environment has proved right. another potential pitfall for market The IPC findings complemented a also been exacerbated by differences “From a clearinghouse perspective, participants struggling to understand A lack of preparation similar study released by BNY Mellon with new confidence and between the regulatory reform agenda I find significant lack of clarity on the the implications of the new rules. Perhaps relating to the lack of certainty and Rule Financial in December, which ultimately lead to new business” in Europe and the US. clearing standards in EMIR,” said Lamb. Anthony Belcher, head of pricing and over the final form of the rules, recent found that the situation is even worse At time of writing, the final rules “The technical standards are not very reference data EMEA at Interactive research by communications company among buy-side firms. According Andrew Lamb, CME Clearing Europe for swap execution facilities in the US well drafted. In addition, it’s actually the Data, says there is a misplaced sense IPC has highlighted a general lack to the BNY Mellon/Rule Financial still have not been released, meaning national regulators who will take the lead of confidence among many firms that of preparation among hedge funds, joint paper, To Clear or not to Clear … that US swap execution facilities may for the next six months until the CCPs EMIR will bring greater transparency by investment banks, broker-dealers and Collateral is the question, only 20% of “Although the new rules bring higher use an RFQ system, non-anonymous have been re-authorised. That’s only default. Banks rely on clear pricing to exchanges. asset managers have finalised their capital requirements for uncleared matching and even one to one going to add further complication.” accurately calculate their risk exposure; According to the study, released adjustments to meet the new rules. swaps, that does not mean banks cannot interaction by voice. Meanwhile in According to Peter Best, business fund managers also need to know at the end of January, four out of The technical standards for EMIR continue to offer those contracts,” he Europe the technical standards for manager at interdealer broker ICAP, that they obtained a fair value for five financial institutions are still not come into force on 22 March, after said. “The collateral requirement will be a EMIR came into force on 22 March, many banks are hedging their bets products such as CDS contracts in their ready for the new regulations. Of the which CCPs will have six months to shock at first, but central clearing will also but the actual mandatory obligation based on which rule-set is considered portfolios. institutions questioned by IPC, some apply for registration. Once that takes provide markets with new confidence to clear is not expected to be in place more favourable – with some “Not every derivative instrument 36% reported that their company did place, a 90-day period will follow in and ultimately lead to new business. until Q1 next year. Andrew Parry, head firms even offshoring parts of their trades more than a couple of times a not have a plan in place to deal with which market participants are given Clearing will not reduce liquidity in the of derivatives business technology at business and arranging outsourcing day,” he said. “Of the approximately 3,000 new regulations, while a further 62% notice that they must clear all products long term.” Bank of America Merrill Lynch, recently agreements in preparation. single-name CDSs that exist, only around said their firms were not well prepared, covered by the new rules. BT

The risks of runaway regulaTion execution. However, legislation may well decide to pass on the cost effect on innovation, damaging some that mandates central clearing and down the line to their customers. of the very policy objectives that While laudable in However, there are a number of basis, which may generate cash-flow multilateral execution may remove The firms that can afford closer polticians and regulators hold dear, intention, reforms issues with the new rules. Market problems for end users, and credit choice from market participants and management of risk through using an such as promoting lending, economic to Europe’s OTC participants will have to set aside issues if the intermediary has to extend place pressure on exchanges to list OTC product are likely to be the bigger growth and responsible capital raising. derivatives markets collateral against their OTC positions; credit to cover the margin call. For instruments that were never before institutions, so smaller or low-volume “We should remember that the may be in danger under Basel III, clearing houses may Belchambers, the risk is that using a traded on-exchange. users stand to be particularly affected. market was created to fit the needs of inadvertently only accept high-quality, loss-resistant CCP could become uneconomic for “There comes a tipping a tipping Collateral is also an issue in terms of end users,” he added. “Today we adding so much assets as acceptable collateral. But some participants. point in terms of liquidity when the of supply and demand. Many market find ourselves in a situation where the cost for participants that the original according to Belchambers, many “If using derivatives to hedge risk contract is not worth listing,” he said. observers have already noted a general regulator shapes the entire market, purpose is undermined, according financial market participants simply becomes more expensive, some firms “The problem is that if the contract perception that there may not be and the end users have to come up to Anthony Belchambers, chief do not have that collateral available to may cut back significantly on their is mandated to be multilaterally enough collateral to service the needs with the workarounds to make it executive at the Futures and Options them in the quantities needed to cover use of derivatives markets,” he said. executed, and the cost of clearing of the entire financial community viable. In my view, that’s the wrong Association. their trading and risk management “The danger is that this may combine that contract is so high that you don’t under the new rules. According to way round. We need to be careful – “The OTC markets did need reform,” needs. with regulatory efforts to clamp down want to use it, you won’t have the Belchambers, the pressure to accept there’s a growing awareness that we Belchambers told Banking Technology. Furthermore, since CCPs will need on activities such as short selling, option to just do an OTC deal. Market collateral of a lower quality represents can’t go too far down this track, before “Before the crisis, the banking party to adopt a safety-first approach in their proprietary trading at banks, high- participants will have no choice.” a severe tension between regulators it starts to erode the entire fabric of was getting out of hand, and the role as repositories of risk, margin calls frequency trading, so that derivatives Ultimately, the cost of new rules for and market participants that is unlikely economic viability.” regulators came and took away their on relatively illiquid contracts are likely exchanges struggle to fulfil their risk- OTC derivative may find its way back to be resolved soon. punch bowl. But now the question is, to be set high, especially if margin are transfer role.” to the mainstream consumer, because For Belchambers, some added is the regulatory party getting out of set at a counter-cyclical rather than a Belchambers estimates that some participants that cut back significantly cost in the wake of a financial crisis hand, and if so, who is going to come pro-cyclical level. Secondly, margins 20-30% of contracts will not be on their use of markets because of the is inevitable, but the presence of too and take their punch bowl away?” are likely to be called on an intra-day suitable for clearing nor multilateral increased cost of risk management much regulation could have a stifling

26 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 27 MARKET INFRASTRUCTURE: OTC CLEARING MARKET INFRASTRUCTURE: OTC CLEARING

26 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 27 TRADING: FIXED INCOME TRADING: FIXED INCOME

Electronic bonds The bond markets have trailed behind other asset classes in the move to electronic trading, but that is now changing rapidly, writes David Bannister

In contrast to the highly automated As with many of those MiFID- venues, broker-dealers and market world of equities, bond trading is inspired MTFs, there will be a die-back makers on how they can use the FIX an area of the markets that is still as some platforms thrive and others Protocol to support their platforms. heavily reliant on the telephone as a wither. “While there is immediate This development complements a trading tool, with person-to-person potential for uptake at new EOBs as recommendations released in 2012 to calls making up the bulk of activity they complement buy side trader support the trading of Credit Default on bond desks. workflow, not all will survive,” says Swaps and Interest Rate Swaps, which In the past few months, Celent. “Some will remain highly are currently being implemented by a however, there has been a flurry of focused on one segment of the number of Swap Execution Facilities. announcements of new electronic market, while others will focus on a “The completion and availability platforms from Citi, Deutsche Bank, distinct set of clients. Even among of best practices and implementation Goldman Sachs, Morgan Stanley and the EOBs, the market is far from guidelines marks a key milestone in the others. homogeneous. The institutional and development of FIX for Fixed Income,” Counterintuitively, perhaps, this is retail markets will increasingly intersect said Ric Elvir, co-chair of the FPL Global partly because trade sizes are getting as trade sizes fall, and we believe Fixed Income Committee, Credit smaller, which according to a recent traders will direct an increasingly large Trading, UBS. “This should dramatically Celent report is driving institutional flow of liquidity to the EOBs.” promote industry adoption as they will traders to look to complement their Behind the scenes, technical provide consistent guidance to bond workflow and liquidity search with developments have been paving the market participants looking to explore electronic order books. way for this shift in market structure the many benefits that standardisation Hitherto, electronic order books to develop very rapidly, benefiting offers. The next stages of this project have tended to focus on the retail from earlier work in equities and FX, will help to continue this progress, market, but they are highly advanced and parallel work in response to OTC expanding the use of FIX for other and likely to see increased adoption by derivatives regulation. credit based products.” the institutional buy side, which has to A milestone in this was the recent The FPL guidelines have been look elsewhere as dealers cut back on announcement from FIX Protocol produced by market participants who inventory holding. Ltd the non-profit, industry standards want to encourage the adoption of “With more education of the organisation behind the electronic standards by fixed income trading great deal of fixed income trading market participants Work of the fPL GLobaL available options and specialized trading standard FIX Protocol, of venues. The recommendations has been carried out over voice. • Faster time to market for electronic fixed income committee vendors providing connectivity, recommended best practices and explain how FIX can be implemented Where automation has occurred, it venues to introduce new features aggregation, and smart order routing, accompanying implementation “in a consistent manner to lower says trading venues chose to put in and products In June 2011, FPL launched an initiative to create a adoption will accelerate,” said David guidelines for the electronic trading of implementation costs and deliver place proprietary protocols as both • Greater vendor choice and technical series of fixed income best practices documents in Easthope, research director with bonds. These recommendations will maximum industry-wide benefit”. the workflows and the instruments flexibility for implementers response to a request by a group of 12 global fixed Celent’s Securities & Investments enable bond market participants to including recommendations for how involved have been more complex • Improved supportability of trading income dealers (the Fixed Income Connectivity Group and author of the report. benefit from cost effective and efficient FIX can be used to support fixed than in equities and foreign exchange. platforms across asset classes Working Group). “Whether the EOBs move from connectivity to the growing number of income trading on: As such, the cost of connectivity Sassan Danesh, co-chair FPL Global The initial focus was to standardise OTC complementary to the de facto market bond trading platforms emerging across • Markets based on quote negotiation, for market participants to fixed Fixed Income Committee and managing swaps trading by creating an industry agreed set of will depend ultimately on whether the US and European markets. utilising Request for Quote models income electronic venues has been partner, ETrading Software said: “This recommended FIX best practices. These documents a best execution culture for US Regulatory efforts to increase • Quote-driven markets based on significantly higher than connectivity initiative is expected to play a significant were officially released by FPL in March 2012 and the corporates arrives on the buy side, and capital requirements and enhance streaming executable quotes to other asset classes. role in the evolution of bond trading. In majority of soon-to-be Swap Execution Facilities have whether the regulators decide to put transparency, in this traditionally • Markets based on central limit order The creation of a standard set of recent years this market has witnessed agreed to implement the guidelines by mid-2013. pressure in this direction.” voice traded asset class, have led to books guidelines for the implementation massive change and as it becomes The committee then focused on extending the In some ways the market currently market structure changes, creating an FPL says that the historically, fixed of the FIX Protocol for fixed income increasingly electronic encouraging the swaps recommendations to cash bond markets, resembles the European equities scene increasingly automated and venue- income markets have made less use trading is expected to produce the use of FIX will be vital to its success. FIX covering the vast majority of electronically traded shortly after the first Markets in Financial driven trading environment. The of open trading standards such as following benefits: adoption will ensure that an efficient bonds, including G8 Government bonds, High Instruments Directive when new best practices and implementation the FIX Protocol for electronic trading • Significant cost savings for market trading environment is created, within Yield, Corporates, Supras/Agencies. The Phase 1 multilateral trading facilities sprang into guidelines provide recommendations compared to other asset classes. participants in connectivity which innovation and competition can recommendations, released in February 2013, are now being on the back of the regulation. to both existing and emerging This goes back to the fact that a • Faster and easier integration between flourish.” BT available for use by the global community.

28 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 29 TRADING: FIXED INCOME TRADING: FIXED INCOME

Electronic bonds The bond markets have trailed behind other asset classes in the move to electronic trading, but that is now changing rapidly, writes David Bannister

28 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 29 RETAIL: PERSONAL FINANCIAL MANAGEMENT RETAIL: PERSONAL FINANCIAL MANAGEMENT

So, how to choose between them? one place. The tool covers credit card Thinking big, thinking small as learning to speak a new language Last Month, Yorkshire Building transactions, bills and payments and To differentiate themselves from the or sports training, through a kind of Society launched personal financial sends users alerts about important competition, some personal financial iTunes-style store. management through a deal with items such as bill due dates, overdrafts management tools are targeted at Holvi is backed by Nordic banking technology provider eWise. The new and suspicious activity to help them very specific segments of the market. group Nordea, which will provide the system allows customers to view stay up to date with their finances. For example, Kiboo.com is a US-based transaction banking infrastructure all their accounts in one place, and Users can also keep track of their firm that aims to understand young the company needs to complete its includes tools for monitoring, viewing frequent flyer miles, rewards, mobile people and help them to manage their planned pan-European rollout by the transaction data, categorisation of minutes and mobile phone text and personal finances, using online and end of the year. The company has said spending and income and the creation data usage. Founded in 2007, the mobile tools and social networking it will not attempt to build the entire and management of budgets. service currently claims to have 7.5 features. Kiboo focuses on users aged banking infrastructure itself. Instead, The YBS tool is a useful illustration million users. 15-22, and includes tools that let users it is keen to partner with other firms because it has many characteristics Bank of America also offers budget set goals and share them with friends so that it can focus on building the that are common to virtually all planning and financial management and family, as well as tips, advice and customer interface. Nordea is also services. One of the best-known online tools, including an account community discussions on topics such providing Holvi with the APIs that it personal financial management tools, aggregation service called My Portfolio as how to earn money at school, as needs to connect the front-end that Mint.com, was established in the US in similar to Mint and Money Dashboard. well as how to give back something the customer sees, with Nordea’s 2006. As of February, the service claims Users can also combine their to society, for example through underlying core banking systems. to have 10 million users. On Mint, users online banking with Quicken money supporting projects to provide clean “We’ve re-thought every aspect of can set up email and mobile alerts to management software, using Quicken drinking water in developing countries. what an account is,” said co-founder help keep track of bills and stay within Direct Connect or Web Connect, to “There is a disconnect between Kristoffer Lawson. “Traditionally reach of their financial objectives. Mint allow them to transfer funds and make young people, the way they socialise, banks offer everything in house – is free to use and is available both payments. Quicken is made by Intuit, and the banking industry,” said Lisa investments, cards, everything. But that online and as a mobile app. the same company that owns Mint. Halpern, chief executive and founder model doesn’t recognise the changes In the UK, Mint has been emulated com. The Bank of America service is of Kiboo. “That divide centres most of the internet has brought. Much more by Money Dashboard, a free account free for the first three months, then all on communication. We are building nimble companies like Wonga and aggregation tool that is designed to $9.95 per month. Business customers a community where young people Nutmeg are eating away at the core bring together UK customers’ current, pay $15 per month. can have their first interaction with bank business. Our plan is to be part savings and credit card accounts. As with online banking tools, real money in an environment that is of that wave, and to partner with the Updated daily, the dashboard provides personal financial management relevant to them.” transaction banks to provide a far simple graphs to track where users offerings face a challenge to convince Other firms are attempting to turn superior user experience to the siloed are spending money; it can also show customers that it is safe to submit the problem on its head, by making systems of the past.” predicted future spending patterns. their data. In December 2012, news personal financial management Similar offerings include Moven, Outgoings are grouped into categories emerged that a criminal scam known an integral part of the banking formerly known as Movenbank, which such as clothing, transport, household, as the Eurograbber attack had stolen experience itself rather than offering consists of an entirely online bank that going out and so on; likewise, income £30 million from more than 30,000 it as a separate service. Finland-based will enable users to pay their friends is grouped into employment, benefits, accounts across 30 banks in four startup online bank Holvi is currently with Facebook, withdraw cash from credit received and other categories. European countries, using malware planning to roll out across Europe ATMs and deposit cheques using Looking after the pennies The company’s business model that affected both PCs and bank with an entirely online banking a smartphone. It will also Over the years, PFM tools have spluttered in and out of fashion, but a does not charge users for the service; customers’ mobile phones. Other service that combines elements of include personal financial combination of mobile, tablet and internet banking uptake may mean instead it recommends financial incidents, such as an attack using UK personal financial management with management tools to help products and services to its user bank NatWest’s mobile banking app elements of online communities such users “stay in the black”. Moven their time has come, reports Elliott Holley base. If the customer chooses to use in September, were smaller but also as Facebook or Moneybar, the social even includes a personality Recent years have seen the a product from a partner, Money widely reported. network for investors. test, designed to help users emergence of a plethora of personal Dashboard earns a referral fee. Money View-only services Mint and Money On Holvi, users are able to see whether they are more financial management tools, each of Dashboard is based in Edinburgh, and Dashboard both use 128-bit encryption. create different profiles for different ‘rockstar’ or ‘accountant’. which purports to be the best way to was founded by entrepreneur Gavin However, firms that cover payments and purposes, such as running a business With the introduction of keep track of your finances. Some of Littlejohn in 2011. transfers may use higher bit encryption. or organising a wedding, and can seven-day account switching these services are view-only; others US mobile payment service Venmo use Holvi to set targets and manage expected to usher in a period also allow users to make payments One step beyond uses 256-bit encryption, as users are their budget. Users can also create of more intense competition and transfers. Some are owned by Some providers have gone a step effectively selecting their friends from a shared account and start group in the UK this September, large banks such as Bank of America; further and added the ability to make their phone or email contacts or from discussions. The idea is to create expect to see more banks others are smaller independent payments and transfers. In the US, Facebook, and then using the service to a more community-led approach. rolling out personal financial BT operations such as UK-based Money Pageonce offers the ability to pay transfer funds. Users will also be able to buy and sell management tools in the near Dashboard. bills and track all a user’s accounts in services directly from each other, such future. BT

30 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 31 RETAIL: PERSONAL FINANCIAL MANAGEMENT RETAIL: PERSONAL FINANCIAL MANAGEMENT

30 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 31 TECHNOLOGY: INNOVATION

Growth opportunities An incubator programme now established in New York and London has been getting a lot of attention from banks. Elliott Holley and Tom Groenfeldt report

The FinTech Innovation Lab London platform that helps confirm desktop, co-founder of Calltrunk, a cloud-based is a joint venture by Accenture, website or mobile users’ identities by service that lets users record their calls leading City banks and venture analysing the way they type, click and from any device – landline, mobile, capital firms with support from the swipe on their computers and mobile Skype, or Mac – and then attach notes, Mayor of London, the City of London devices. share them through popular sites like Corporation and the Technology “The underlying objective was to Dropbox or Evernote and search them Strategy Board. have successful growth companies,” by recorded word or transcript. Its aim was to help early-stage explained Julian Skan, head of banking He said the Lab provided an companies develop or modify their for the EALA region at Accenture. enormous amount of cross-pollination software for financial services, and “We were looking for companies who and camaraderie. “We are all in better understand what financial firms would benefit from advice to go into different spaces and shared notes on want. growth mode.” the banks we were interacting with, Their innovations ranged from A few of the companies arrived which is helpful.” cloud development tools and Big Data with their technology fully developed; One thing that surprised him is how security and analysis applications, to some others were eager to learn about siloed banks are. “We can’t have one search engines for voice recordings, the architecture, features and security or two meetings; we need a dozen to behavioural biometric solutions for required in finance. understand how things fit together fighting fraud, open source banking “The gap we saw was not access to and how overlapping responsibilities APIs that would make it easy for banks funds, but advice on how to navigate and goals will affect our platform.” to link to their party vendors providing large complex banks which have With the centralised location on customer interfaces in different vertically integrated IT departments in- Level39, Canary Wharf, bankers were languages or with a variety of music. house,” explained Accenture’s Skan. able to quickly provide introductions Announced last autumn, the The Canary Wharf group offered to mentors, investment banking and London event is modelled on a similar the program space for an innovation research analysts. programme that was co-founded by floor, so unlike New York, the tech “Accenture deciding to work with Accenture and the Partnership for New companies were all in the same place Canary Wharf Management made a York City Fund and which is now in its and within easy reach of most bank real difference, as having everyone on third year. headquarters. Development teams Level39 has proved very efficient,” Ellis Seven finalists were chosen in moved into Level39 in mid-January said. January, including Kiboo, a US-based and wrapped up with a presentation “It’s been a pretty intense time,” firm that aims to help young people to bankers on 20 March. (sidebar) said Alastair Paterson, chief executive to manage their personal finances, Each firm was paired with two or of Digital Shadows. “We have eight Germany-based Tesobe, which is three mentor banks and every week people in the company and we moved working on the Open Bank Project; the program had at least one plenary the whole team into One Canada and Swedish firm BehavioSec, which event or visit. Square because we recognised what has developed a biometric software Paul Murphy is chief executive and an important experience it was for us.”

April 2013 www.bankingtech.com 33 TECHNOLOGY: INNOVATION

Growth opportunities An incubator programme now established in New York and London has been getting a lot of attention from banks. Elliott Holley and Tom Groenfeldt report

April 2013 www.bankingtech.com 33 TECHNOLOGY: INNOVATION

The financial firms active in the Lab major City bank requires access to the “We have a proposition that is targeted were Bank of America Merrill Lynch, right people. at the bottom line, lowering the total Barclays, Citi, Credit Suisse, Goldman “It’s having that first conversation cost of ownership for data centres,” Sachs, HSBC, JP Morgan Chase, Lloyds with the bank that is by far the hardest said John Matthew Holt, Waratek, chief Banking Group, RBS, UBS and VocaLink. step,” said Holt. “Having the idea is the technology officer. easy part, but all the rest comes down “Here in the UK there is a very positive Understanding money centre to that conversation. It makes such environment for financial services banks a huge difference to us having this innovation,” Lisa Halpern, founder and Olov Renberg is co-founder and FinTech Innovation Lab to connect us chief executive of Kiboo told Banking chief operating officer of Stockholm’s with the people we need.” Technology. “We know that the banks BehavioSec which can verify a person’s Skan said that banks have a broader are keen to reach out to customers in identity by the way he types in a range of interest in technology than a younger age bracket. We have the password, the way he moves a mouse they did before the crash. “Previously if technology for that, and it’s fantastic to or even by his swipe on a smartphone. you went in with big data they might have this opportunity to partner with America’s Darpa – the Defense say it is interesting if it can be used them and make it happen.” Advanced Research Projects Agency – for trading, but if it is back office I am Kiboo focuses on users aged 15-22, calls it continuous authentication. The not interested. But now there is much and includes tools that let users set goals system can tell if an unauthorised user more sense that the industry needs and share them with friends and family, is sitting at someone’s desk and typing to reshape itself for long-term cost as well as tips, advice and community into their computer. control. They are hungry to hear about discussions on topics such as how to earn Renberg said that dealing with cost reduction.” money at school, as well as how to give London banks is far more complex That’s good for Waratek, (Banking back something to society, for example than Scandinavian banks where his Technology, March 2013) which has through supporting projects to provide firm might have a single security developed a Java virtual machine that clean drinking water in developing officer to talk with. Working with a can take costs out of the back office. countries. BT

Celebration day

A stand-out feature of the investor day presentation at London’s City Hall This accelerated learning is a key last month was the line-up of major global banks praising the project and feature of the way the programme can the selected candidates – with Bank of America Merrill Lynch, Barclays, assist start-ups. “There has been some Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan fast learning,” said Ian Ellis, vice president Chase, Lloyds Banking Group, Morgan Stanley, RBS, UBS and VocaLink, in technology business development at the UK national payments infrastructure provider, all getting behind the Morgan Stanley, who participated in the Radoslaw Maciejewski / Shutterstock.com event. New York FinTech Lab last year. “One firm “The lab has brought the outside into the city,” said Alistair Grant, chief came into the programme with a strong focus on the retail side of the information officer for EMEA at Citi. “We spend a lot of time innovating business and then quickly discovered that the institutional side might offer ourselves but to meet so many people with bright ideas has energised our a big opportunity as well.” own organisation. It’s given us the opportunity to hear the great ideas that Comparing the London and New York events, Ellis said: “The range I probably wouldn’t otherwise have heard, because it can be challenging to of maturity among the companies was broadly similar between London get visibility and access to major financial institutions. Start-up companies and New York, from pre-revenue start-ups to more mature profitable are an essential driver of innovation and growth, and this programme has emerging companies that are looking to transition industries. This variety been fantastic for getting me some time with the right people.” has been a real strength of the program because it creates a mix of The City Hall presentation day concluded with a short speech from mentoring requirements from the companies.” Adam Sodowick, founder and chief executive of True Office, a company Alessandro Hatami, director of internet strategy and chief operating that ‘graduated’ from the New York innovation lab nine months ago. True officer of digital banking at Lloyds Banking Group, said: “We see fantastic Office is a training tool aimed at compliance staff; it provides games that opportunities here to improve our proposition, differentiate ourselves and help employees to learn about risks and compliance issues. Sodowick make it richer and more customer-centric,” said. “Business models we see observed that over a period of 90 days, his company moved from an iPad here are things that we hadn’t thought of as a stimulus to change. They can app to a commercial entity. make our proposition strong.” “The procurement process is the most important challenge,” he In terms of technology, Ellis said that “there was a clear trend around said. “We came into the programme very raw, a company in beta. We security, cloud and virtualisation and how banks interact with their are hugely indebted to the programme for transforming our company. customers. The finalists provided very solid innovations. The decision We would still be trying to get a meeting with Alistair now if not for the came down to which company could benefit most from the mentoring programme.” program in the short time available.”

April 2013 www.bankingtech.com 35 TECHNOLOGY: INNOVATION

Celebration day

April 2013 www.bankingtech.com 35 Profile Arun JAin: PolAriseforM

was at its height and this also fuelled to build touch screens of that size was anger, fear and doubt – that can get in the desire for simplicity in design. not developed enough at the time, so the way of new developments. People Grand designs “We went back to the design table the smaller device was launched first. tend to suffer to greater or lesser Polaris Financial Technologies has plans to move beyond being a provider of IT services. At the opening and saw that complexity was high – “There is always a bit of mystery, extents from conditioning, which leads of its new design centre in Chennai, David Bannister heard its founder’s views on how design thinking and we believe that complexity was and solving that mystery is another to “hardwiring of their knowledge why the crisis happened,” says Jain. element of good design – unearthing clusters” and an unwillingness to adopt will be central to those plans. The apps form the basis of Polaris’s the blind spots is part of that 2% new approaches. deliver superior results – results that Canvas environment, which allows between Bose and Samsung.” “People have blocks – a database pay. applications to be built and configured Jain goes further in his attempt must have an index, it has to be “In most applications, 98% of on the fly, dramatically reducing both to define the elusive qualities of relational – then Big Data comes along the functionality can be done by development and implementation what the 8012 facility is striving for. and you have to think again,” he says. anyone; it’s the last 2% that makes the time and costs. “Design is important in context; you “Or they say, ‘this won’t ever happen difference,” says Jain. “An audio system Right at the beginning of the have to think about the ecosystem,” in India.’” from Samsung will be 98% as good thinking, however, is a question he says. The model for the Polaris If some of this sounds like as one from Bose, but it is that last 2% that Jain puts like this: “How do you financial app store comes directly from mysticism, that’s perhaps because that means Samsung can charge $50 differentiate software experience and Apple’s iStore, though the former is Jain has been looking widely for and Bose can charge $500.” design experience? What does it look really a vehicle for delivering systems inspiration, including into Eastern Such is the emphasis on design, like?” components rather than stand-alone scriptures; the contrast with Western Jain says, that the company has Everyone has different views applications. culture is illuminating, he says. “Eastern spent much of the last two years of what design is, or even what is Taking the componentisation of scriptures tend to be more holistic, developing the concept behind the meant by good design, he says. “We design further, Jain talks in terms while the Western approach is deeper 8012 environment, studying examples experience it, but it is hard to define – of “clusters of knowledge, skill and and narrower – combining the two of good design and best practice. “We where does it come from? How can we depth of expertise” in different areas. A can be very useful.” spent 400 days planning it and 164 decompose it?” surgeon, for instance, could have the It can also be difficult, “In Indian days on execution,” he says. After much thought, Polaris has knowledge of a particular procedure, culture, conflict is not seen as positive, Jain said that the centre marks a come to the conclusion that good learn the skill of the techniques to but it can be,” says Jain. “Friction can be new phase in the development of product design comes down to three carry it out, but will only develop a positive force – you can’t stand on ice Polaris, which has focussed on financial elements: desirability, feasibility and the depth of expertise after many without friction.” technology since its beginnings in viability. These are, respectively, the repetitions. Such clusters can be At the other end of the scale, he services and outsourcing in 1993. human, technological and business thought of as being reconfigurable – a sees other important lessons in areas A crucial ealier phase stemmed components of a well-designed surgeon’s depth of expertise will make such as industrial engineering, from from its 2003 merger with OrbiTech, product. it easier to learn a new procedure, for which Polaris has borrowed time and a subsidiary of Citi, which saw it “When all three come together, instance. motion study techniques. “The banking increase in scale and move to become that’s design,” says Jain, pointing out But there are also obstacles to world doesn’t apply the principles of more intellectual property-oriented that Apple conceived the iPad tablet implementing these lessons. Jain lists industrialisation because it thinks it’s as part of a deliberate plan to have before the iPhone, but the technology five “frictional forces” –ego, conflict, different,” says Jain. “It’s not.” BT products across all aspects of banking systems. “To improve time-to-market and implementation, you need to Putting design at the heart of develoPment have intellectual property so that you can re-use code,” said Jain. The main Polaris Financial Technology’s $10 million create the acronym COPARIS. undertaking at this time was to break 8012 FT Design Center in Chennai, Within these, developers work in down the products into a service- India, was unveiled last month as a teams of between five and seven people oriented architecture model, a five place where customers will be able to – not a random number, but based on year task involving 800 developers – work collaboratively with the vendor’s research carried out at Harvard University, something Jain said could only really development teams on applications and showing that this is the optimum number have been done in India: “4,000 man- systems. The 8012 name comes from the for collaborative working. Customers will As Polaris Financial Technologies headquarters (see panel) putting the hours of development in the US would latitude and longitude of Chennai. be able to work alongside these teams to moves beyond its roots as a service subject, and its capabilities, front and have cost us $400 million.” At the heart of the centre are seven develop and customise applications provider to the financial industry it centre. Behind this approach was the design labs, covering what the firm The Chennai facility is likely to be is staking quite a lot on its ability to Perhaps not surprisingly, Arun belief that the next generation of considers to be the elements essential followed by others – albeit on a smaller deliver innovative, design-centred Jain, chairman and chief executive products would be cross-market, and to all financial technology developments: scale – in London and New York, other virtually on the Prime Meridian running products in a rapidly changing world. of the company, is a great believer this led to further simplification of customer experience, operations efficiency, company officials said. No location has through Greenwich, a good bet for the The company has just opened in the power of design to transcend the product components into “apps”. performance, analytics, risk management, been decided, but as the company’s name of the London facility would have to a new design centre at its Chennai ordinary development work and At the same time, the financial crisis integration and security. The elements London offices are at Canary Wharf, be the 0052 FT Design Centre ...

36 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 37 Profile Arun JAin: PolAriseforM

36 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 37 PeoPle

EVENTS

Thomas Book has been appointed chief to found Markets Etc in Australia, before APPointments executive of Eurex Clearing. He has been joining Catalyst. APRIL 9-11 2013 a member of the Eurex Clearing executive International Payments Summit, London Barclays names new operations and technology chief board since March 2007. Post-trade services provider Omgeo The 21st anniversary of this industry fixture sees it Newly appointed to the executive board has appointed Edward Hazel of Goldman moving venue to the Hilton London Tower Bridge. Barclays has appointed Shaygan Kheradpir and wealth management arms, as well as are Heike Eckert as chief operating officer, Sachs, Richard Taggart of State Street and The draft agenda shows an emphasis on new to the new role of chief operations and responsibility for the bank’s technology Thomas Laux as chief risk officer andEric Susan Cosgrove of the DTCC to its board opportunities in technology, developing markets and technology officer. agenda. Müller for treasury. of managers. – of course – mobile. He will join the executive committee of “Since joining Barclays in 2011, Shaygan Eckert has over 15 years of experience The Omgeo board members are www.icbi-events.com Barclays and report directly to group chief has been instrumental in helping devise in the financial industry. She has been head responsible for representing the interests executive Antony Jenkins. and drive technology solutions and of clearing business development at Eurex of all Omgeo’s clients as decisions about APRIL 16-18 2013 “Improvements in the efficiency and operational improvements at Barclays, Clearing since May 2010 and is currently strategy, governance and operations are TradeTech Europe, London effectiveness of our operations, facilitated including leading the introduction of responsible for the development of new made. Since its launch in 2001, TradeTech, has become in part by technological innovation and award-winning initiatives such as Barclays clearing services for derivatives, securities Hazel is the global co-head of securities one of Europe’s leading financial trading automation, were identified as a key priority Pingit, and I look forward to supporting him and repo products. operations at Goldman Sachs. He is a technology conferences and networking events. in the Strategic Review we unveiled last in this new challenge.” Laux joined Eurex Clearing in 2006 and member of the firm’s operations operating Top of the agenda for 2013 are the effect of month,” said Jenkins. “The interconnectivity Kheradpir himself said: “I am delighted has been head of risk design since May committee and operations risk committee market fragmentation of the buy-side, the lack of a between this agenda, and the opportunities to have this opportunity to lead our 2010. Since then, he has been responsible and servces as co-chair of the Americas consolidated tape, finding liquidity, flash trading and for Barclays and our customers and Operations and Technology organisation for further developing the risk management regional managers forum. Hazel joined technology. clients opened up through technological in delivering world class and innovative system and default management process Goldman Sachs in 1979. www.wbresearch.com developments, are clear. The creation of processes and systems focused on creating of the central counterparty mechanism. Taggart is a senior vice president at this role is designed to ensure we have the officer for retail and business banking. In a ‘Go-To’ customer and client experience. Currently, he is working on the overhaul of State Street Global Services. He joined the APRIL 21-24 2013 appropriate focus on both areas.” his new role he will take responsibility for This strategic work will be fundamental the risk methodology. Prior to joining Eurex firm in March 2012 to head the investment NACHA Payments 2013, San Diego Shaygan joined Barclays from Verizon in operational processes and systems across to Barclays achieving our Transform Clearing in 2006, Laux spent six years at manager services business in North The main event will have 130 session in eight January 2011 in the role of chief operating the whole group, including the investment programme commitments.” Deutsche Börse IT, America. Taggart previously held leadership programme tracks covering ACHs, card solutions, Müller has been responsible for roles at Alliance Bernstein, Morgan Stanley corporate payments, global issues, healthcare corporate strategy at Deutsche Börse since and JP Morgan Chase. opportunities, mobile banking and payments, risk Payment systems specialist Dovetail relationship management in the financial span a range of research, data, analytical the beginning of the year and reports in Cosgrove is the general manager of & compliance and “The Payments Biz” – a track has hired Rossana Salaris as director of services marketplace. He previously held tools and related services for credit markets. this role to chief executive Reto Francioni. settlement and asset services at the DTCC, focussing on trends, challenges and strategies. product strategy. senior director positions at Omgeo and Based in London, Acquari will report to Along with the board’s reconstitution, responsible for all depository businesses. https://payments.nacha.org Salaris joins Dovetail with over 20 years has worked in sales and relationship managing director Gloria Aviotti. He joins Gary Katz, Michael Peters and Peter Reitz Cosgrove is a member of the DTCC’s of payment experience and has held many management throughout Asia for from Monster.com, where he spent eight will resign from the executive board of operating committee, management risk APRIL 24-25 2013 senior positions including at The Clearing companies including Dion Global and years holding a number of roles in sales, Eurex Clearing but will, together with committee and strategy and planning Meftec 2013, Doha House, serving as a NACHA Board Member Thomson Reuters. strategic planning and as a member of the Andreas Preuss, Thomas Book and Jürg council. He previously held roles at Lehman The long-running Middle East Financial Technology and as a director of the International European management board. Acquari Spillmann, continue their mandates Brothers, Maxcor Financial Group and Exhibition and Conference is moving venue to Qatar, Payments Framework Association. Over Swiss bank UBS has hired Daniel Ott from previously spent nine years with Dun and as executive board members of Eurex PricewaterhouseCoopers. after previous events in Bahrain, Abu Dhabi and Dubai. this time, she has been instrumental in a Credit Suisse to join as its chief information Bradstreet where he led the UK & Ireland Frankfurt and Eurex Zürich, the parent www.meftec.com number of innovative payment solutions officer for Switzerland in June. sales. companies of Eurex Clearing. Dion Global Solutions has appointed including NACHA’s Direct Deposit/Direct The Swiss role is newly created, and Stephen Mitchell to its European sales APRIL 28-MAY 1 2013 Payment Campaigns, EPN STP 820 and the Ott will be reporting to Stefan Arn, who Shaun Bramham has been named Financial markets consultancy Catalyst team as sales executive. He joins Dion Sifma Operations Conference, Boca Raton emerging remittance standard for USD wire will continue as CIO for global asset regional head, Asia-Pacific, at Instinet, Development has hired Leon Rees to from Avaloq where he was responsible for SIFMA’s 40th Annual Operations Conference + Exhibit transfers. management and wealth management. replacing Glenn Lesko, who is returning lead its Technology Practice. He also joins new business development in the wealth brings together senior professionals from all corners She will be based in the Dovetail Secure In the new position, Ott will join the UBS to the US. Bramham is currently chief the firm’s senior management team, with a management and private banking sector. of the financial services operations world. Development Centre in Parsippany, New IT executive management committee, operating officer of Nomura’s Asia ex-Japan strategic role in the firm’s expansion. Over He has previously worked in business www.sifma.org Jersey. and have a dotted line report to Sabine equities business. He will be responsible the last 12 years, he has held technology development and sales for technology Keller-Busse, chief operating officer of UBS for all aspects of Instinet’s brokerage leadership positions in a number of firms including Misys and Fiserv. MAY 21-22 2013 Broadridge Financial Solutions has Switzerland. operations in the region. Bramham began global banks, including global head of EBAday 2013, Berlin appointed James Drumm as senior director, Ott has nearly 20 years’ experience in the his career at Lehman Brothers in 1996 in credit derivatives technology for Barclays Calastone, the global fund transaction The eighth annual EBAday forum, organised by the strategic account sales for Asia Pacific. He will financial industry. At Credit Suisse in Zurich the fixed income operations department Capital and global head of architecture, network, has opened an office in Zurich Euro Banking Association and Finextra, will build on be responsible for generating new business he was most recently CIO for the global in London, and subsequently held senior credit trading, risk and e-business for RBS and appointed Vittorio Pujatti as director the success of last year’s conference in Edinburgh, sales for Broadridge solutions, including its private banking business division. roles in operations in New York, Tokyo and Financial Markets. Most recently, he led of Swiss sales & business development. His EBAday 2013 will look beyond the practical Gloss multi-asset, multi-currency processing Hong Kong. He was named global head the global portfolio of technology delivery background is in sales and management compliance requirements of operating in a Single system. Fitch Solutions has appointed Julian of Nomura’s execution services equity and business support activities for Westpac at Swiss and International securities firms, Euro Payments Area and discuss the challenges and Drumm has over 20 years of experience Acquari as global head of sales for its suite operations in 2009 before moving to his Institutional Bank’s financial markets and including a stint as head of the US Equity opportunities in payments and transaction banking. in solution and consultative sales and of fixed-income products and services that current role in 2011. treasury businesses and then went on Proprietary team at UBS in Zurich. BT www.ebaday.com

38 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 39 PeoPle

EVENTS

Thomas Book has been appointed chief to found Markets Etc in Australia, before APPointments executive of Eurex Clearing. He has been joining Catalyst. APRIL 9-11 2013 a member of the Eurex Clearing executive International Payments Summit, London Barclays names new operations and technology chief board since March 2007. Post-trade services provider Omgeo The 21st anniversary of this industry fixture sees it Newly appointed to the executive board has appointed Edward Hazel of Goldman moving venue to the Hilton London Tower Bridge. Barclays has appointed Shaygan Kheradpir and wealth management arms, as well as are Heike Eckert as chief operating officer, Sachs, Richard Taggart of State Street and The draft agenda shows an emphasis on new to the new role of chief operations and responsibility for the bank’s technology Thomas Laux as chief risk officer and Eric Susan Cosgrove of the DTCC to its board opportunities in technology, developing markets and technology officer. agenda. Müller for treasury. of managers. – of course – mobile. He will join the executive committee of “Since joining Barclays in 2011, Shaygan Eckert has over 15 years of experience The Omgeo board members are www.icbi-events.com Barclays and report directly to group chief has been instrumental in helping devise in the financial industry. She has been head responsible for representing the interests executive Antony Jenkins. and drive technology solutions and of clearing business development at Eurex of all Omgeo’s clients as decisions about APRIL 16-18 2013 “Improvements in the efficiency and operational improvements at Barclays, Clearing since May 2010 and is currently strategy, governance and operations are TradeTech Europe, London effectiveness of our operations, facilitated including leading the introduction of responsible for the development of new made. Since its launch in 2001, TradeTech, has become in part by technological innovation and award-winning initiatives such as Barclays clearing services for derivatives, securities Hazel is the global co-head of securities one of Europe’s leading financial trading automation, were identified as a key priority Pingit, and I look forward to supporting him and repo products. operations at Goldman Sachs. He is a technology conferences and networking events. in the Strategic Review we unveiled last in this new challenge.” Laux joined Eurex Clearing in 2006 and member of the firm’s operations operating Top of the agenda for 2013 are the effect of month,” said Jenkins. “The interconnectivity Kheradpir himself said: “I am delighted has been head of risk design since May committee and operations risk committee market fragmentation of the buy-side, the lack of a between this agenda, and the opportunities to have this opportunity to lead our 2010. Since then, he has been responsible and servces as co-chair of the Americas consolidated tape, finding liquidity, flash trading and for Barclays and our customers and Operations and Technology organisation for further developing the risk management regional managers forum. Hazel joined technology. clients opened up through technological in delivering world class and innovative system and default management process Goldman Sachs in 1979. www.wbresearch.com developments, are clear. The creation of processes and systems focused on creating of the central counterparty mechanism. Taggart is a senior vice president at this role is designed to ensure we have the officer for retail and business banking. In a ‘Go-To’ customer and client experience. Currently, he is working on the overhaul of State Street Global Services. He joined the APRIL 21-24 2013 appropriate focus on both areas.” his new role he will take responsibility for This strategic work will be fundamental the risk methodology. Prior to joining Eurex firm in March 2012 to head the investment NACHA Payments 2013, San Diego Shaygan joined Barclays from Verizon in operational processes and systems across to Barclays achieving our Transform Clearing in 2006, Laux spent six years at manager services business in North The main event will have 130 session in eight January 2011 in the role of chief operating the whole group, including the investment programme commitments.” Deutsche Börse IT, America. Taggart previously held leadership programme tracks covering ACHs, card solutions, Müller has been responsible for roles at Alliance Bernstein, Morgan Stanley corporate payments, global issues, healthcare corporate strategy at Deutsche Börse since and JP Morgan Chase. opportunities, mobile banking and payments, risk Payment systems specialist Dovetail relationship management in the financial span a range of research, data, analytical the beginning of the year and reports in Cosgrove is the general manager of & compliance and “The Payments Biz” – a track has hired Rossana Salaris as director of services marketplace. He previously held tools and related services for credit markets. this role to chief executive Reto Francioni. settlement and asset services at the DTCC, focussing on trends, challenges and strategies. product strategy. senior director positions at Omgeo and Based in London, Acquari will report to Along with the board’s reconstitution, responsible for all depository businesses. https://payments.nacha.org Salaris joins Dovetail with over 20 years has worked in sales and relationship managing director Gloria Aviotti. He joins Gary Katz, Michael Peters and Peter Reitz Cosgrove is a member of the DTCC’s of payment experience and has held many management throughout Asia for from Monster.com, where he spent eight will resign from the executive board of operating committee, management risk APRIL 24-25 2013 senior positions including at The Clearing companies including Dion Global and years holding a number of roles in sales, Eurex Clearing but will, together with committee and strategy and planning Meftec 2013, Doha House, serving as a NACHA Board Member Thomson Reuters. strategic planning and as a member of the Andreas Preuss, Thomas Book and Jürg council. He previously held roles at Lehman The long-running Middle East Financial Technology and as a director of the International European management board. Acquari Spillmann, continue their mandates Brothers, Maxcor Financial Group and Exhibition and Conference is moving venue to Qatar, Payments Framework Association. Over Swiss bank UBS has hired Daniel Ott from previously spent nine years with Dun and as executive board members of Eurex PricewaterhouseCoopers. after previous events in Bahrain, Abu Dhabi and Dubai. this time, she has been instrumental in a Credit Suisse to join as its chief information Bradstreet where he led the UK & Ireland Frankfurt and Eurex Zürich, the parent www.meftec.com number of innovative payment solutions officer for Switzerland in June. sales. companies of Eurex Clearing. Dion Global Solutions has appointed including NACHA’s Direct Deposit/Direct The Swiss role is newly created, and Stephen Mitchell to its European sales APRIL 28-MAY 1 2013 Payment Campaigns, EPN STP 820 and the Ott will be reporting to Stefan Arn, who Shaun Bramham has been named Financial markets consultancy Catalyst team as sales executive. He joins Dion Sifma Operations Conference, Boca Raton emerging remittance standard for USD wire will continue as CIO for global asset regional head, Asia-Pacific, at Instinet, Development has hired Leon Rees to from Avaloq where he was responsible for SIFMA’s 40th Annual Operations Conference + Exhibit transfers. management and wealth management. replacing Glenn Lesko, who is returning lead its Technology Practice. He also joins new business development in the wealth brings together senior professionals from all corners She will be based in the Dovetail Secure In the new position, Ott will join the UBS to the US. Bramham is currently chief the firm’s senior management team, with a management and private banking sector. of the financial services operations world. Development Centre in Parsippany, New IT executive management committee, operating officer of Nomura’s Asia ex-Japan strategic role in the firm’s expansion. Over He has previously worked in business www.sifma.org Jersey. and have a dotted line report to Sabine equities business. He will be responsible the last 12 years, he has held technology development and sales for technology Keller-Busse, chief operating officer of UBS for all aspects of Instinet’s brokerage leadership positions in a number of firms including Misys and Fiserv. MAY 21-22 2013 Broadridge Financial Solutions has Switzerland. operations in the region. Bramham began global banks, including global head of EBAday 2013, Berlin appointed James Drumm as senior director, Ott has nearly 20 years’ experience in the his career at Lehman Brothers in 1996 in credit derivatives technology for Barclays Calastone, the global fund transaction The eighth annual EBAday forum, organised by the strategic account sales for Asia Pacific. He will financial industry. At Credit Suisse in Zurich the fixed income operations department Capital and global head of architecture, network, has opened an office in Zurich Euro Banking Association and Finextra, will build on be responsible for generating new business he was most recently CIO for the global in London, and subsequently held senior credit trading, risk and e-business for RBS and appointed Vittorio Pujatti as director the success of last year’s conference in Edinburgh, sales for Broadridge solutions, including its private banking business division. roles in operations in New York, Tokyo and Financial Markets. Most recently, he led of Swiss sales & business development. His EBAday 2013 will look beyond the practical Gloss multi-asset, multi-currency processing Hong Kong. He was named global head the global portfolio of technology delivery background is in sales and management compliance requirements of operating in a Single system. Fitch Solutions has appointed Julian of Nomura’s execution services equity and business support activities for Westpac at Swiss and International securities firms, Euro Payments Area and discuss the challenges and Drumm has over 20 years of experience Acquari as global head of sales for its suite operations in 2009 before moving to his Institutional Bank’s financial markets and including a stint as head of the US Equity opportunities in payments and transaction banking. in solution and consultative sales and of fixed-income products and services that current role in 2011. treasury businesses and then went on Proprietary team at UBS in Zurich. BT www.ebaday.com

38 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 39 Vendor VIew: Vocalink

Aside from the primary use case of mobile, Immediate payments could also be used around globally. This is simply not possible banks and regulators across the globe are for social benefit, as indicated by research using a proprietary message format. ImmedIate Payments looking to implement immediate payments in the US, enabling insurance companies VocaLink is also seeing increased desire for strategies that are centred on online and to disperse funds in real time to affected regional interoperability, in south east Asia web commerce. With the growth of the individuals, families and communities in the and Scandinavia for example, and these retail industry online, online merchants wake of natural disasters. This could also initiatives can be severely hampered by the gather Pace globally can benefit from the improved cash flow have been realised in Queensland, Australia, absence of a common messaging standard. that immediate payment services can earlier this year, to allow immediate cash Today’s digitally demanding, fast-paced Australia has recently publicised its desire bring. For the banks, this is an ideal service dispersal to flood victims, when access to a ISO 20022 has emerged as the de facto consumer expects to be able to make for a plan to enable real-time payment proposition to roll out to compete with bank branch was not possible. global message standard for electronic payments to any company, institution transfers between banks in Australia. and regain lost ground from new payment payments. The standard was originally or person in real time, and increasingly, The aim is to facilitate fast payments for competitors in the market. designed for batch payments, however on the move. In a competitive market, the consumers and businesses with close to VocaLink has successfully adapted it to weight of consumer expectation coupled immediate availability of funds by 2016. The The benefits of immediate payments are “Banks and regulators support single transaction processing with regulatory pressure to innovate in this US Federal Reserve has also expressed its not confined to the consumer or business across a real time switch, thus promoting area presents banks with a key challenge desire to make general purpose payment – the process allows central banks to across the globe are looking and supporting interoperability between – how to make effective use of new systems faster and more efficient. The implement strategies that align with the to implement immediate real time solutions at national, regional or real time, mobile, online and alternative ASEAN region and Asia Pac in general regulatory drive to reduce the number of international levels. Kris Kubiena, Proposition payment offerings to retain and attract new are also seeing significant activity and cash transactions in society. Although cash payments strategies that Delivery Director, VocaLink customers, and drive additional revenue. innovation in the payments arena and and cheque processing is considered by are centred on online and Staying ahead of the competition Singapore in particular is driving new some as a strong revenue stream for banks, New market entrants are wise to the fact VocaLink built the Faster Payments Service services in the real-time space. the inconvenience and security concerns web commerce” that consumers expect a near real time in 2008. The service was the first new associated with managing cash throughout service, and unencumbered by complex payments system in the UK in over 20 years. Enabled by an immediate payments the economy are significant. However, if legacy IT infrastructure, are able to exploit It was born out of a requirement to speed infrastructure, mobile is one of the most banks are to successfully reduce their cash their agility to offer this. It is a highly up the traditional ACH processing and has important channels for banks when intake, they must offer an alternative that is Immediacy equals innovation competitive landscape, and the longer the delivered a fantastic platform for improved it comes to generating new payment equally convenient for the consumer. The The fact is banks will find it challenging banks are unable to provide a real time customer service and payment innovation. processing revenue – a revenue stream combination of mobile transactions and an to fully benefit from new innovations in service and meet customer demand, the Government, businesses and consumers that is not necessarily restricted to retail online capability across a real time payment payments if they do not have a real time more marginalised they will become. are now able to make bank to bank payments alone. switch offers such an alternative. system in place. transfers to almost any UK account in near The key hurdle for many banks and real time. The service has seen consistent For example, mobile payment capabilities The most attractive bank use cases Crucially, banks must look to the most regulators is how to make a successful growth since launch with over 2 billion combined with electronic billing and for immediate payments vary from appropriate formats and standards to get move from a heritage environment to a payments securely processed and volumes real-time payments is a compelling service region to region. For example, based on the most value from real-time payments. new system – a manoeuvre that must be are still rising. There has been a degree of offering for corporates with large billing conversations with local banks in Asia In an increasingly globalised economy, it negotiated strategically, cost-effectively, substitution from the ACH but growth is volumes, such as utility companies. A Pac, it seems that the ability to enable would be short-sighted to implement an and with experts on board to help now being seen from increased moves consolidated e-bill presentment and mobile payments in real time would be immediate payments capability based on navigate this significant business change. away from cheques and cash. Consumers payments service adds value to the payments of particular benefit in supporting the a domestic, closed messaging standard. Immediate payments will be the backbone alone are making ten million more process by providing a single platform SME community. The benefit of receiving Instead, banks should look to use an to successful innovation for banks, and the electronic payments a year than before the for viewing bills and gives control back to cleared funds would allow traders for open message standard with a rich data adoption of this capability is a natural step service was launched. the user as they authorise each payment. example to begin work immediately format such as ISO 20022 to facilitate the in their evolution as they look to stand their This approach, when coupled with a “debit without incurring the risk of debt or cash international expansion of this offering, ground against new and non-traditional The global drive to immediate request” capability can help consumers while flow complications. and enable customers to move money entrants. payments also providing the corporate with better The success of Faster Payments in the payment accuracy. This improves cash flow, as UK has not gone unnoticed by other well as reducing delinquency and back office international markets. The Reserve Bank of work for the billing organisation.

40 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 41 Vendor VIew: Vocalink

40 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 41 Comment Comment

Tackling FATCA compliance: using new Banking on digital solutions to regulations to win a competitive edge build trust and innovation

Reetu Kohsla, global director for financial crime/risk, fraud and compliance, Pegasystems Piercarlo Gera is global managing director of Accenture Financial Services, and Joydeep Bhattacharya is managing director of Accenture Interactive

There has been a lot of hype around to become compliant. In addition, There are a couple of steps With bank customer loyalty and trust Digital First needs the backing of an to attract the attention of customers FATCA in the past two years. With technology providers and consultants organisations need to take to be at a low point, following the recent integrated technology strategy to drive and reward them for loyalty. January 2014 looming on the horizon, claim to offer ‘out of the box’ FATCA able to implement a comprehensive financial fallout and the economic customer intimacy. There are a number of financial organisations are realising compliance solutions that are cost FATCA compliance strategy. First downturn, banks are in need of a enabling technologies that will make the Digital relationship that action is needed now in order effective and ensure compliance. of all they need to be aware of the fresh start. Rising to the challenge of strategy meaningful and seamless. Here management to be able to meet the first FATCA FATCA requires FFI’s to evaluate potential impact of FATCA on their reconnecting with customers, rebuilding is a selection the research highlighted: Banco Bilbao Vizcaya Argentaria, one deadline for new account on-boarding. complex regulatory rules depending business. This will require a review of trust and renewing the banking of Spain’s largest banks, is breaking By the start of next year, Foreign on their lines of business, countries, existing KYC, AML and on-boarding experience, banks are starting to explore Digital intelligence new ground by offering customers Financial Institutions will need to product inclusions and exemptions, systems to identify the scale of the digital technologies and solutions. But is Analytics has evolved digital analytics superior service through LOLA, a virtual introduce new account opening and pre-existing account rules, local law changes required and the operational that enough? encompassing customer interactions assistant application that guides BBVA’s Know Your Customer procedures conflicts, privacy and disparate on- impact. It is essential to involve legal Forward-looking financial services across online, mobile and social internet banking customers. LOLA to identify US account holders. The boarding systems and processes. counsel, IT, business management and providers are seeing a silver lining and are channels. This is giving marketers builds customer intimacy by making additional checks and documentation Adding a newly developed consultants as a managed service from rapidly capitalising on the digital wave the opportunity to understand how personalised recommendations, much required will mean that on-boarding solution will not provide compliance, the start. to re-establish themselves as the bank customers user their digital properties as a real bank assistant would, leading times can be further extended, as ‘out of the box’ FATCA compliance For instance, FFIs will need to of choice with customers. Accenture and integrate those insights to deliver the customer through customised resulting in unnecessary delays. With simply does not exist and exposes an consider all applicable FATCA legal research* identified three business compelling experiences. pages where the structure and displayed an average time to on-boarding of organisation to significant regulatory implications, local laws and cross- models for progressive banks, and digital For example, UK customers with information is tailored to suit the corporate customers varying between risk and potential penalties. Out- border requirements that will affect is at the heart of them all: an American Express card can now customer needs. 30 and 60 days this could significantly of-the-box solutions are not able their compliance, on-boarding and • Intelligent Multichannel Bank – sync their card account with their impoverish customer experience. to address the differences in law operational strategy. Working with builds on multichannel experiences Foursquare account and take advantage Socially Engaging Banking The next few stages of the by product, line of business and global law firms to understand using strategic analytics solutions to of personalised offers based on location Banks have a great opportunity to use regulation agenda will require jurisdictions for complex organisations. jurisdictional impact and conflicts with engage customers and meet their and spend patterns. This intelligence is this channel for gathering insights, organisations to review existing What is needed is a more local laws is critical to understanding financial needs. fundamentally enabled by insights AmEx demonstrating transparency, engaging customer data and perform due comprehensive approach that the technology implementation • Socially Engaging Bank –leverages has from a richer profile of the customer customers and for new product diligence on new and current encompasses three critical approach and requirements that are social media interactions to increase and it helps deliver an experience that is development. Leading organisations customers. Other changes will include components – legal advice, agile specific to an organisation. customer intimacy. contextual as well as relevant. are going beyond using social to gather establishing mechanisms for reporting technology and consulting – that Another essential step is integrating • Financial/Non-Financial Digital insights; they are making it part of an certain information about US account are tailored to an institution’s specific data across multiple jurisdictions and Ecosystem – leverages the power of Amazon-like post-login integrated customer experience strategy holders to the US tax authorities and operations and able to interface with lines of business and deciding if data mobile technology to put the bank at the experience across channels. withholding a 30% tax on certain existing on-boarding, transaction should or can be aggregated. This is centre of an ecosystem selling financial Experience has shown that over 90% New York City-based Moven (formerly payments. monitoring and KYC systems. critical in identifying and managing and non-financial services. of customers use their bank website to Movenbank) is launching next generation As financial organisations are Integrating these components into customers who may meet minimum Taking a cue from the retail sector check their account balance or carry out banking services with social at its core. required to introduce significant their FATCA compliance strategy will thresholds or exemptions. where Amazon, eBay and Starbucks specific transactions, and then they log changes to their KYC, AML and help financial organisations achieve Large complex financial institutions have transformed customer experiences, off. The average interaction a customer Serving digital customers on-boarding systems, becoming compliance efficiently. are now looking at driving business financial institutions are realising that has through online banking is functional A Digital First mind-set is fundamental compliant risks incurring huge costs Moreover, FFIs are now using FATCA benefit through automation of KYC if they fail to respond nonbanking and transactional. But there is a great for financial services providers focused to their business. Moreover, the as an opportunity to enhance KYC and on-boarding and leveraging these organisations will start to own the opportunity to transform the experience on significantly enhancing customer increased regulatory pressure and systems which will subsequently result systems to drive product suitability customer experience. into a dialog. satisfaction, building customer loyalty tough economic environment are in faster time to on-boarding and a rules to gain a competitive advantage. In a move towards providing a and deepening share of wallet. At a forcing many FFIs to resort to manual more consistent customer experience The investment in a unified approach Customer intimacy compelling post-login experience time when tech-savvy customers are KYC processes. This could lead to across product types, geographies and to FATCA compliance ensures Adopting a Digital First mind-set is an to customers, Bank of America has increasingly demanding about how, involuntary non-compliance and lack lines of business. significant business benefits, including effective way for banks to redefine their developed BankAmeriDeals – an where and when they want services from of consistent on-boarding. This transformational change can time to market, faster on-boarding and relationship with customers. By having application that allows online their banks, becoming a truly integrated Many organisations are seeking only be delivered by incorporating improved customer experience. a truly digital business, banks can move customers to select a series of cash digital business is essential for growth. out-of-the-box solutions to cut down FATCA requirements into rules-driven Ultimately, FFIs will be able to away from reactive, transaction-based back deals at shops and restaurants Only by adopting Digital First can banks on FATCA compliance costs and KYC solutions that wrap around benefit from higher compliance customer relationships, towards a more in a secure environment. This added deliver reliable, relevant and innovative to achieve quick results. Complex existing systems and processes standards, improved business agility intimate, proactive and personalised value service uses transaction history financial services which build a strong FFIs believe they will need to spend and take into account local legal and better services that will result in an experience across multiple channels. coupled with their partner ecosystem and loyal customer base. more than €100 Million (£86 Million) requirements. unrivalled competitive edge. *Banking 2016: Accelerating growth and optimising costs in distribution and marketing, Accenture 2012 42 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 43 Comment Comment

Tackling FATCA compliance: using new Banking on digital solutions to regulations to win a competitive edge build trust and innovation

Resistant to digital banking? Consumers Banking on the real economy have never demanded it more

David Woodroffe, director, product management, asset finance, SunGard David Webber, managing director, Intelligent Environments

In March the proposed UK Banking Leasing Association, core asset finance finance faces a number of challenges BT recently conducted some when considering moving banks. Statistics compiled by Intelligent Reform Bill went through its second business grew by 5% year on year in in today’s climate. The recent research among consumers from These results make the headlines Environments last year confirmed that reading in Parliament. With the January 2013. withdrawal of ING Lease from the the UK, Spain, Hong Kong, France that appeared on the back of this 51% of Britons saw an effective digital broad aim of ring-fencing the utility UK market sparked concerns across and Germany into how they see research rather surprising, because banking service as a key driving factor side of UK banks, this should protect Why asset finance? the industry that banks no longer digital banking services, and the – what are all of these services, if in loyalty towards their bank, and both consumers and businesses The benefits of asset finance for view asset finance as fit for purpose, results inspired a few headlines not fundamental aspects of digital this figure highlights just how much from the potential losses of high-risk businesses are clear. Rather than paying thanks to its relatively high capital that claimed the vast majority of banking? It seems that the phrase banks need to focus on ensuring investment banking operations. cash upfront the customer gets to requirements and the longer-term consumers were ‘resistant’ to digital ‘digital banking’ is often perceived that their digital solutions meet Despite such attempts to address minimise any impact on cash flow and nature of its returns. banking. as applying only to social media and their customers’ increasingly high the banking system’s failure, UK spread the cost of equipment over the So, increasingly, banks’ asset The research findings did indeed mobile – a dangerously restrictive expectations. businesses have reduced their level of asset’s economic life. So, there’s a direct finance divisions need to demonstrate provide some interesting insights view, given today’s increasingly Of course it is not enough to simply capital investment more dramatically and immediately attractive correlation they are aligned with parent strategies and showed that, despite the channel-savvy consumer. roll out a ‘digital’ solution for the sake since the financial crisis than firms between expenditure and economic and making efficient use of capital. explosion in popularity and near- To talk about ‘mobile’, ‘social’,or of it. Banks must work hard to deliver in Germany, France and the USA. returns – and at the end of the contract, At system level, integration ubiquity of Facebook and Twitter, ‘online’ banking is to make features that customers did not even The resulting dip in capacity and there is usually the option to buy the with overall strategy requires these there was a significant lack of interest unnecessary distinctions within the realise were possible, and which productivity will, in turn, limit growth equipment or upgrade to take advantage divisions to use group-wide functions amongst consumers when it comes umbrella term of ‘digital banking’. can be accessed via multiple digital further down the line. of new technology. such as credit, reporting and payment to engaging with their banks over If these terms are considered as channels in line with their digital lives. The World Economic Forum’s While a business loan could processing. But they have tended social media channels. However, separate for too long they will They need to be able to look into the Global Competitiveness Report 2012- arguably provide the same spread to stick to outdated operational these same respondents did include ultimately hold banks back from future and predict, or, even better, 2013 has cited access to financing as if structured correctly, asset finance platforms that are costly to assimilate online peer reviews, webchat providing the seamless, intuitive, define, what their customers will want “the most problematic factor for doing doesn’t usually require additional – presenting barriers rather than facilities, and ‘compare-my-bank’ type ‘anytime anywhere’ experience that in the coming years. business” in the UK. So, it is more security to be provided, because enabling integration with the rest of services as among the best ways for customers demand. Mobile devices In today’s multi-channel age, banks critical than ever for banks to provide the finance is secured to the asset the bank. financial organisations to give them are integrated into consumers’ cannot afford to focus all their efforts the utility the “real economy” needs, itself. Added-value services can also What’s more, the mixture of information and help them make lives and as such consumers rarely on a single digital strategy any more by focusing on business investment be provided in direct relation to the systems that asset finance divisions informed decisions. The research also talk about ‘digital banking’, or think than solely on the branch experience and, above all, the capital finance equipment being leased, such as typically use, including spreadsheets, found that respondents from every in terms of ‘innovation’ or ‘digital – the winners will be those that requirements of the historically insurance, servicing or maintenance. have hampered not only operational single market rated good online strategies’; they simply see a gradual can see beyond channel-specific under-served small and medium-sized But ultimately the decision to take out efficiency but also data quality and banking facilities and 24/7 access as transition to greater convenience and efforts and provide a truly integrated enterprise market. asset finance is likely to come down control. Those that can employ the two of the most influential factors ease of use. offering. One of the most direct (but lesser- to cost, as it is typically cheaper than advanced internal ratings based known) ways that banks can help unsecured forms of lending. approach (A-IRB) will be in a far with capital investment is through On the supply side, the asset stronger position to meeting the asset finance: essentially a loan for finance divisions of banks have, until increased capital requirements of using (“leasing”) rather than owning now, enjoyed relative autonomy, with Basel III. Key to taking that approach equipment. little interference from their parent is better data and more sophisticated Traditionally, asset finance has organisation. The increased capital calculations. had a lower profile than other types requirements of Basel III have changed In short, asset finance has all-round Are you getting the most of loan. But the overall squeeze all this, forcing banks to look more benefits for banks and customers alike out of banking technology on lending and higher business closely at the impact of each division on – and with no other product is there loan rejection rates have led to the balance sheet. such a close link between banking Visit www.bankingtech.com/bulletin to register for our an increased demand for leasing But in this respect, and against key and the real economy. regular email bulletin to make sure you receive all the news arrangements by SMEs. As a result, performance indicators like return on But in the ongoing fight for capital straight to your inbox. asset finance is now the third most equity and cost income ratio, asset within banks, asset finance divisions For further information on advertising opportunities please contact: common source of finance for finance also comes out well. The have to prove their worth. Only with Sadie Jones businesses, after bank overdrafts and Leaseurope Index Q4 2012 revealed an the right technology can they deliver Tel: +44 203 377 3506 loans. average ROE of 14.7% across the industry smarter, more efficient operations that Email: [email protected] www.bankingtech.com And its popularity continues to and a cost income ratio of 48.3%. make a definitive case, loud and clear, grow: according to the Finance and All these positives aside, asset for leasing.

44 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 45 Comment Comment

Resistant to digital banking? Consumers Banking on the real economy have never demanded it more

David Woodroffe, director, product management, asset finance, SunGard David Webber, managing director, Intelligent Environments

44 www.bankingtech.com April 2013 April 2013 www.bankingtech.com 45 contactS: Sadie Jones on +44 (0) 203 377 3506 or Directory of services email: [email protected]

Accuity SmartStream technologieS

BANKersAccuity is the world’s leading provider of international payment routing data and AML screening SmartStream technologies is a recognised leader in financial transaction management software that software enabling banks and corporations to maximise payment efficiency and ensure AML compliance. enablesfirms to overcome critical transaction processing issues through increased automation. SmartStream Technologies Our Payment solutions help maximise rates of payment STP and with our recent acquisition of CBNet, SmartStream’s industry-leading automated match rates create more proactive, exceptions-based St Helen’s we are now the only company to source all payment data, including SSI’s, SWIFT/BICs and National Bank processes that lower the cost per transaction while enabling firms to reduce operational risk, strengthen 1 Undershaft Codes directly from the authoritative sources. compliance and controls, and improve customer service. London Our compliance suite includes the world’s first compliance filtering engine, introduced in 1994, as well As a result, more than 1,500 clients, including 75 of the world’s top 100 banks, 8 of the top 10 asset EC3A 8EE as a range of caution lists and screening solutions that provide a prime defence against participation in illicit managers, and 8 of the top 10 custodians rely on SmartStream Transaction Lifecycle Management (TLM®) United Kingdom BankersAccuity financial activities, such as money laundering. solutions to deliver greater efficiency to their trading operations. Tel: +44 (0)20 7898 0600 Reed Business Information, Our strategic services Group provides deployment, consulting, training and integration services. We are Email: [email protected] 30 Farringdon Street, London, EC4A 4HH experts in reducing False Positive rates and helping improve rates of Payment STP. For more information about SmartStream and our solutions visit: www.smartstream-stp.com Web: www.smartstream-stp.com Tel: +44 207 653 3800 Fax: +44 207 653 3828 visit www.Accuitysolutions.com/bankingtech to sign up for a free trial of any of our industry-leading Email: [email protected] solutions. Sungard

about Sungard cleAr2PAy With annual revenue of $5 billion, SunGard is a global leader in software and processing solutions for financial Email: [email protected] services, higher education and the public sector. Visit SunGard at www.sungard.com Tel: +44 (0)208 081 2779 clear2Pay is a payments modernisation company that actively supports global financial institutions to meet Fax: +44 (0)208 081 2001 their payments unification goals through its pure SOA Open Payment Framework (OPF). The company adaptiv Clear2Pay NV SA facilitates financial organisations in their provision of payments services across the entire value and process SunGard’s Adaptiv provides enterprise-wide credit and market risk management and operations solutions for Schaliënhoevedreef 20A chain: Card, ACH, Branch, Bulk, High Care and International Payments. Clear2Pay also offers solutions and financial services institutions. Adaptiv assists institutions of varying size and complexity to deploy technology 2800 Mechelen, Belgium services such as e-Banking, the Open Test Platform, ChargeBack, Consultancy and Training. Clients include to meet both internal and regulatory requirements for risk management and operational control. Adaptiv helps Tel: +32 15 79 52 00 financial institutions such as ING, Banco Santander, Crédit Agricole, VISA, MasterCard, BNP Paribas, The financial services institutions from the banking, hedge fund, asset management, insurance and corporate Fax: +32 15 79 52 01 Federal Reserve, NETS (Denmark), The People Bank of China (PBOC), Rabobank, The Co-operative Financial sectors with its deep understanding of risk management and operational processes. www.sungard.com/ Jean de Crane, GM EMEA Services and Commonwealth Bank. Clear2Pay operates out of 14 countries and employs over 650 staff. In adaptiv. Email: [email protected] 2011 the company won the XCelent Customer Base 2010 award. www.clear2pay.com For more information, please visit www.clear2pay.com. Front arena A trading solution serving a range of financial institutions, SunGard’s Front Arena solution provides straight- through processing by integrating sales and distribution functions, trading capabilities and risk management. Institutional asset managers and brokers, traders, and market makers use Front Arena to trade equities, fixed- income, interest rate derivatives, and credit. For more information, visit www.sungard.com/frontarena fiDessA GrouP Securities Finance Exceptional trading, investment and information solutions for the world’s financial community. Around the world, $11 trillion in securities financing is managed on SunGard’s proven solutions for 85% of the world’s premier financial institutions trust Fidessa to provide them with their multi-asset international and U.S. domestic securities lending and repo for over 250 clients. Through our Loanet, Global trading and investment infrastructure, their market data and analysis, and their decision making and workflow One, Martini and Astec Analytics products and services, we provide comprehensive business solutions and Fidessa technology. $10 trillion worth of transactions flow across our global connectivity network each year. We information with worldwide reach for equities or fixed income securities financing Contact: securitiesfinance@ One Old Jewry offer unique access to the world’s largest and most valuable trading community of buy-side and sell-side sungard.com London professionals, from global institutions and investment banks to boutique brokers and niche hedge funds. EC2R 8DN A global business with scale, resilience and expertise, we’ve delivered around 25% compound growth call a Sungard expert today: 0044 (0)208 081 2779 Tel:+44 (0)20 7105 1000 since our stock market listing in 1997 and we’re recognised as the thought leader in our space. We set the Fax:+44 (0)20 7105 1001 benchmark with our unrivalled set of mission-critical products and services and, uniquely, serve both the buy- Email: [email protected] side and sell-side communities. Ongoing investment in our leading-edge solutions ensures Fidessa remains tieto Web: www.fidessa.com the industry’s number one choice.

tieto is an IT service company providing IT, R&D and consulting services. With approximately 16 000 orc softwAre experts, we are among the leading IT service companies in Northern Europe and the global leader in selected segments. We specialize in areas where we have the deepest understanding of our customers’ businesses Tieto About orc software and needs. Our superior customer centricity and Nordic expertise set us apart from our competitors. Kutojantie 6-8 Orc software (SSE: ORC) is the leading global provider of powerful solutions for the worldwide financial industry Tieto Financial Services offers services, solutions and products to financial institutions throughout Europe. 02630 Espoo in the critical areas of advanced trading and low latency connectivity. Orc’s customers include leading banks, Our customers include major banks and financial institutions that have chosen us for our capability to take Finland trading and market-making firms, exchanges, brokerage houses, institutional investors and hedge funds. total responsibility for any assignment. Tel: +3582072010 Orc Software We enable Financial Institutions to utilize their business potential by combining our technology skills and Fax: +358207263025 Americas: +1 312 327 8555 solution Description deep financial industry knowledge with advanced Nordic customer behavior. Working with Tieto you get a [email protected] Asia Pacific: +852 2167 1950 Orc Trading and Orc Connect provide the tools for making the best trading and connectivity decisions with reliable, committed long-term partner that helps you to industrialize your day-to-day IT-operations and get the www.tieto.com/financialservices EMEA: +46 8 506 477 00 strong analytics, unmatched market access, powerful automated trading functionality, high performance most out of your IT investments. Email: [email protected] futures and options trading capabilities, ultra-low latency and risk management. Web: www.orcsoftware.com Advanced trading solutions tcS Financial SolutionS orc trading applications orc connect applications ■ Orc Trading for algorithmic trading ■ Orc CameronFIX for FIX to FIX routing tcS Financial Solutions, a strategic business unit of Tata Consultancy Services, enables transformation in ■ Orc Trading for arbitrage ■ Orc CameronFIX for FIX integration TCS Financial Solutions financial services through a holistic suite of solutions for firms in banking, capital markets and insurance, and ■ Orc Trading for market making Web: www.tcs.com diversified financial institutions. Each solution in the TCS B NCS family runs as a scalable and robust service, ■ Orc Trading for risk management α integrated with existing enterprise infrastructures and technology architectures. ■ Orc Trading for warrants market making Our mission is to provide best of breed solutions that drive growth, reduce costs, mitigate risk and offer ■ Orc Trading for volatility trading faster speed to market for 240+ institutions in over 80 countries. TCS BαNCS is an integrated financial services platform. Its embedded transformation intelligence enables flexible, open and collaborative deployment and distribution of financial products and services. PeterevANs TCS BαNCS aspires to be better than established benchmarks, which is why we’ve embedded an Alpha (“α”) consciously within our brand, to remind ourselves of the superior returns that we strive to deliver. Our peterevans is a leading independent provider of front to back office solutions for the financial services sector. ability to foster rapid time-to-market with new products allows organisations to transform themselves into Clearly focused on the securities and investment market petervans has more than 23 years of experience of nimble competitors with scalable offerings. New Broad Street House providing solutions to this sector. Our Co-Innovation Network is a true partnership for sharing best practices and innovation, and our 35 New Broad Street xanite, peterevans new suite of products, offers a configurable, fully integrated, browser based, comprehensive ‘Experience Certainty’ mindset ensures the brightest of futures for all our customers. London front to back solution that can be either deployed as a single application or integrated as components into For more information, visit www.tcs.com/bancs or contact us at [email protected] United Kingdom your existing platform. Each of the xanite modules can de delivered via an ASP or self-hosted. Covering wealth EC2M 1NH management, custody, corporate actions, clearing and settlement, private client and on-line stock broking with full about tata consultancy Services Email: [email protected] operational and administrative support for the front, middle and back office. xanite gives full but controlled access Tata Consultancy Services is an IT services, business solutions and outsourcing organisation with over Tel: +44 (0) 2920 402200 to clients, portfolio, fund and relationship managers, brokers, middle and back office staff – on line anywhere in the 143,000 IT consultants located across the world delivering real results to global businesses through its unique Web: www.peterevans.com world and provides a modern and flexible platform for expanding future business and revenues. Global Network Delivery ModelTM.

www.bankingtech.com www.bankingtech.com contactS: Sadie Jones on +44 (0) 203 377 3506 or Directory of services email: [email protected]

Accuity SmartStream technologieS

In partnership with E v I FATCA woes for Guiding your way through global regulatory storms h C US au pairs in APRIL 2013 Ar

E Switzerland h T 10 hey were never going to be YEARS m happy in Switzerland about the AgO O TUS FATCA legislation that will be used to hunt down people avoiding Fr CLS survives first IT glitch …FSA to offer US taxes, but it’s a surprise to hear that guidance not rules on operational risk … some Swiss burghers are feeling sorry real-time nostro facilitated by SwiftNet IP for a group of US citizens who have network … July SEPA deadline concentrates become part of the fabric of society there – au pairs. banks’ minds … mobile banking on the It seems that many young people fund their time in Europe by working as au pairs for Swiss agenda at mobile World Congress … families, who are happy to pay their wages into the local bank. Alas, with all of the paperwork that onboarding a US citizen now involves for a Swiss bank (or a German, French or UK one, for that matter), several have started simply refusing to open new accounts for them. Unless they already have some sort of account, or the employer is willing to pay cash (and thus perhaps become complicit in money laundering as well as abetting tax evasion) the au pairs are heading home. Frivolous as this may sound, the Swiss gentlemen who told us of their banks’ unwillingness to deal with US citizens is not restricted to domestic help. Even quite large corporates are 20 starting to find that local banks are resistant to the idea of handling new business, particularly YEARS anything that looks like a recently-created legal entity. AgO One possible development being discussed in the cafés of Zurich is the establishment of independent new banks and put all US-related accounts into those. Recriminations fly as LSE scraps £75m Normally, the Swiss banks would have shrugged and expected their government to Taurus project … European Committee for discreetly ignore Washington, but times have changed, say our morose new chums. Banking Standards formed … Financial Networks Association starts tests of rival for Swift … real-time settlement threatens Print is not dead – it’s just turned baaaad European securities firms … CIOs have As a rule of thumb, the fastest adopters of new technology are pornographers and “toughest job” in financial services firms … criminals (two sets that often overlap). So it should come as no surprise that the latest thing to worry security specialists is 3-D printing. You’ll have seen the stories in the papers about how you can create real working guns with 3-D printers – but not real working ammunition, presumably – and how one squillionaire is planning to send some to Mars so that they can start building, er, buildings for habitation by future generations of human colonists. There is even a WikiLeaks-style site that has set itself up as a repository for copyrighted 3-D compatible plans that you can download and create objects from. Will that put counterfeiters of name-brand goods out of business? Or will it just mean that 25 there are more of them. YEARS If you’re the kind of person who sits around thinking up ways of protecting the AgO financial markets, this opens up a world of possibilities: just think of the things you could print that might be used in a physical version of cybercrime, urged one such Soviet Union gets first credit card … person over a surreptitious cappuccino recently. Jumping through hoops voice-operated phone banking on trial Okay, how about those little pens they have in branches? They must be really Regulators are looking for proof that firms are meeting data requirements at RBS … Dutch banks create electronic valuable – why else are they always tied down? funds transfer protocol … Bank of China “No”, replied our chum, adjusting his white hat (had that been 3-D printed?). “Think expands in Hong Kong ahead of 1997 bigger.” handover … US Treasury aims to replace “How big?” how does your risk WelcOme tO emiR Regulating the aMld iV cheques … Paris Bourse automates “About as big as an ATM machine.” data look? –iBORs settlement systems … “WTF? Really?” Answering questions on global risk With EMIR in force, firms are now Europe has made the first move to The new EU AML Directive looks to data requirements might be difficult wrestling with the challenge of controlling benchmark manipulation be a significant step up for firms’ without a timely self-assessment classifying customers but global co-ordination is needed KYC and monitoring teams 48 www.bankingtech.com April 2013 OUT OF OFFICE

In partnership with E v I FATCA woes for Guiding your way through global regulatory storms h C US au pairs in APRIL 2013 Ar

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Mirror, mirror: how does your risk data look? Being ready to answer regulatory questions on how well you meet global risk data requirements might be difficult without a timely self-assessment Proof reading ollowing the release of the Basel Committee banks should first determine their own standards tOP tWitteR on Banking Supervision’s Principles for for compliance and then assess themselves more aleRts here’s a branch of mathematics particular sets of information and removing ambiguities from its rules. FEffective Risk Data Aggregation, middle and meaningfully against these. n Focus on SIBs: BCBS promises called proof theory, concerned follow certain processes; they must More recently, the international bond back office professionals in major financial centres There are many nuances in the principles to turn up the heat on banks in Twith the provability of proofs. It’s also be able to “prove” that they are markets have been operating on now find themselves with a number of difficult and hence many grey areas. For example, in the 2013 over risk management, one of those areas of maths that blows doing so. similar lines – there will be conflicts, questions, that senior management must be able governance space, banks are required to ‘consider’ governance, and data aggregation your mind if you are not an actual Gödel would be a handy man to but there is a defined and respected to answer and evidence. Many are faced with a risk data aggregation as part of any acquisition or mathematician. have around as an expert witness in resolution path. collective action problem within their own firm as they divestiture. However, clearly ‘consideration’ is a n ESMA issues final remuneration Many people in IT will have come some of the cases that are likely to Looking on the bright side, try to form a view of where they stand. broad scale, as are many other critical concepts, in guidelines on #AIFMs including across the concept reading Douglas come up because of the subjective perhaps we are seeing the start of a In a nutshell, the introduction of these principles terms of its breadth and depth of coverage. remuneration committee “unfettered” access to risk Hofstadter’s Gödel, Escher, Bach: nature of some of the proofs that will similar process. Over time, the grey means that firms can no longer afford to cut corners. Even within a more objective discipline like data management data an Eternal Golden Braid, which was be required. As this month’s feature areas may be thrashed out. As of January 2013, firms are being pushed to architecture a similar interpretative challenge is published in 1979, just as the PC on risk data points out, “there are Let’s hope so. For now it looks as assess how they collect, aggregate and report their encountered. The principles ask for the monitoring n Regulation SCI: SEC’s new revolution was starting. Like A Brief many nuances in the principles and though the principle of “innocent until data. Though this has always been done in the past, of the accuracy of risk data. This clearly requires tech rules to replace voluntary compliance program; History of Time, many people had it hence many grey areas”. proven guilty” is being replaced by new requirements necessitate fundamental changes some kind of metric capable of judging accuracy. operational risk high on global on their bookshelves. Grey areas are good for logicians, “guilty, by reason of being a banker”. to be able to prove that both their current and future However, again, this can be seen on a scale: from agenda Kurt Gödel, a logician and who can happily think up ways of target operating models are understood, resourced, a bare-bones estimate up to a comprehensive mathematician, was central to making them less grey, or formally owned and governed properly. measurement. the development of proof theory. defining the extent of their greyness. So how ready are we to look into the risk data Part of the self-assessment will therefore involve knOWn unknOWns His main work was called the Grey areas are also good for mirror and be satisfied with the result? Existing determining what this scale is for each of the n How will firms find the middle incompleteness theory, and it may lawyers, because they can earn a research shows that firms are at varied stages of imperatives within the principles, and then placing ground between the BCBS’ have some relevance to some of lot of money advising clients about David Bannister, editor preparedness. For instance, in a 2012 IIF survey, only the firm’s target operating model somewhere on Principles for Effective Risk the latest regulatory demands faced the greyness, and more for arguing 28% of firms surveyed said that data aggregation that scale. In placing the marker, firms will have to Data Aggregation and other risk data initiatives, such as Basel III by financial services firms. As the about it with other lawyers in court. plans were complete within their firm. However, this consider many things, including the marginal cost/ and the EDTF? content of this month’s RegTech Grey areas are less good for was before the release of the BCBS’ Principles and benefit of moving up the scale, what other firms are shows, regulators are increasingly business, which is why London’s PJ Di Giammarino, chief executive, so the number now looks to be even less. doing, and the method of interpretation. n What will be the outcome of demanding that firms not only collect insurance market has spent centuries JWG We advocate a strong self-assessment now, Another key differentiator in the governance regulators’ visits to firms in ‘early 2013’? to: figure out the size and cost of the problem, and example above is in the proof of the action taken. secure budget; to keep up with risk management in Tacit understanding cannot be verified, whereas a n How do firms compare with one the industry, and safeguard reputations; and to take meeting can. Here it is important to note that ‘proof’ another and what does ‘good’ look like? editOR David Bannister, sales manageR Sadie Jones, may be reproduced, stored in a retrieval system, advantage of the efficiencies that can be gained from does not simply mean ‘auditability’. But, as a result +44 207 017 4019 +44 203 377 3506 or transmitted in any form or by any means, good data management. For this purpose, firms will of the principles, both internal staff and regulators will [email protected] [email protected] electrical, mechanical, photocopying, recording, need a checklist against which to validate their risk also be checking up on firms’ risk data aggregation. themes or otherwise without the prior written permission data aggregation capabilities. Therefore, when answering ‘yes’ to a question on n Regulators are taking a tougher seniOR staff WRiteR Elliott Holley, maRketing, ciRculatiOn and of the publisher. Such a checklist should naturally be based upon the checklist, the assessor’s first follow-up question stance on back office hygiene +44 207 017 6492 RePRints the requirements themselves. However, this does should always be ‘how can I prove this?’ n Risk data aggregation is [email protected] Paul Waite, Banking Technology is published 10 times a not mean that the requirements are, in themselves, This proof also will obviously take different forms important to supporting other +44 207 017 5614 year by Informa Business Information, a trading an adequate checklist. Many of the imperatives depending on the context. For instance, any efforts such as RRPs daily neWs at siBOs editOR [email protected] division of Informa UK Ltd, 37-41 Mortimer Street, allow substantial room for interpretation. So when changes made to the governance level will probably n Timely self-assessment can London, W1T 3JH, UK. rely on documentary evidence. Here, again, firms will Heather McKenzie asked a vague question, such as ‘does your save significant work further suBscRiPtiOns and ReneWals board promote the identification, assessment and have to decide what ‘documentary evidence’ means down the line. PROductiOn Kosh Naran Subscription enquiries: Customer Service Dept, PRinteR Wyndeham Grange, management of risks to data quality?’ the tendency to them and where their target operating model is on Informa UK Ltd, Sheepen Place, Colchester, CO3 Southwick, UK. is to answer ‘yes, it does’. a scale of different depths of proof. PRess Releases 3LP. Tel: +44 (0)207 017 5533, Fax: +44 (0)20 But if the question the regulator is asking is ‘how Sometimes, after a long period of indulgence, it Send relevant releases to 7017 4783, Email: telecoms.enquiries@informa. ISSN 0266-0865 do they do this?’ or ‘do they do it x times a year, or can be difficult to look into the mirror and confirm [email protected] com Annual Subscription: UK £690, Europe www.bankingtech.com to y standard?’ then the answer is likely to be more that your fitness regime has slipped. Firms should €860, US/rest of world $1,235. hesitant. Hesitation is not good: it means that it take the opportunity they have now to stand before PuBlisheR Tim Banham, is quite likely that the principle is ‘materially non- the self-assessment mirror and identify the key +44 207 017 5218 ©2013 Banking technOlOgy compliant’ and that significant actions are needed changes that need to be made, before the regulators [email protected] All rights reserved; no part of this publication an informa business in order to achieve full compliance. Therefore, come knocking.

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APRIL 2013 WeLcome APRIL 2013

APRIL 2013 APRIL 2013

Welcome to EMIR: the known Regulating the -IBORs: a global unknowns of customer classification view of benchmarks? With EMIR in force, firms are now wrestling with the challenge of classifying their customers – Europe has made the first move to controlling benchmark manipulation but global co-ordination without an industry viewpoint the dialogue could get ugly … is needed at this stage to create an approach that works for everyone only valid if people believe in them. If are only tOP tWitteR MIR’s first implementation date has now ‘may not be sufficient’. Some take the view that it enchmark manipulation and fallout from valid if people believe in them. If the calculation tOP tWitteR aleRts been passed. From 15 March, investment would be very easy for regulators to leverage this it is not new news, but the global drive behind a benchmark changes, confidence may aleRts n EMIR deadline: ISDA publishes Efirms and corporates will now need to notify uncertainty to obtain ‘easy wins’ by finding fault Bto regulate benchmarks is. The political not automatically transfer to the new indicator. n Heavy fines coming: EU NFC Representation Protocol; ESMA if they have passed the clearing threshold, with current approaches in a transparent manner sensitivity surrounding regulation in this space This creates a risk that someone may decide that says benchmark antitrust allows participants to confirm their uncleared OTC trades and begin (e.g. through fines, speeches, etc.). means that national regulators are racing at the benchmark does not reflect the realities of investigation is nearing final amend multiple ISDA Master preparations to implement EMIR’s risk mitigation The ISDA Protocol is one attempt to solve the different speeds and approaches to implement the market. In this case, we have introduced risk stages, with many banks implicated Agreements techniques. In order to do this, you need to know problem of the NFC+ in a legal fashion, but does reforms to ensure benchmarks are transparently into the system and potentially destabilised it. n With the first #EMIR deadline your counterparties’ classification; whether they not attempt to make the initial division between regulated and set. As this race continues, global The banks and their suppliers will feel n The watchers watched: FSA looming in 11 days, how will are a Financial Counterparty (FC), Non-Financial FCs and NFCs. While the contract provides legal regulators such as IOSCO will be challenged the pinch as they need to change massive cleared of major regulatory your OTC BAU need to change? Counterparty (NFC), or a NFC over the clearing certainty on counterparties’ status, in that liability to coordinate local regulators in a concrete systems portfolios and data feeds. Thousands failure but admits it was slow to respond to LIBOR-rigging n FSA releases EMIR notification threshold (NFC+). for mis-classification lies with the self-certifier, it benchmark regulation framework. of applications, spreadsheets, databases and reports for NFCs over the Of course, it is not a huge issue to identify a only focuses on whether or not the threshold has Politicians are keen to be seen as aggressively online web portals would need to be modified n The UK’s Hogg Committee threshold: no group identifiers financial counterparty. JWG research shows that been breached. As such, this may only provide a holding bankers accountable for an action that to bring legacy systems up to date. On the invites would-be LIBOR required? 95.6% of commonly used industry codes can be partial answer. contributed to the financial crisis. Putting evidence other hand, the place where the costs are most administrators to submit pre- tender questionnaire used to identify non-financial counterparties with a Many corporates will not be willing to legally of poor behaviour in the public domain and levying likely to be felt by end investors is where loan knOWn unknOWns high degree of certainty. The real complexity of this self-certify their status. This is due to the large fines may well be a path towards a more agreements and their like, which were pinned n Will firms’ EMIR classifications classification exercise comes with identifying non- complexity of assessing whether they have trustworthy system, but it has led to a rushed and to certain benchmarks (e.g., LIBOR, EURIBOR), knOWn unknOWns be ‘good enough’ for the financial counterparties over the clearing threshold. breached the asset threshold on a group-wide splintered rulemaking process. are forced to change. This would involve re- n How will the market react to regulator now? Unlike other regulatory regimes this classification basis. Many do not have the extensive internal Today, EU regulators are leading the race to evaluating existing contracts, possibly followed new, untested benchmarks? relies on a firm’s partial view of the marketplace monitoring systems required to maintain the implement benchmark reforms via market abuse by redrafting/termination, in order to rebase the n Are the current industry n Will regulation come to cover solutions fit for purpose? that may not be shared by others. accuracy of their classification, especially when regulation and through a recent joint ESMA/EBA contract on a new benchmark. things such as market indices, For example, a big firm must now make a they may be in danger of breaching the threshold consultation. Globally, IOSCO is still behind, Clearly, a one-size-fits-all approach is not like the FTSE 100? n How exposed is the industry judgement on whether a large oil company’s on a trade-by-trade basis. This means that a large forming a task force and releasing its high-level going to work in relation to benchmarks. to mis-classification without n Will US benchmark regulation subsidiary in Paris can be considered to be a NFC part of the certainty required by a firm will need to consultation report on financial benchmarks. The Therefore, based on responses to ESMA’s industry alignment? align with global approaches? when the trade being conducted is likely to put it be obtained directly. US still has yet to make a move. Clearly, without consultation, it appears many firms would like over the clearing threshold. In addition, it is worth mentioning the British these major players on the same page, benchmark the freedom to take a proportionate, or risk- themes Client classification will have a bearing on the Bankers’ Association Data Management Advisory regulation may remain more a fiction than a reality. based, approach. Proportionality would allow themes n The industry lacks clarity on a timely confirmation of uncleared trades and eventually Panel, which has been working on a methodology There are many flavours of benchmark that are firms and market participants to exercise their n Benchmarks are politically common approach to customer the clearing of trades subject to the clearing obligation for using industry codes to classify counterparties used for a variety of purposes. At present, there is own judgment when subscribing to benchmarks. charged and a global issue classification and the correct posting of margin. Failure to correctly on ‘day 1’. no concrete definition of a benchmark, so ESMA And the exercise of this judgment could then be n Benchmarks are ubiquitous and n Customer classification differs classify counterparties or, just as importantly, The fundamental barrier to a consistent and the EBA are attempting to create their own. supervised by a regulator. entrenched within the financial between regulatory regimes, classification of clients which is different from that of interpretation across Europe is the lack of clarity However, where ESMA runs a very abstract definition However, not all jurisdictions buy the idea system e.g. Dodd-Frank your competitors, may adversely impact a firm’s ability as to what, exactly, the politicians and regulators of a benchmark, IOSCO has taken a more practical of proportionality. Many are more likely, given n Global benchmarks will be n There are no common to do business. meant about what counterparties should know approach, in its 2013 consultation, by including a ‘use the industry’s record of bad practice in the difficult for a single jurisdiction standards for customer What’s the problem then? Firstly, unlike MiFID, about each other. Did they mean that every firm test’ that limits the scope. This means that the global, benchmarking arena, to introduce prescriptive to regulate classification across firms cannot rely completely on self-certification. should know their customer’s precise status IOSCO, definition of a benchmark would come closer rules that remove any room for firms to exercise jurisdictions? This is because, while there is an EMIR in intimate detail – including up to the minute to the conventional usage of the word ‘benchmark’, judgement. requirement for NFCs to notify authorities when knowledge of how much trading they are doing whereas the EU definition would include other rates, With Brussels just announcing that banking they, or any others in their group, have breached with other firms? Or, did they merely mean that we such as market indices. cartels can be fined up to 10% for each of their the threshold, there is no such obligation to inform should have a general understanding of what was Ultimately, there are clear ways to differentiate transgressions – potentially putting more than the marketplace of their status. This means that likely to be their status based on a profile? between indices – for example, the delineation 30% of a bank’s global turnover at risk – things a firm’s customer is under no obligation to ensure Firms are facing many of the same practical between benchmarks set subjectively (and are due to move quickly in this space. The all its trading partners classify it in the same challenges for EMIR as they do for AML, FATCA and therefore open to manipulation) and market European Parliament is scheduled to debate way. Even the NFC that breaches the clearing a host of other regulations in 2013. This speaks to indices set automatically (and therefore harder to benchmarks in three months. CFTC and IOSCO threshold (NFC+) is under no regulatory obligation the larger challenge facing the industry, the inability manipulate). As ever, there will be many ways to have announced a roundtable at the end of to inform its counterparties – it must only inform its to get guidance needed to be able to implement classify and ‘carve out’ various types of market February that should help give clarity on what competent authorities and ESMA. And ESMA is requirements in a consistent and cost-effective way. activity and we have only just begun to see a regulation is coming. Ultimately, however, without under no obligation to share its NFC+ register. With a number of regulations requiring changes discussion of what this will look like. binding consequences, regulators will fall short of For these reasons, ESMA stated in public to the way you classify customers, this is not an Fundamental to the benchmark discussion is creating the global agenda necessary to rule out forum in Mid-2012 that self-certification of status issue that is going away anytime soon. the ‘emperor’s new clothes’ problem: indices are a repeat of LIBOR.

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APRIL 2013 APRIL 2013

APRIL 2013

AMLD IV – Prove you’re doing it right The new EU Anti-Money Laundering Directive looks to be a significant step up for firms’ KYC and monitoring teams’ risk management, systems and controls in 2014

tOP tWitteR nti-Money Laundering systems and controls The lowered transaction monitoring thresholds will aleRts continue to make news in the wake of the also further increase the scope and volume of due n Closer alignment between Ahigh profile failures of 2012. On 5 February, diligence checks required. FATCA and AML requirements? the proposal for the updated EU Anti-Money However, it’s not just these (lack of) exemptions FinCEN is updating FBAR Laundering Directive was finally released. The that are increasing focus on a judgement based reports to require TINs proposal imposes a number of new requirements approach. The new definition of politically exposed n Customer data reviews req? significantly increasing the scope and volume of firms’ persons, that has been amended to include AMLD expands PEP def, KYC processes likely to be required by 2014: domestic politicians and members of international harmonises calculation, new • Fewer due diligence exemptions – regulated organisations, has the ability to vastly increase the disclosure reqs for beneficial institutions are now not always eligible for SDD volumes of accounts requiring due diligence. ownership • PEP definition includes domestic politicians – While a minor requirement taken in isolation, PEPs may no longer be automatically high risk considering that the application of PEP checks knOWn unknOWns • Disclosure of firms’ beneficial ownership - new now required for the client base is no longer n After lobbying, what will the calculation requirements and disclosures of beneficial exempt from automatic low risk status, the cost final measures entail? owners quickly rises. The identification and subsequent • Transaction monitoring thresholds for due reviews to uncover all new PEPs within firms’ client n Will the directive get the Swiss, British or German finish? diligence have been decreased by 50% bases, as well as new accounts, will significantly These new requirements will heavily impact increase the cost, complexity and latency of n What standards will be customer due diligence meaning the ways firms view acquiring customers. available for defining a risk their money laundering risk will have to be updated There are still opportunities for cost savings, based approach within the firm? in their entirety. And the burden of proving this has however. Domestic political exposure doesn’t gone up. necessarily mean an increased risk of money Drawing heavily on the extensive review of the laundering in-and-of-itself; but PEP checks have now themes 3rd Money Laundering Directive, as well as the 2012 become another indicator of risk to be taken into n Anti-money laundering remains Financial Action Task Force recommendations, the consideration when making a holistic assessment of a political focus and more fines 4th Anti-Money Laundering Directive gold-plates the a client. Making a holistic assessment, as part of the to come FATF recommendations in a number of areas with risk based approach, requires extensive data sources, n The ways firms view their the aim of tightening existing rules and increasing the controls and rules on how to treat data. Implementing money laundering risk will be scope of the risk based approach. this into an automated solution may be tricky. updated in their entirety So what does this actually mean for firms? The But it doesn’t stop there. New rules on the n New global standards will risk-based approach is designed to be all about calculation and disclosure of beneficial ownership expand scope of client proportionality. The more risk, the greater the due add further complexity. New requirements to disclose documentation, checks, and diligence done. For financial services, however, it has beneficial ownership mean all firms have to report enhanced controls long been considered that certain categories of client their own beneficial owners on a continual basis. or transaction can be automatically considered to be While this may be very useful for due diligence low risk. Historically this has meant that, for example, checks, and will considerably reduce the burden of a Tier 1 sell-side institution would likely not conduct verification across the industry, the mechanism on extensive due diligence with other large, regulated how this new information will be made available to (and therefore assumed to be ‘low risk’) institutions. all parties is yet unclear. In any case, due diligence A number of these exemptions have been systems will have to be altered and third party removed and AMLD IV is requiring firms to challenge information providers will need review. the assumption that some categories can be The proposed rules still require formal adoption by considered low risk without any knowledge to verify the European Parliament and the Council of Ministers. that assumption. Judgement is required, and firms Thus, it is likely that implementation at the national will be forced to defend that judgement. It may very level won’t be scheduled until late 2014. Firms will well be the case that in the next round of regulatory need to start the dialogue now. visits firms will be asked difficult questions about AMLD IV means firms will need to know relationships considered low risk for many years that significantly more about their overall client base’s firms will be without evidence for. business for AML purposes. That may require The result of this, for many institutions, will be a investment in new staff and monitoring systems. vast expansion in the number of clients now requiring While it may be that firms’ customers’ risk levels will documentation, checks, and enhanced controls. remain the same, it may be very expensive to prove it.

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