Markets Will It Have the Intended Effect?

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FEBRUARY 2011 FEBRUARY 2011 Fixing the European legislation on post-trade infrastructures is imminent – but markets will it have the intended effect?

Looking to the future Temenos chief executive Andreas Andreades Nowhere to run, nowhere to hide Market surveillance systems get clever Going with the ﬂ ow Trade is recovering: can banks capitalise on it? Roundtable: SEPA end date Have the regulators done the right thing?

Special Report Regulatory burden: see page 27 Contents February 2011 In this issue

36 23

4 news 23 Going with the flow Trade finance activities are recovering from the 8 news Analysis crisis, but banks are facing challenges from a range ■ Heather McKenzie: The eC’s SePa end date of competitors. Systems will need to be flexible to clarification is as clear as mud cope and protect valuable business. ■ iPad drags apple into the financial services market ■ New reporting methods show extent of fraud in the 27 special Report: A new decade of regulation uK up – but down in financial services The regulators are now moving into a phase where they are passing laws, not directives, and the 12 Cartes show review financial services industry is facing some serious The Cartes show attracted 500 exhibitors and 20,000 questions in addressing the challenges they are visitors from 150 countries to Paris to hear about the facing. For some, it could even mean exiting parts latest smartcard, security and payment systems. of the business.

15 By the numbers 32 Roundtable: the sePA end-date debate ■ Ovum: european retail bank IT spend is lagging a panel of industry specialists discuss the behind other regions implications of the eC’s latest rulings and the need ■ Financial services growing, but jobs outlook grim to convice customers of the benefits of SePa.

16 Cover Focus: fixing the markets 36 Interview regulations to alter the structure of the european Tememos chief executive andreas andreades trading markets are focussing closely on the post outlines the company’s plans. trade environment, with new legislative proposals due in early summer. 38 Appointments 40 Products & services 20 nowhere to run, nowhere to hide ... ■ Vendor announcements, enhancements and as international regulators move to prevent innovations another crisis, surveillance systems are becoming 43 Industry columns & comments increasing sophisticated. 48 out of office

www.bankingtech.com I 1 Contents February 2011 In this issue

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www.bankingtech.com I 1 eDITORIAL COMMeNT February 2011 editor David Bannister +44 207 017 4019 [email protected]

Deputy editor Neil Ainger +44 203 377 3498 Small change [email protected] here is, and will be for some time, a lot of talk about Publishing Director Brian Meggs narrow banking and casino banking, and how to keep the +44 207 017 5004 two apart. Most of it is nonsense, so I may as well add [email protected] T what passes for my thoughts. Regular Contributors Frank Booty, Fabien The first of these is that change is happening in the retail world Buliard, Sherree DeCovny, Tom Groenfeldt, at an enormous pace, so anyone operating there has to be very Eugene Grygo, Heather McKenzie, Nicholas fleet of foot. Pratt, Kristina West The second is that the “tsunami” of regulation has created a Designer Kosh Naran world where it is very hard to be fleet of foot. How you balance these two is clearly problematical. regulators and politicians Press Releases Send relevant releases to seem to think that “narrow” banking is the answer to this: basic accounts, savings and [email protected] loans for Joe and Joanna Public to keep their salaries or benefits in. barclays seems to be heading for that in its retail operations – in January it Senior Sales executive Leon Thomson, +44 203 377 3493 announced that it was taking investment advisory services out of branches, with a [email protected] consequent loss of jobs. Wealthier customers will still have barclays Wealth to turn to if they have £500,000 of investable funds. That’s more than 20 times the average income Head of Awards and events in the uK, by the way. Samantha Graham, +44 207 017 5122 In other areas of banking, the regulations are reshaping the landscape more subtly, [email protected] but not always in ways that are compatible with creating the stability the regulators intended. The FX market, for instance, has seen changes as it moves towards using Marketing and Circulation Louise Canfield, the prime broker model, substantially though the ICaP Traiana post-trade processing +44 207 017 4088 system. Some argue that creates a systemic risk in the market by concentrating risk. [email protected] With $1 trillion of Spot FX trading going through the system every day, any failure could Subscriptions and Renewals Michael Oxley quickly bring other areas, such as the interest rate swaps market, to a grinding halt. +44 203 377 3220 That’s not in the plan, is it? BT Email: [email protected]

For Reprints and Web Publishing Rights David Bannister, editor please contact Louise Canfield on +44 207 017 4088

©2010 Banking Technology All rights reserved; no part of this publication Do believe the hype may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, was travelling into the office listening to my iPod on shuffle, electrical, mechanical, photocopying, recording, or and marvelling at how scratchy and lo-fi Publice nemy’s Don’t otherwise without the prior written permission of believe the Hype sounds these days, when I started playing with the publisher. I the device in my hands. Having been an initial sceptic about the Banking Technology is published 10 times a year iPod and asserting it was ‘just another walkman fad’ (stupid boy!) I by Informa Business Information, a trading division got to thinking what else might change and prove me wrong as we of Informa UK Ltd, Telephone House, 69-77 Paul enter a new decade? What hype should we believe? Street, London EC2A 4LQ, UK. Many have said to me recently that instead of a new gadget, Printer: Wyndeham Grange, Southwick, UK. the next technology wave will be a consolidation of functions on to the new generation of mobile smartphones, offering music, pictures, banking and Subscription enquiries: Customer Service Dept, even payments with new NFC-enabled secure chips. This is one consumer revolution Informa UK Ltd, Sheepen Place, Colchester, CO3 that will drastically impact retail banking if the predictions are correct. Given that I’ve 3LP. Tel: +44 (0)207 017 5532, Fax: +44 (0)20 7017 7860, Email: [email protected] Annual already seen the technology in action during a press trip to Sitges, Spain, last year with Subscription: UK £655, Europe €815, US/rest of La Caixa, Visa and Telefonica, where 500 shops were wired up to receive contactless world $1175. m-payments I’m inclined to believe the ‘futurologists’ on this one. I’ve also just been reading about Orange’s plan to launch what it says is theu K’s Member of the Audit Bureau of Circulation first similar m-payments scheme this summer withb arclaycard, Pret a Manger, the Average net circulation for the period 1st July 2009 – 30th June 2010 – 8,108. National Trust and Little Chef (see online for more). O2 trialled a similar scheme in 2009 when mobile phones could be used instead of the Oyster card to pay for tube journeys in London and the operator is thought to have imminent plans of its own in this space. even the Wincor Nixdorf trade show that I attended in Germany recently had acres of exhibition space devoted to the mobile channel, displaying how codes can be sent to phones that can then be held up toa TMs to retrieve ‘emergency cash’. The buzz around the mobile channel is real and this is one case where I think – apologies to Chuck D – you should believe the hype. BT

ISSN 0266-0865 Neil Ainger, deputy editor

www.bankingtech.com I 3 eDITORIAL COMMeNT February 2011 editor David Bannister +44 207 017 4019 [email protected]

For Reprints and Web Publishing Rights David Bannister, editor please contact Louise Canfield on +44 207 017 4088

ISSN 0266-0865 Neil Ainger, deputy editor

www.bankingtech.com I 3 February 2011 Go to www.bankingtech.com for the latest news and comment

Regis-TR OTC derivatives trade Liquidnet and Six NEWS repository opens pool platforms for he new Regis-TR trade repository, director of the new trade repository which is jointly owned by Spain’s and will be assisted in running the new shared liquidity TBolsas y Mercados Españoles entity by Thilo Derenbach, presently IX Swiss Exchange and Deutsche Börse New management team at HSBC and Clearstream, a division of Deutsche senior vice president of Clearstream, Liquidnet, the non-displayed Börse, has opened for business. The acting as his deputy Sliquidity pool made up of more adds data centres gets ready to outline tech plans new launch is intended to answer ■ Philip Brown, currently head than 620 buy-side market participants demands from the regulators for more of relationship management at executing trades worth €1.04 million in Singapore Changes at the top level of the bank may mean changes in its IT consolidation transparency in the Over The Counter Clearstream, completes the board. each on average in European markets plans as the One HSBC project moves into its final phases derivatives market. Banco Sabadell, Commenting on the new launch, last year and €52 billion worldwide, s part of its expansion into the BBVA, Iberia and Telefónica were the Jeffrey Tessler, chairman of Regis- have signed a partnership agreement asia-Pacific region, Deutsche en Harvey is to leave the post first entities to connect, with many more TR, said: “We will turn a regulatory covering European institutional Abörse Group’s market data & of global chief technology and parties promised throughout the year. requirement into a benefit for our clients equities that gives each of its members analytics division has opened two new Kservices officer at HSbC at the end Regis-TR collects and administers by creating a more efficient environment access to each others’ marketplaces, co-location data centres in Singapore of March, retiring from the HSbC Group. details of all OTC transactions reported through automation and standardisation, enabling large block trades to be to host its expanded alphaFlash The post will be filled by Sean O'Sullivan, by its users, giving market participants thus also reducing operational risk. made on a new platform. algorithmic news feed, which went currently uK CTSO. O'Sullivan took and regulators access to a consolidated Our trade repository is designed to The liquidity in Liquidnet’s live in the region in January. Similar up the post on 11 January, with Harvey global view of these OTC derivative meet future market and regulatory exclusive dark pool will be available data centres were added in Sydney acting as advisor during a three-month positions, as demanded by regulators expectations for the collateralisation of to SIX Swiss Exchange members and and Tokyo in November last year, handover period. post-crash. The trade repository serves the OTC derivative exposure, leveraging Liquidnet members will benefit from enabling macroeconomic data from Confirming Harvey's departure, a bank both financial and non-financial Clearstream’s expertise in this field.” the additional liquidity provided by China, Japan and australia to now be spokesman said that the ambitious One institutions and, according to operators, Fellow board member, Jesús Benito, SIX Swiss Exchange members. SIX delivered to market participants in the HSbC IT replacement and realignment it aims to deliver flexible participation the managing director of Regis-TR, Swiss Exchange members will be able Far east. programme that he was leading will still levels, which can adapt to the diverse pointed out that the new launch has to use their existing front-end trading alphaFlash will be hosted in the Kim continue, scotching suggestions that it profiles and needs of all stakeholders come to market quickly, within a year systems to trade in approximately Chuan and Comcentre III data centres will be de-emphasised as new senior and actors in the OTC derivatives market. of its inception, adding that, “this is 3,600 international securities covering in Singapore, both operated by the management takes over at HSbC in the To operate the new trade repository, the materialisation of a solution that initially Switzerland, UK, France, SingTel Group. The data feed can easily next few months. according to one source, BME and Clearstream have created a aims to enhance transparency in the Germany and the Netherlands. The be accessed by all financial companies however, the scale of the project has new company that will be headquartered OTC derivatives market by providing offering is expected to go live in the and trading firms. The content covers been reined in on the advice of external in Luxembourg and have the following regulators with a clear picture of the second quarter of 2011, subject to indicators such as CPI, industrial consultants, but others say that it is reaching Board members: market. It builds on the know-how and regulatory approval. output, FX reserves, money supply, the end of its natural life – as it is now three Harvey: handing over ■ Jeffrey Tessler, chief executive of years of experience of Iberclear in the For SIX Swiss Exchange members, employment figures and GDP. Data years since its inception, and many of the Clearstream, will be chairman of Regis- operation of registries. The participation accessing the non-displayed liquidity sources are the respective country’s goals have been achieved. Presentations by the bank when One HSbC was first made TR of Iberia andTelefónica in the pilot leading pool is simple. After minor changes to central banks, the national statistics public show the conclusion of the data centre consolidation as being scheduled for ■ José Massa, the chairman of Iberclear, up to the launch is also encouraging the Swiss Exchange’s standard trading offices and government institutions. 2010, for instance. In 2003 it had 55 core banking systems, which by 2008 had been is vice chair of the new body proof of the interest our trade repository interface (STI), they will be able to Deutsche börse Group’s market data & reduced to 17, and its five trading platforms have been standardised on one system. ■ Jesús Benito, chief executive of has generated among financial and non- direct their flow towards the new analytics division uses resources from The wider benefits of the project, creating a single system that could be rolled out Iberclear, takes over as managing financial institutions.”BT service. The minor upgrades include its subsidiaries Need to Know News anywhere in the world have proved elusive. Some insiders report that localisation a new venue code, a new trade type and Market News International to help issues in different regions meant that they were inevitably “chasing a moving target”. code, and a new order condition gather news for the datafeed service. according to the spokesman, the bank "is continuing to move to one platform, Tesco Bank deploys Fico software to for minimum fills which will enable Various connectivity options to particularly in retail" and One HSbC remains central to this. investors to expose larger blocks alphaFlash are available from the Harvey was appointed global CTSO on 1 October 2008, integrating the roles of the improve customer view and processes without compromising on match sizes. growing network of global data chief operating officer and chief information officer as part of what the bank described Once the upgrades are completed, centres. Subscribers can choose as a recognition of its technology-driven focus. esco is installing collections, risk and fraud solutions from Fico across its members only need to update their between several different regional data There have been a number of personnel changes at the very top of HSbC in recent business lines to improve its customer view and the efficiency of its processes. clearing and settlement instructions packages, covering the uS, Canada, months, capped at the very top by the departure of Michael Geoghegan as chief TThe supermarket bank already has 6.5 million customer accounts across 28 for international securities. SIX Swiss europe and now asia-Pacific. executive, and his replacement by Stuart Gulliver from the investment banking side. product lines, but until now has been focused on credit cards, loans, insurance and Exchange members and institutions “There are two driving forces Geoghegan had been a supporter of the One HSbC project and Harvey worked closely other retail banking areas away from operating current accounts. This is now changing globally are expected to benefit from behind the asia-Pacific expansion of with him. In an interview with Banking Technology last year, Harvey told us how the and it has ambitious plans to become a full service High Street bank with accounts and price improvement as all trades alphaFlash: the increasing importance former chief executive had a screen on his office wall monitoring the progress of the in-store branches. conducted through the shared of algorithmic trading based there, as entire system. As part of its growth plans the bank is refreshing its technology and rolling out market will be based on the mid- well as the region’s economic impact In that interview, Harvey said that HSbC’s average annual IT spend had fallen from a Fico’s Debt Manager and PlacementsPlus service, respectively a debt recovery point price of the primary exchange. on the rest of the world,” explains peak of £6 billion when he took over in 2008 to something closer to the £5 billion mark. monitoring system and service for collections agency management, alongside Fico’s This can typically deliver between 5 Georg Gross, head of front office data “The benefits of One HSbC are now offsetting the costs, which is a tremendous relief,” Triad Customer Manager to improve customer intelligence and the vendor’s Falcon and 20 bits per second of direct price & analytics at Deutsche börse. “The he said. We're half way through the project and when you get to that part of the project Fraud Manager to increase security. All the software solutions will go live by the end improvement, say the partners, not new asian data centres allow our there's no questioning ‘Is this the right thing to do?' or a‘ re we going to finish it?' The of Q2 this year, providing better support to make lending decisions, identify cross- to mention the additional savings clients to integrate alphaFlash directly institution had the fortitude to stay on with it during its investment cycle, and now the sell opportunities, and improve oversight and fraud protection methods via the possible by avoiding market impact into their local trading applications.” BT benefits are being seen, everyone is onboard with it.”BT deployment of behavioural pattern-spotting software. BT costs. BT

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Regis-TR OTC derivatives trade Liquidnet and Six repository opens pool platforms for he new Regis-TR trade repository, director of the new trade repository which is jointly owned by Spain’s and will be assisted in running the new shared liquidity TBolsas y Mercados Españoles entity by Thilo Derenbach, presently IX Swiss Exchange and and Clearstream, a division of Deutsche senior vice president of Clearstream, Liquidnet, the non-displayed Börse, has opened for business. The acting as his deputy Sliquidity pool made up of more new launch is intended to answer ■ Philip Brown, currently head than 620 buy-side market participants demands from the regulators for more of relationship management at executing trades worth €1.04 million transparency in the Over The Counter Clearstream, completes the board. each on average in European markets derivatives market. Banco Sabadell, Commenting on the new launch, last year and €52 billion worldwide, BBVA, Iberia and Telefónica were the Jeffrey Tessler, chairman of Regis- have signed a partnership agreement first entities to connect, with many more TR, said: “We will turn a regulatory covering European institutional parties promised throughout the year. requirement into a benefit for our clients equities that gives each of its members Regis-TR collects and administers by creating a more efficient environment access to each others’ marketplaces, details of all OTC transactions reported through automation and standardisation, enabling large block trades to be by its users, giving market participants thus also reducing operational risk. made on a new platform. and regulators access to a consolidated Our trade repository is designed to The liquidity in Liquidnet’s global view of these OTC derivative meet future market and regulatory exclusive dark pool will be available positions, as demanded by regulators expectations for the collateralisation of to SIX Swiss Exchange members and post-crash. The trade repository serves the OTC derivative exposure, leveraging Liquidnet members will benefit from both financial and non-financial Clearstream’s expertise in this field.” the additional liquidity provided by institutions and, according to operators, Fellow board member, Jesús Benito, SIX Swiss Exchange members. SIX it aims to deliver flexible participation the managing director of Regis-TR, Swiss Exchange members will be able levels, which can adapt to the diverse pointed out that the new launch has to use their existing front-end trading profiles and needs of all stakeholders come to market quickly, within a year systems to trade in approximately and actors in the OTC derivatives market. of its inception, adding that, “this is 3,600 international securities covering To operate the new trade repository, the materialisation of a solution that initially Switzerland, UK, France, BME and Clearstream have created a aims to enhance transparency in the Germany and the Netherlands. The new company that will be headquartered OTC derivatives market by providing offering is expected to go live in the in Luxembourg and have the following regulators with a clear picture of the second quarter of 2011, subject to Board members: market. It builds on the know-how and regulatory approval. ■ Jeffrey Tessler, chief executive of years of experience of Iberclear in the For SIX Swiss Exchange members, Clearstream, will be chairman of Regis- operation of registries. The participation accessing the non-displayed liquidity TR of Iberia andTelefónica in the pilot leading pool is simple. After minor changes to ■ José Massa, the chairman of Iberclear, up to the launch is also encouraging the Swiss Exchange’s standard trading is vice chair of the new body proof of the interest our trade repository interface (STI), they will be able to ■ Jesús Benito, chief executive of has generated among financial and non- direct their flow towards the new Iberclear, takes over as managing financial institutions.”BT service. The minor upgrades include a new venue code, a new trade type code, and a new order condition Tesco Bank deploys Fico software to for minimum fills which will enable investors to expose larger blocks improve customer view and processes without compromising on match sizes. Once the upgrades are completed, esco is installing collections, risk and fraud solutions from Fico across its members only need to update their business lines to improve its customer view and the efficiency of its processes. clearing and settlement instructions TThe supermarket bank already has 6.5 million customer accounts across 28 for international securities. SIX Swiss product lines, but until now has been focused on credit cards, loans, insurance and Exchange members and institutions other retail banking areas away from operating current accounts. This is now changing globally are expected to benefit from and it has ambitious plans to become a full service High Street bank with accounts and price improvement as all trades in-store branches. conducted through the shared As part of its growth plans the bank is refreshing its technology and rolling out market will be based on the mid- Fico’s Debt Manager and PlacementsPlus service, respectively a debt recovery point price of the primary exchange. monitoring system and service for collections agency management, alongside Fico’s This can typically deliver between 5 Triad Customer Manager to improve customer intelligence and the vendor’s Falcon and 20 bits per second of direct price Fraud Manager to increase security. All the software solutions will go live by the end improvement, say the partners, not of Q2 this year, providing better support to make lending decisions, identify cross- to mention the additional savings sell opportunities, and improve oversight and fraud protection methods via the possible by avoiding market impact deployment of behavioural pattern-spotting software. BT costs. BT

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The Spanish Confederation of Savings Banks (CeCA), the collective Dubai Bank has implemented the TLM Corona Cash and New sort code DTCC publishes latest draft of which provides finance and technology solutions and economy-of- Investigations software module from SmartStream to give it a more scale operational savings to individual members, is facing a tough efficient nostro and central bank account reconciliation system. The accreditation ISO20022 corporate actions specs time as last year the number of Caja savings banks in the country solution is expected to provide greater capacity and automation as it fell from 45 to 34, necessitating a change in the way that CECA uses replaces a manual system, so transaction loading times will fall from he Payments Council has he Depository Trust & Clearing Corporation has published updated drafts of its collateral management solution from Algorithmics’ to enable the two hours to just minutes and staff numbers will fall by 50%. The launched an accreditation scheme new ISO 20022 corporate action announcement specifications to be used in consolidation and conform to new regulations. CECA has adapted its installation is the first phrase in an enterprise-wide project to introduce Tto ensure that commercial Tthe pilot test with custodian banks, broker/dealers and other corporate actions systems and processes since the turn of the year to meet the new a single platform for multiple reconciliation types by year end. A new companies who provide sort code users beginning this april. collateral management requirements of its reduced membership. The reconciliations factory will eventually act as a single transaction validation products on a subscription While the pilot of the DTCC system using ISO20022 announcement messages new service, delivered via its Global Collateral Service Centre, can processing platform across all of the bank’s business. Ultimately, or ‘pay per use’ basis to uK businesses will involve a limited number of financial services providers, all firms using also accommodate new regulatory requirements for full asset class Dubai Bank will have a clear upstream and downstream view of the are up-to-date with their information. DTCC corporate actions will ultimately have to switch to ISO20022 messages to coverage, including derivatives, security lending and bond repos. The entire transaction process, and anything that does not automatically The idea is to help minimise processing receive corporate action information. The new documentation was developed in banking collective reprogrammed its Algo Collateral software from match, thereby presenting a risk to the bank and its clients, can be errors and delays for businesses that collaboration with Swift, in its role as the ISO 20022 registration authority. Algorithmics’ to enable the changeover, with the intention of providing flagged up for separate investigation under the exceptions-handling rely on this data to make automated ISO20022 provides a common platform for the development of messages in a more effective collateral management services to support the Caja procedure. The modular infrastructure also allows for expansion and payments via bacs, Faster Payments standardised syntax and defines a number of key elements used in messaging. banks’ customers and to standardise processes to ensure efficiency. future-proofing against new market developments. or CHaPS, by enforcing regular weekly Supplementary data that does not fit into the current standard message format, or is accuracy reports and checks. specific to a particular country or market, can be added by extending the messages The National Settlement Depository, the only domestic wall Street Systems is buying the corporate treasury manager New sort codes are introduced as with an additional component. DTCC determined what supplemental information depository that services the full range of debt and equity service of Thomson Reuters. The Software-as-a-Service operator banks’ products change or when new was needed in these extensions for corporate actions processing in the uS. securities of Russian issuers, went live with its new online (commonly known as ‘Treasura’ for its system), provides cash accounts are introduced. While it is not “It was important that DTCC, Swift and the industry thoroughly examine these Alameda system in January, which allows market participants and liquidity management services to corporations in North known exactly how many customers messages, since they will be the principal way we announce corporate actions and to conduct depository operations via a web interface based America. The acquisition is the third by wall Street Systems are inconvenienced by payments which will be the basis for the corporate actions messaging pilot program that DTCC will around Oracle’s database management system, increasing in the last 12 months, and as before is part of a strategy to are rejected or delayed as a direct result launch this spring,” said Patrick Kirby, DTCC managing director, asset Services. efficiency, access, speed and automation. NSD has also strengthen the firm’s position in the global corporate treasury of using out of date sort code data, “DTCC and Swift conducted several workshops in the past five months with launched the beta version of its Depository Information Service arena. The addition of Treasura will further accelerate wall the issue was identified as an area custodian banks and broker/dealers to review the new message specifications Centre database, which is designed to cater for the expected Street’s North American expansion in the mid-tier corporate for improvement in the uK National proposed for the announcement phase of the corporate actions reengineering deluge of information relating to securities serviced by NSD, as market, complementing the company’s June 2010 acquisition Payments Plan – the Payments Council’s initiative,” said Kirby. “The workshops were held to make sure that the message well as to issuers, registers and authorised depositories. Both of London-based City Financials and its purchase of Speranza 10-year blueprint for improving specifications accommodate the wide range of industry needs.” DTCC also reviewed developments are part of the ongoing modernisation of NSD’s Systems in April last year, a provider of electronic bank account payment systems in the uK. the supplementary data with the International Securities association for Institutional technological platform, designed to handle expected growth management (eBAM) solutions. businesses using an accredited Trade Communication, which acts in part as the uS National Market Practice Group and a changing marketplace. provider should be confident that that for ISO messaging standards. Banco Bilbao Vizcaya Argentaria is rolling out 200 new Automated their supplier has met the requirements. a new browser-based user interface for corporate actions also will begin pilot The Central Bank of Oman has gone live with a multi-currency Teller Machines from NCR throughout this year in Spain, which according to Hilary Plattern, director of testing in april to coincide with the ISO20022 messaging pilot. This initial version of national ATM/POS switch, running on ACI Worldwide’s Base24-eps feature a touch screen display, internet-access, a screen that can strategy at the Payments Council, “the the browser will consist of announcements for all event types across distributions, payments engine, which is the last element in the Arabian country’s rotate 90 degrees to improve customer viewing and a single slot scheme will ensure that companies can redemptions and reorganisations, and later will incorporate the entire corporate national payment plan. First launched in 2003 the plan, which also that accepts cash, cheques and passbooks, while also distributing rely on providers of sort code validation actions lifecycle, including elections, instructions and payments. This unified involves HP and IMTAC supplying systems, has established a flexible cash and receipts. The new Abil ATMs are the result of a strategic products to be consistently maintaining corporate actions platform will eventually replace the varied corporate actions infrastructure that can support electronic money, cash machines, partnership between BBVA, NCR, Fujitsu and the design consultancy their data to a high standard; meaning functionality in the legacy systems that customers use today. multiple currencies, and future requirements such as e-payments Ideo, with 20 units already installed in Spain. The cash machines will that the electronic payments they “The browser’s enhanced functionality will boost firms’ operational efficiencies and m-payments. The new switch is expected to handle monthly eventually be rolled out to other BBVA locations in the southern want to make and receive will operate and allow them to manage all corporate action events through the entire lifecycle in volumes of approximately five million ATM and POS transactions. It states of the US and South America. smoothly.” BT one platform,” said robert epstein, DTCC vice president, asset Services. BT can also process transactions from EMV as well as non-EMV cards. A direct link with all the GCC Net switches, of the surrounding Gulf Online and 24-hour telephone bank, first direct, has introduced Cooperation Council countries, has also been established so ATM a transactional banking ‘on the move’ application for Apple’s transactions can now be routed directly between GCC countries iPhone and iPod Touch. Available free-of-charge on the Apple without going out to the wider card networks. App store, it allows first direct customers to check balances, view the last 20 account transactions, make payments to North Dallas Bank & Trust Co has introduced Thales’ hardware other registered first direct customers and transfer money Looking for a new career? security modules and S1 Postilion software to help it move between accounts within the bank. The payment functionality from outsourced PIN verification for ATM and debit transactions is useful but until the banking industry as a whole develops the Banking Technology is looking for a Senior Sales executive to join our team, towards an in-house solution that delivers lower transaction costs appropriate standards and interoperable protocols true peer-to- based in central London. and improves customer service by providing real-time balances. peer payments across different banking institutions remains The bank, with five branches in the Dallas area, used to outsource a way off. RBS’ Natwest is the only other UK bank to have as a Senior Sales executive, you will manage and maximise revenue from its ATM and debit transaction verification processing to a larger introduced a similar smartphone app up until now. existing clients as well as developing new business by selling over the phone and bank. Using an HSM-protected process, the larger bank oversaw face to face to professionals in the financial services industry. Sales opportunities PIN verification and sent North Dallas Bank a transaction file Banca Transilvania, one of Romania’s top five banks, is installing will include advertising in both print and online, sponsorship, awards, detailing recent activity. To update customer account balances, Oracle’s FlexCube core banking software on its retail and corporate supplements and roundtables. the bank then regularly posted the file to its internal systems but banking business lines to support anticipated double-digit this was an expensive and slow process, and customer balances operational growth year-on-year and to improve its risk, compliance, For more information please contact Leon Thomson on +44 (0)20 3377 3493 or took several hours to be updated. Using S1 Postilion software for and customer service procedures. The Universal Banking Solution email your CV and covering letter to [email protected] processing and the Thales HSM 8000 to provide a secure processing software will also allow new products and services to be brought environment, North Dallas Bank can now verify its customers’ PINs to market more quickly in the future thanks to its flexible, modular www.bankingtech.com www.informa.com in-house and is giving them more timely information. architecture.

6 I www.bankingtech.com www.bankingtech.com I 7 NewS Go to www.bankingtech.com for the latest news and comment February 2011

The Spanish Confederation of Savings Banks (CeCA), the collective Dubai Bank has implemented the TLM Corona Cash and which provides finance and technology solutions and economy-of- Investigations software module from SmartStream to give it a more scale operational savings to individual members, is facing a tough efficient nostro and central bank account reconciliation system. The time as last year the number of Caja savings banks in the country solution is expected to provide greater capacity and automation as it fell from 45 to 34, necessitating a change in the way that CECA uses replaces a manual system, so transaction loading times will fall from its collateral management solution from Algorithmics’ to enable the two hours to just minutes and staff numbers will fall by 50%. The consolidation and conform to new regulations. CECA has adapted its installation is the first phrase in an enterprise-wide project to introduce systems and processes since the turn of the year to meet the new a single platform for multiple reconciliation types by year end. A new collateral management requirements of its reduced membership. The reconciliations factory will eventually act as a single transaction new service, delivered via its Global Collateral Service Centre, can processing platform across all of the bank’s business. Ultimately, also accommodate new regulatory requirements for full asset class Dubai Bank will have a clear upstream and downstream view of the coverage, including derivatives, security lending and bond repos. The entire transaction process, and anything that does not automatically banking collective reprogrammed its Algo Collateral software from match, thereby presenting a risk to the bank and its clients, can be Algorithmics’ to enable the changeover, with the intention of providing flagged up for separate investigation under the exceptions-handling more effective collateral management services to support the Caja procedure. The modular infrastructure also allows for expansion and banks’ customers and to standardise processes to ensure efficiency. future-proofing against new market developments.

The National Settlement Depository, the only domestic wall Street Systems is buying the corporate treasury manager depository that services the full range of debt and equity service of Thomson Reuters. The Software-as-a-Service operator securities of Russian issuers, went live with its new online (commonly known as ‘Treasura’ for its system), provides cash Alameda system in January, which allows market participants and liquidity management services to corporations in North to conduct depository operations via a web interface based America. The acquisition is the third by wall Street Systems around Oracle’s database management system, increasing in the last 12 months, and as before is part of a strategy to efficiency, access, speed and automation. NSD has also strengthen the firm’s position in the global corporate treasury launched the beta version of its Depository Information Service arena. The addition of Treasura will further accelerate wall Centre database, which is designed to cater for the expected Street’s North American expansion in the mid-tier corporate deluge of information relating to securities serviced by NSD, as market, complementing the company’s June 2010 acquisition well as to issuers, registers and authorised depositories. Both of London-based City Financials and its purchase of Speranza developments are part of the ongoing modernisation of NSD’s Systems in April last year, a provider of electronic bank account technological platform, designed to handle expected growth management (eBAM) solutions. and a changing marketplace. Banco Bilbao Vizcaya Argentaria is rolling out 200 new Automated The Central Bank of Oman has gone live with a multi-currency Teller Machines from NCR throughout this year in Spain, which national ATM/POS switch, running on ACI Worldwide’s Base24-eps feature a touch screen display, internet-access, a screen that can payments engine, which is the last element in the Arabian country’s rotate 90 degrees to improve customer viewing and a single slot national payment plan. First launched in 2003 the plan, which also that accepts cash, cheques and passbooks, while also distributing involves HP and IMTAC supplying systems, has established a flexible cash and receipts. The new Abil ATMs are the result of a strategic infrastructure that can support electronic money, cash machines, partnership between BBVA, NCR, Fujitsu and the design consultancy multiple currencies, and future requirements such as e-payments Ideo, with 20 units already installed in Spain. The cash machines will and m-payments. The new switch is expected to handle monthly eventually be rolled out to other BBVA locations in the southern volumes of approximately five million ATM and POS transactions. It states of the US and South America. can also process transactions from EMV as well as non-EMV cards. A direct link with all the GCC Net switches, of the surrounding Gulf Online and 24-hour telephone bank, first direct, has introduced Cooperation Council countries, has also been established so ATM a transactional banking ‘on the move’ application for Apple’s transactions can now be routed directly between GCC countries iPhone and iPod Touch. Available free-of-charge on the Apple without going out to the wider card networks. App store, it allows first direct customers to check balances, view the last 20 account transactions, make payments to North Dallas Bank & Trust Co has introduced Thales’ hardware other registered first direct customers and transfer money security modules and S1 Postilion software to help it move between accounts within the bank. The payment functionality from outsourced PIN verification for ATM and debit transactions is useful but until the banking industry as a whole develops the towards an in-house solution that delivers lower transaction costs appropriate standards and interoperable protocols true peer-to- and improves customer service by providing real-time balances. peer payments across different banking institutions remains The bank, with five branches in the Dallas area, used to outsource a way off. RBS’ Natwest is the only other UK bank to have its ATM and debit transaction verification processing to a larger introduced a similar smartphone app up until now. bank. Using an HSM-protected process, the larger bank oversaw PIN verification and sent North Dallas Bank a transaction file Banca Transilvania, one of Romania’s top five banks, is installing detailing recent activity. To update customer account balances, Oracle’s FlexCube core banking software on its retail and corporate the bank then regularly posted the file to its internal systems but banking business lines to support anticipated double-digit this was an expensive and slow process, and customer balances operational growth year-on-year and to improve its risk, compliance, took several hours to be updated. Using S1 Postilion software for and customer service procedures. The Universal Banking Solution processing and the Thales HSM 8000 to provide a secure processing software will also allow new products and services to be brought environment, North Dallas Bank can now verify its customers’ PINs to market more quickly in the future thanks to its flexible, modular in-house and is giving them more timely information. architecture.

www.bankingtech.com I 7 Payments February 2011 Join the discussion with Did you know that Banking Technology has a regular dialogue with our readers As clear as mud on LinkedIn, Twitter and our own The European commission’s attempts to impose a Email Bulletin? SEPA end-date has confused the banking world

Journalists are all too familiar with people believe will dilute SePa. I question deadlines – they rule our professional whether the industry is working towards lives. In order for this esteemed organ to something that is politically correct and reach its readers’ desks in a timely fashion in keeping with the SePa vision versus (so the information is relevant and reflects adding value to the market it is trying to the issues of the day), everyone involved serve.” in its production works to a set deadline The idea of SePa benefits had taken a (more or less). back seat during the clamour for an end So in mid-December when the date. On its website, the eC points up the european Commission set out its benefits, including faster payments, cross- ‘deadline’ for a pan-european payment border direct debits, easier bill paying for system, those of us familiar with deadlines consumers and a single, trusted payment sat up and took notice. and those all too instrument for companies. familiar with the attempts by the european Wright, who now works very closely banking industry to develop a Single euro with corporates, says they are more Payments area were looking to the eC confused than ever. “Corporates want communication to provide the kick-start their banks to tell them what SePa brings needed for the wider adoption of SePa to them as a business, what the benefits credit transfers and direct debits. after By not mandating are and how they can reap them, and all, it was the industry that cried out for a what changes they need to make and the deadline, claiming widespread adoption that all banks and investment these will require.” of SePa simply could not take place their customers The confusion among corporates, he without some clarity about when domestic says, could be a symptom of confusion schemes should be phased out. adopt the standards set out among banks. The fact that banks have as the eC points out, european Central within the SEPA rule books, not fully articulated the benefits of ePaS to bank data indicates that as of October their corporate clients may be because the 2010, only 9.6% of all credit transfers in the EC is opening the door banks are not certain of the benefits they the euro area were executed using a to many variants of SEPA will reap from SePa themselves. pan-european payment instrument. “If Ruth Wandhöfer, Citi The industry has been wrestling with this trend continues, the full benefits or SePa for years – and in the meantime implementation of the SePa would only technology has moved on; as has the be felt after more than 25 years,” said the ruth Wandhöfer, chair of the european economic climate. Wright suggests eC statement. “Only rapid migration to banking industry’s Payment Services that SePa has dropped down the list of pan-european, ie, SePa credit transfers Directive expert Group and head of priorities for corporates, which is not good and direct debits, will generate the full payment strategy and market policy for news for the banks that have invested benefits of an integrated payments eMea at Citi Global Transaction Services, heavily in SePa. market. The proposed regulation will believes the european Commission has While the impact of the financial crisis ensure a quick and smooth migration to not consulted adequately with the industry appears to have been shaken off by banks, pan-european credit transfers and direct on the text of the deadline proposal. “The corporates are still struggling and liquidity debits by phasing out the existing national biggest risk with the current proposal is that remains a significant concern. Moreover, payment instruments.” it does not mandate migration to a specific regulatory demands for greater visibility The proposed regulation is that 12 SePa,” she says. “by not mandating that of cash and reporting of positions have months after its entry into force national all banks and their customers adopt the knocked SePa down a peg or two in the credit transfers will be phased out and standards set out within the SePa rule priority list. pan-european systems will take their books, the eC is opening the door to many Wright says while he would “love to Our editorial team and other Our breaking news headlines are The Banking Technology email place while 24 months after the regulation variants of SePa, thereby losing the initial see SePa happen”, other developments industry professionals regularly published on Twitter every day and bulletin provides links to all is adopted, national direct debits schemes idea of integration.” are taking place that make it less crucial. debate the important issues via our team regularly tweet about the the major news stories and will go the same way. The announcement Gary Wright, formerly of royal “There are developments tackling liquidity LinkedIn, and it’s a great way to magazine content, our Awards announcements from the editorial has, in fact, opened yet another period bank of Scotland and now at The Sepa and other issues that are smoothing out of lobbying on SePa as the european Consultancy, says the eC’s attempt to bring some of the concerns of corporates re get involved with our surveys and deadlines and industry news. team. Make sure you’re on the Parliament and the european Council clarity to the SePa debate has, in many the management of data and its visibility. debates. mailing list. of Ministers are required to adopt the ways, raised the same issues the industry Combined with reduced pricing from Follow us: proposal. This period of lobbying is likely had been struggling with previously. “The banks, there are now chunks of what SePa Join us: www.twitter.com/bankingtechno Register: to create further confusion among banks reality is that we are entering a period of was meant to achieve that are already in Visit www.bankingtech.com www.bankingtech.com/bulletin and their corporate clients. further lobbying and changes that some place.” BT and click on the LinkedIn button on the homepage. www.bankingtech.com I 9 Payments February 2011 As clear as mud The European commission’s attempts to impose a SEPA end-date has confused the banking world

Journalists are all too familiar with people believe will dilute SePa. I question deadlines – they rule our professional whether the industry is working towards lives. In order for this esteemed organ to something that is politically correct and reach its readers’ desks in a timely fashion in keeping with the SePa vision versus (so the information is relevant and reflects adding value to the market it is trying to the issues of the day), everyone involved serve.” in its production works to a set deadline The idea of SePa benefits had taken a (more or less). back seat during the clamour for an end So in mid-December when the date. On its website, the eC points up the european Commission set out its benefits, including faster payments, cross- ‘deadline’ for a pan-european payment border direct debits, easier bill paying for system, those of us familiar with deadlines consumers and a single, trusted payment sat up and took notice. and those all too instrument for companies. familiar with the attempts by the european Wright, who now works very closely banking industry to develop a Single euro with corporates, says they are more Payments area were looking to the eC confused than ever. “Corporates want communication to provide the kick-start their banks to tell them what SePa brings needed for the wider adoption of SePa to them as a business, what the benefits credit transfers and direct debits. after By not mandating are and how they can reap them, and all, it was the industry that cried out for a what changes they need to make and the deadline, claiming widespread adoption that all banks and investment these will require.” of SePa simply could not take place their customers The confusion among corporates, he without some clarity about when domestic says, could be a symptom of confusion schemes should be phased out. adopt the standards set out among banks. The fact that banks have as the eC points out, european Central within the SEPA rule books, not fully articulated the benefits of ePaS to bank data indicates that as of October their corporate clients may be because the 2010, only 9.6% of all credit transfers in the EC is opening the door banks are not certain of the benefits they the euro area were executed using a to many variants of SEPA will reap from SePa themselves. pan-european payment instrument. “If Ruth Wandhöfer, Citi The industry has been wrestling with this trend continues, the full benefits or SePa for years – and in the meantime implementation of the SePa would only technology has moved on; as has the be felt after more than 25 years,” said the ruth Wandhöfer, chair of the european economic climate. Wright suggests eC statement. “Only rapid migration to banking industry’s Payment Services that SePa has dropped down the list of pan-european, ie, SePa credit transfers Directive expert Group and head of priorities for corporates, which is not good and direct debits, will generate the full payment strategy and market policy for news for the banks that have invested benefits of an integrated payments eMea at Citi Global Transaction Services, heavily in SePa. market. The proposed regulation will believes the european Commission has While the impact of the financial crisis ensure a quick and smooth migration to not consulted adequately with the industry appears to have been shaken off by banks, pan-european credit transfers and direct on the text of the deadline proposal. “The corporates are still struggling and liquidity debits by phasing out the existing national biggest risk with the current proposal is that remains a significant concern. Moreover, payment instruments.” it does not mandate migration to a specific regulatory demands for greater visibility The proposed regulation is that 12 SePa,” she says. “by not mandating that of cash and reporting of positions have months after its entry into force national all banks and their customers adopt the knocked SePa down a peg or two in the credit transfers will be phased out and standards set out within the SePa rule priority list. pan-european systems will take their books, the eC is opening the door to many Wright says while he would “love to place while 24 months after the regulation variants of SePa, thereby losing the initial see SePa happen”, other developments is adopted, national direct debits schemes idea of integration.” are taking place that make it less crucial. will go the same way. The announcement Gary Wright, formerly of royal “There are developments tackling liquidity has, in fact, opened yet another period bank of Scotland and now at The Sepa and other issues that are smoothing out of lobbying on SePa as the european Consultancy, says the eC’s attempt to bring some of the concerns of corporates re Parliament and the european Council clarity to the SePa debate has, in many the management of data and its visibility. of Ministers are required to adopt the ways, raised the same issues the industry Combined with reduced pricing from proposal. This period of lobbying is likely had been struggling with previously. “The banks, there are now chunks of what SePa to create further confusion among banks reality is that we are entering a period of was meant to achieve that are already in and their corporate clients. further lobbying and changes that some place.” BT

www.bankingtech.com I 9 AnAlysis: Apple in FinAnciAl services AnAlysis: FinAnciAl FrAUD February 2011 February 2011

Apple of your i … Tom Groenfeldt Fraud: what is it good for? David Bannister

Apple is renowned for its consumer products, but the iPad and iPhone are making big inroads in With the latest figures out detailing the effects of financial fraud on the public sector, professional financial services, and the IT department is going to have to learn to live with it. politicians are calling for even more collaborative efforts to reduce the burden

For a company that has targeted individual for financial advisors and asset managers go so decisions, such as payments, are not The UK national Fraud Authority’s when taken in context of the public fraud such as share sale, lottery and consumers and largely ignored big to keep track of portfolios and corporate delayed when key people are away from second Annual Fraud indicator, sector’s overall spending and income. advanced fee frauds as well as newer businesses, Apple has made amazing actions. The company originally designed their desktop computers. Mobile workers published last month, estimates fraud This better understanding of fraud frauds such as online ticketing and rental inroads into both retail and wholesale its application for the iPad but it also has like sales people can use a tablet while in is costing the UK over £38 billion a year. in the public sector has led to the fraud. This additional information along banking over the last year. and if a version for the iPhone, said Gerard a customer’s office to review an invoice, The new estimate and comprehensive Cabinet Office setting up a cross- with data included from action Fraud, announcements over the first few weeks bermingham, vice president of business make sure all the information is correct and data breakdown reflects improved Government Counter-Fraud Taskforce the national fraud reporting centre run of 2011 are any indication, iPhone and iPad strategy and a self-described apple Geek. then send it to accounts payable. methodologies and cooperation across which is overseeing a number of pilots by the NFa, widened the scope of last use is about to soar, often in the face of “It was amazing at Sibos how many “With a tablet like the iPad, you can have Government and industry. With the to develop and establish counter fraud year’s figure (£3.5 billion) to produce an resistance from IT professionals. people were walking around with iPads. It product literature, demos, spreadsheets biggest victim being the public sector, techniques that can be rolled out across increased figure within this aFI. action The iPad is an “unimpressive bit of lends itself so well to people who are on and email -- all the things a business politicians are lining up to get behind the public sector. In addition to this, Fraud saw over 70,000 contacts made technology”, one IT professional user needs, even on the first initiatives to reduce the amount. the NFa is progressing 15 different by the public and 10,000 crimes reported wrote on a recent uS blog. No generations.” Loss estimates to fraud by sector: projects, many of which form a part of totalling £93 million lost by individuals matter, users have taken to the apple was responsible for ■ Public – £21 billion the Taskforce work, to help central and over the past 12 months to fraudsters. apple mobile devices and carried the step change to phones and ■ Private – £12 billion local government cut key fraud risks and The NFa and law enforcement are them into the office, forcing IT to “The iPhone is the poster child for tablets, added Jones, but he ■ Individuals – £4 billion deliver savings. working together to build increased respond. The demand has been thinks the momentum is with ■ Charity – £1.3 billion “The latest National Fraud authority capacity for disruption of criminal from internal end users and from mobile financial services because android because the iPad is more The public sector remains the highest estimate shows that 55% of fraud is attacks against individuals, as well as their outside customers, and the list it has attracted so many people to expensive. proportion of the fraud loss at £21 billion committed against the public sector. better intelligence sharing and analytics of banks that are launching apps is “a n awful lot of a company’s – 55% of the total figure. This estimate, That’s the equivalent of building 800 to support enforcement action. Cross- impressive and growing. The rapid using their phones for banking.” information is on the back end for the first time, includes new and more secondary schools, or employing over government and industry work also adoption of the iPhone and iPad Diarmuid Mallon, Sybase 365 systems. you want real-time access accurate figures for procurement (£2.4 615,000 nurses and it’s a problem that continues to increase public awareness pose a serious threat to blackberry to be able to combine it and tweak billion) and grant fraud (£515 million). we are not going to ignore. ripping off of fraud and how to protect against it. whose proprietary system, pushing it, and touch interfaces are very Private sector fraud losses of £12 the taxpayer will not be tolerated,” said bernard Herdan, chief executive email out through its own servers, natural for those tasks.” rbS has billion make up 31% of the total annual Francis Maude Minister for the Cabinet of the NFa, said: “Tackling fraud has provided the security and become Fundtech’s first customer figure. Office. “Contrary to what many people will not solely be achieved through controls that made it a hit in financial for Mobile accessPlus. ■ The financial services industrythink, fraud and error is not just confined more investigation, prosecution and services. the move and still need to be connected.”a Diarmuid Mallon, senior product recorded the highest loss to fraudsters to benefits and revenue. It affects every punishment of fraudsters. The NFa is until the sexy, colourful, touch screen wealth management professional meeting marketing manager for mCommerce at at £3.6 billion. This is a slight decrease Government department and impacts working with its partners to promote iPhone, that is. with clients can turn on the iPad and with a Sybase 365 described the iPhone as the on the 2010 aFI figure of £3.8 billion on the Government’s ability to deliver greater fraud awareness and self- after IG Markets offered a free Contract Wi-Fi or 3G connection immediately show poster child for mobile financial services due to improved fraud prevention better public services, while stripping protection, encourage organisations to for Differences download through the them their positions with real-time values. because it has attracted so many people to methods involving plastic card (£440 the civil service of vital resources. We adopt fraud proof systems, enable fraud appStore, users raced to get it, said Philip rather than logging into applications one using their phones for banking. It’s a far cry million) and cheque fraud (£30 million) can’t and won’t allow this to happen reporting and facilitate better sharing of adler, managing director of IG Markets at a time, an advisor can move through from the banking applications developed ■Online banking, however, has seen anymore. Our Counter Fraud Champions intelligence on fraudsters. We want to (uK). “The popularity of the iPhone has screens with flicks of her fingers. during the nineties on WaP technology. an increase of 14% (£60 million). The will begin work immediately to crack develop a stronger counter fraud culture, been nothing short of phenomenal. We Investment professionals can view Mallon said one banking executive told him sector continues to invest heavily in down on fraud across Government and which helps to disrupt fraudulent activity launched an award winning browser corporate actions and decide what to do, that given the few customers who actually counter-fraud systems and solutions public services.” across the uK and globally.” optimised for the handset in 2009, but this then execute immediately through the iPad used the system, the bank could have to help stay one step head of the Collaboration with the charity sector From a systems perspective, Duncan latest move means existing and new clients or iPhone wherever they happen to be, he bought each of them a Porsche, instead of criminals has enabled the NFa, for the first time, ash, marketing manager for financial alike can find IG Markets in athe ppStore added. bermingham predicted the use will providing mobile access to their accounts, ■Mortgage fraud (£1 billion) and to provide an accurate estimate of the services at SaS uK, welcomed the too.” grow within financial services, whether for the cost of the platform. insurance fraud (£2.1 billion) remain level of fraud within this sector. The reduction of recorded fraud in the financial When peterevans developed a front- apple reaches out to the industry or not. “before the iPhone, it was a nightmare high. £1.3 billion figure was identified in a services sector. “This demonstrates end apple trading application for Simply “Once you develop the apps according to to install an app on a phone.” His own bank ■a new inclusion in the aFI is fraud survey the NFa conducted gauging that the industry is moving in the right Stockbroking in London, it was a fast hit. what they want, you don’t necessarily need did an update on his phone and sent him losses to SMes at £780 million. The how fraud affects the sector, to which direction, but fraudsters are constantly “It has totally changed their relationship them.” Information Mosaic distributes to a note saying he could find it somewhere, NFa and the Federation of Small over 1,000 charities responded. This modifying their approach and prevention with their customers,” said Sue Foley, users directly over the Internet, not through perhaps under games. That was okay for businesses worked together to estimate represents around 2.4% of techniques can never remain static,” he marketing director at peterevans. The start- the appStore, he added. an experienced technician, but his mother produce this estimate – the first of its the total charity sector turnover. The said. “What’s more, no single approach up broker began business in September Fundtech, which launched Mobile couldn’t have made that work, he said. kind. It is hoped that raising awareness NFa and the Charity Commission are will serve successfully to combat fraud; 2009 and launched the iPhone app ina pril accessPlus at Sibos, said it supports cash “The iPhone solved the whole of the scale of loss will spur new fraud working closely together on a number it will always require the right mixture 2010. It now accounts for 30-50% of its management across the four leading distribution problem. The appStore is prevention initiatives in this sector. of counter-fraud prevention initiatives to of good business practices, education, volume and the business has been growing mobile operations systems – apple, highly policed by apple, and for a financial The size of the public sector estimate encourage charities to build improved prevention and detection. Only a system 10% a month since the app was introduced. blackberry, android and Microsoft. rhys app that is really good news. you know is, in part, due to diligence in reporting fraud prevention measures into their that allows behavioural profiling and “It has really transformed the client’s Jones, the company’s chief innovation apple is going to check that it really is fraud loss data, combined with operations and to develop a stronger analytics across multiple delivery business. It is very fast, sexy and fun and it officer, thinks the tablet will be a game bank of america submitting this app and it more comprehensive measurement counter fraud culture in this sector. channels and products simultaneously, is brilliant on the iPad,” said Foley changer with its mobility and 10-hour follows the rules. your customer care cost techniques than other sectors. It is Individual citizens’ losses equated to and in real-time, can adequately address at Sibos 2010 ina msterdam, Information battery life. Corporations and banks need for the apple is very low and installing it is also important to note that this figure 10% of the overall fraud figure (£4 billion), many of the emerging fraud trends in the Mosaic launched iPhone and iPad apps access to their financial information on the very simple.” BT represents a relatively small percentage covering loss from mass-marketing online world.” BT

10 I www.bankingtech.com www.bankingtech.com I 11 AnAlysis: FinAnciAl FrAUD February 2011

Fraud: what is it good for? David Bannister

With the latest figures out detailing the effects of financial fraud on the public sector, politicians are calling for even more collaborative efforts to reduce the burden

The UK national Fraud Authority’s when taken in context of the public fraud such as share sale, lottery and second Annual Fraud indicator, sector’s overall spending and income. advanced fee frauds as well as newer published last month, estimates fraud This better understanding of fraud frauds such as online ticketing and rental is costing the UK over £38 billion a year. in the public sector has led to the fraud. This additional information along The new estimate and comprehensive Cabinet Office setting up a cross- with data included from action Fraud, data breakdown reflects improved Government Counter-Fraud Taskforce the national fraud reporting centre run methodologies and cooperation across which is overseeing a number of pilots by the NFa, widened the scope of last Government and industry. With the to develop and establish counter fraud year’s figure (£3.5 billion) to produce an biggest victim being the public sector, techniques that can be rolled out across increased figure within this aFI. action politicians are lining up to get behind the public sector. In addition to this, Fraud saw over 70,000 contacts made initiatives to reduce the amount. the NFa is progressing 15 different by the public and 10,000 crimes reported Loss estimates to fraud by sector: projects, many of which form a part of totalling £93 million lost by individuals ■ Public – £21 billion the Taskforce work, to help central and over the past 12 months to fraudsters. ■ Private – £12 billion local government cut key fraud risks and The NFa and law enforcement are ■ Individuals – £4 billion deliver savings. working together to build increased ■ Charity – £1.3 billion “The latest National Fraud authority capacity for disruption of criminal The public sector remains the highest estimate shows that 55% of fraud is attacks against individuals, as well as proportion of the fraud loss at £21 billion committed against the public sector. better intelligence sharing and analytics – 55% of the total figure. This estimate, That’s the equivalent of building 800 to support enforcement action. Cross- for the first time, includes new and more secondary schools, or employing over government and industry work also accurate figures for procurement (£2.4 615,000 nurses and it’s a problem that continues to increase public awareness billion) and grant fraud (£515 million). we are not going to ignore. ripping off of fraud and how to protect against it. Private sector fraud losses of £12 the taxpayer will not be tolerated,” said bernard Herdan, chief executive billion make up 31% of the total annual Francis Maude Minister for the Cabinet of the NFa, said: “Tackling fraud figure. Office. “Contrary to what many people will not solely be achieved through ■ The financial services industrythink, fraud and error is not just confined more investigation, prosecution and recorded the highest loss to fraudsters to benefits and revenue. It affects every punishment of fraudsters. The NFa is at £3.6 billion. This is a slight decrease Government department and impacts working with its partners to promote on the 2010 aFI figure of £3.8 billion on the Government’s ability to deliver greater fraud awareness and self- due to improved fraud prevention better public services, while stripping protection, encourage organisations to methods involving plastic card (£440 the civil service of vital resources. We adopt fraud proof systems, enable fraud million) and cheque fraud (£30 million) can’t and won’t allow this to happen reporting and facilitate better sharing of ■Online banking, however, has seen anymore. Our Counter Fraud Champions intelligence on fraudsters. We want to an increase of 14% (£60 million). The will begin work immediately to crack develop a stronger counter fraud culture, sector continues to invest heavily in down on fraud across Government and which helps to disrupt fraudulent activity counter-fraud systems and solutions public services.” across the uK and globally.” to help stay one step head of the Collaboration with the charity sector From a systems perspective, Duncan criminals has enabled the NFa, for the first time, ash, marketing manager for financial ■Mortgage fraud (£1 billion) and to provide an accurate estimate of the services at SaS uK, welcomed the insurance fraud (£2.1 billion) remain level of fraud within this sector. The reduction of recorded fraud in the financial high. £1.3 billion figure was identified in a services sector. “This demonstrates ■a new inclusion in the aFI is fraud survey the NFa conducted gauging that the industry is moving in the right losses to SMes at £780 million. The how fraud affects the sector, to which direction, but fraudsters are constantly NFa and the Federation of Small over 1,000 charities responded. This modifying their approach and prevention businesses worked together to estimate represents around 2.4% of techniques can never remain static,” he produce this estimate – the first of its the total charity sector turnover. The said. “What’s more, no single approach kind. It is hoped that raising awareness NFa and the Charity Commission are will serve successfully to combat fraud; of the scale of loss will spur new fraud working closely together on a number it will always require the right mixture prevention initiatives in this sector. of counter-fraud prevention initiatives to of good business practices, education, The size of the public sector estimate encourage charities to build improved prevention and detection. Only a system is, in part, due to diligence in reporting fraud prevention measures into their that allows behavioural profiling and fraud loss data, combined with operations and to develop a stronger analytics across multiple delivery more comprehensive measurement counter fraud culture in this sector. channels and products simultaneously, techniques than other sectors. It is Individual citizens’ losses equated to and in real-time, can adequately address also important to note that this figure 10% of the overall fraud figure (£4 billion), many of the emerging fraud trends in the represents a relatively small percentage covering loss from mass-marketing online world.” BT

www.bankingtech.com I 11 February 2011 SHOW REPORT: CARTES The Cartes Show in Paris is an opportunity for the smart card and mobile payments world to lay out the latest Inside Secure aims for 50% of Europe’s From cards to NFC developments. At the latest event, Fabien Buliard suffered a spot of déjà vu, which he decided was because the technology has been mature for quite a while now, and ennui, because it’s no longer about new products, but about dual interface market his year’s Cartes event seemed to commercial rollout, and that seems to be taking ages ... be a little misnamed, as much of ontactless technology specialist Inside Secure (formerly Inside Contactless) Tthe technology on show marked intends to conquer the European contactless payment market, after succeeding a shift in focus from cards to phones. French banks sell Cin building a huge market share in the US. While the NFC payment technology Visa and MasterCard tied in the Bernard Vian, in charge of the vendor’s payment product line, told Banking itself has been mature for quite some e-purse scheme to Technology that the company’s share of the US contactless payment market currently time, and despite the many initiatives innovation race exceeded 80%. Inside is now looking to capture 50% of the European dual interface announced year after year, the various private equity market in the next two years, even though it is not currently present on that segment. players (mobile carriers, banks, etc.) artes, the smart card industry’s annual trade show, once again offered the “We had the best product at the right time,” Vian said of the company’s success are still working out how to share rench e-purse scheme Moneo, opportunity for card schemes Visa and MasterCard to showcase their latest in the US, “and we intend to do the same in Europe for dual interface, using our responsibility, costs and revenues which never lived up to its Cinitiatives in contactless, mobile payment, and authentication services. beyond experience and know-how.” among themselves. As a mobile Ffounders’ ambitions, has been their capacity to innovate, the card giants also demonstrated their ability to keep up Vian explained one of the company’s differentiating factors was improved operator executive put it during a sold to a private equity firm specialised with each other. transaction speed and ergonomic performance, particularly through a wider “landing presentation, “everyone is waiting for in financial services, blackFin Capital among this year’s announcements is the commercial availability of password- zone” for user to effectively position their card to initiate a contactless payment. everyone else”. Partners. generating eMV payment cards. They can be used for online authentication and to He added the US market could eventually adopt dual interface and move to a Chip Still, the general consensus at until now, the micropayment improve security for card-not-present purchases. Featuring an embedded keypad and & PIN environment, given the increase in ATM fraud, “if we can find a way to bring Cartes seemed to be that, after the company was owned by France’s a small alphanumeric display, down the price difference (with single interface card)”. wave of pilots and limited rollouts seven largest banking groups, bNP the cards enable the users to The company was renamed Inside Secure ahead of this year’s Cartes show, to currently under way, adoption could Paribas, Société Générale, bPCe , Crédit enter their PIN (or a transaction better reflect its acquisition of Atmel’s Secure Microcontroller Solutions division, start gaining traction in 2012. In fact, the agricole, Crédit Mutuel-CIC, HSbC and number) to generate a one-time “Beyond their capacity to completed in September, and its positioning as a provider of microchips for both boost toward mass rollout could come banque Postale, as well as Paris public password. Despite this feature, secure transactions and digital identification. from handset manufacturers. transit operator raTP, France Telecom, the cards are no thicker than a innovate, the card giants also “While we were essentially present in the US for the payment segment, this So far, the availability of NFC- and railway operator SNCF. regular smart card. demonstrated their ability to acquisition really makes us a global player,” Vian explained. enabled phones has remained rather Moneo was launched in 1999 with MasterCard’s version of The acquisition has also led to management changes, notably through the elusive, but Google’s announcement the goal of replacing cash for small the device, Display Card, also keep up with each other” promotion of Charles Walton, formerly executive vice president of the payments a few days before the show that the value transactions at the point of sale. comes in a simpler version, business line, to the position of chief operating officer.BT next version of its Android mobile However, the merchant community the one-time password is operating system would support showed little interest for the scheme generated by pressing a single button. NFC, a commitment by Nokia to and the company refocused on Christophe Zehnacker, head of distributed products, chip solutions, at MasterCard, include NFC in all its smartphones campus cafeterias and parking metres. said the small LCD screen could be used to display dynamic passwords, but also post- French retailers looking to bypass from 2011, and rumours about Since 2006, Moneo has also been purchase information such as the user’s account balance or remaining loyalty points, Apple’s intention to NFC-enable the offering additional services on top via an online update on the merchant’s terminal. card interchange fees with SCT next iPhone, could pave the way for of the payment function. Despite its Meanwhile, Visa announced that its own authentication card offering, CodeSure, contactless payment functionality to strategic shift, the unit was never was now available in a contactless-enabled version. he French retail federation is of the SCT at the point of sale, initiated become a standard feature, at least profitable. It was, however, the first The other main area where the two card schemes went head-to-head is mobile hoping to bypass card payment with a digital signature via the shopper’s on high-end devices. player to carry out a commercial payments, where both companies announced client rollouts and pilots, as well as Tinterchange fees through the use of mobile phone, which retailers say could In the meantime, various solutions rollout of contactless payment services platforms. the Sepa Credit Transfer (SCT) at the point save them €1.3bn in commission fees. are being showcased to bring NFC services, starting in 2006. Visa announced that uS bank Wells Fargo is to pilot its microSD mobile payment of sale. The transfer could also be initiated capabilities to existing mobile phones, The new owner aims to triple the platform with 200 employees using SD-compatible iPhones and blackberry handsets. The initiative, revealed by French daily through the card terminal, using the card such as removable microSD cards. micropayment unit’s revenue by 2015. The phones will be equipped with an In2pay microSD card provided by DeviceFidelity, Les Echos, is part of a vast debate on only to authenticate the customer, with While at last year’s Cartes, vendors To that effect, blackFin is seeking which will host Visa’s PayWave contactless payment application, with the capacity to interchange fees opposing banks, keen the funds sent directly to the merchant’s promoted NFC stickers as the to boost the company’s growth accommodate multiple accounts, such as credit, debit and prepaid cards. The PayWave to preserve them, and public authorities, bank account, leaving the acquiring bank easiest way to make any phone NFC- rate by replicating the model of its functionality will be accessed via Wells Fargo’s mobile banking application. lawmakers, competition authorities, out of the equation. compliant, Oberthur Technologies most successful segment, campus On the MasterCard stand, all eyes were on Turkey, where Garanti bank and Turkish corporates and retailers, all determined Jérôme Bédier, FCD’s chairman, was unveiled another stop-gap solution at services, whereby students can use a mobile phone operator avea have teamed up with smart card vendor Gemalto and to reduce or eliminate them. quoted as saying the main advantage of this year’s show: an NFC SIM adaptor. multi-function Moneo card to pay for MasterCard to launch the country’s first mobile payment initiative involving an NFC- A report on banking fees, an SCT at point of sale is that it would rely It consists of a SIM card to which an cafeteria meals, also as a library and capable SIM card, based on the PayPass contactless payment technology and an commissioned by the French finance on existing technology, “associating the NFC antenna and controller is attached. photocopy card, as well as an access N-flex SIM card featuring a flexible NFC antenna, that can be added to many existing ministry, called last summer for the transfer on the mobile phone with real- The plug-and-play device fits in the badge. phones. Garanti had previously launched an “interim mobile payment solution” using banking community to implement in time processing.” SIM card slots of most mobile phones. The model will be extended to NFC stickers. 2011 a simplified form of electronic Unsurprisingly, banks are far from The smart card vendor said the other large organisations, such as civil both card schemes also offer mobile payment “gateways” to help issuers deliver fund transfer for bill payments, as it enthused by the idea. While they support adaptor was aimed at mobile operators service and healthcare facilities. In mobile payment services to cardholders using their existing processing systems. already exists in several other European the SCT as an alternative to the cheque, wanting to deploy NFC services – addition, blackFin intends to develop a after the launch last year of MasterCard’s Mobile Payment Gateway, Visa unveiled its countries, and based on the Sepa format. they argue a credit transfer does not payment, transport, retail and loyalty – white label offering to enable regional secure Mobile Gateway and Key Management services at this year’s Cartes. Visa said While the SCT is presented mainly as feature the payment guarantee offered by with quick time-to-market and without authorities and transport operators to the offering would “leverage the issuers’ existing connections to Visa’s authorisation a replacement for cheques, which still cards, and that no real-time processing of major investment. offer cards under their own brand. and processing systems” and lower the cost of launching mobile contactless services. account for 20% of transactions in France, fund transfers is currently available. Once users finally get their hands as to the seven banks that divested MasterCard announced a few days before the show that the first users of its mobile retailers argue it could also constitute a Moreover, rather than use it as a on a proper native NFC handset, they the company, they have all committed payments processing platform were brazilian bank Itaú, card processor redecard, and cheaper alternative to cards. means of payment at the point of sale, will be able to remove the antenna and to marketing the Moneo solution for mobile operator Vivo. The three companies will launch a pilot of MasterCard Mobile in France’s Federation of Retail Trade and banks predominantly seek to apply the move the SIM card component to their at least another five years.BT São José dos Campos, involving over 1,000 merchants and about 30,000 consumers.BT Distribution (FCD) is pushing for a pilot SCT to bill payments. BT new device. BT

12 I www.bankingtech.com www.bankingtech.com I 13 Inside Secure aims for 50% of Europe’s From cards to NFC dual interface market his year’s Cartes event seemed to be a little misnamed, as much of ontactless technology specialist Inside Secure (formerly Inside Contactless) Tthe technology on show marked intends to conquer the European contactless payment market, after succeeding a shift in focus from cards to phones. Cin building a huge market share in the US. While the NFC payment technology Bernard Vian, in charge of the vendor’s payment product line, told Banking itself has been mature for quite some Technology that the company’s share of the US contactless payment market currently time, and despite the many initiatives exceeded 80%. Inside is now looking to capture 50% of the European dual interface announced year after year, the various market in the next two years, even though it is not currently present on that segment. players (mobile carriers, banks, etc.) “We had the best product at the right time,” Vian said of the company’s success are still working out how to share in the US, “and we intend to do the same in Europe for dual interface, using our responsibility, costs and revenues experience and know-how.” among themselves. As a mobile Vian explained one of the company’s differentiating factors was improved operator executive put it during a transaction speed and ergonomic performance, particularly through a wider “landing presentation, “everyone is waiting for zone” for user to effectively position their card to initiate a contactless payment. everyone else”. He added the US market could eventually adopt dual interface and move to a Chip Still, the general consensus at & PIN environment, given the increase in ATM fraud, “if we can find a way to bring Cartes seemed to be that, after the down the price difference (with single interface card)”. wave of pilots and limited rollouts The company was renamed Inside Secure ahead of this year’s Cartes show, to currently under way, adoption could better reflect its acquisition of Atmel’s Secure Microcontroller Solutions division, start gaining traction in 2012. In fact, the completed in September, and its positioning as a provider of microchips for both boost toward mass rollout could come secure transactions and digital identification. from handset manufacturers. “While we were essentially present in the US for the payment segment, this So far, the availability of NFC- acquisition really makes us a global player,” Vian explained. enabled phones has remained rather The acquisition has also led to management changes, notably through the elusive, but Google’s announcement promotion of Charles Walton, formerly executive vice president of the payments a few days before the show that the business line, to the position of chief operating officer.BT next version of its Android mobile operating system would support NFC, a commitment by Nokia to include NFC in all its smartphones French retailers looking to bypass from 2011, and rumours about Apple’s intention to NFC-enable the card interchange fees with SCT next iPhone, could pave the way for contactless payment functionality to he French retail federation is of the SCT at the point of sale, initiated become a standard feature, at least hoping to bypass card payment with a digital signature via the shopper’s on high-end devices. Tinterchange fees through the use of mobile phone, which retailers say could In the meantime, various solutions the Sepa Credit Transfer (SCT) at the point save them €1.3bn in commission fees. are being showcased to bring NFC of sale. The transfer could also be initiated capabilities to existing mobile phones, The initiative, revealed by French daily through the card terminal, using the card such as removable microSD cards. Les Echos, is part of a vast debate on only to authenticate the customer, with While at last year’s Cartes, vendors interchange fees opposing banks, keen the funds sent directly to the merchant’s promoted NFC stickers as the to preserve them, and public authorities, bank account, leaving the acquiring bank easiest way to make any phone NFC- lawmakers, competition authorities, out of the equation. compliant, Oberthur Technologies corporates and retailers, all determined Jérôme Bédier, FCD’s chairman, was unveiled another stop-gap solution at to reduce or eliminate them. quoted as saying the main advantage of this year’s show: an NFC SIM adaptor. A report on banking fees, an SCT at point of sale is that it would rely It consists of a SIM card to which an commissioned by the French finance on existing technology, “associating the NFC antenna and controller is attached. ministry, called last summer for the transfer on the mobile phone with real- The plug-and-play device fits in the banking community to implement in time processing.” SIM card slots of most mobile phones. 2011 a simplified form of electronic Unsurprisingly, banks are far from The smart card vendor said the fund transfer for bill payments, as it enthused by the idea. While they support adaptor was aimed at mobile operators already exists in several other European the SCT as an alternative to the cheque, wanting to deploy NFC services – countries, and based on the Sepa format. they argue a credit transfer does not payment, transport, retail and loyalty – While the SCT is presented mainly as feature the payment guarantee offered by with quick time-to-market and without a replacement for cheques, which still cards, and that no real-time processing of major investment. account for 20% of transactions in France, fund transfers is currently available. Once users finally get their hands retailers argue it could also constitute a Moreover, rather than use it as a on a proper native NFC handset, they cheaper alternative to cards. means of payment at the point of sale, will be able to remove the antenna and France’s Federation of Retail Trade and banks predominantly seek to apply the move the SIM card component to their Distribution (FCD) is pushing for a pilot SCT to bill payments. BT new device. BT

www.bankingtech.com I 13 February 2011 Go to www.bankingtech.com for the latest news and comment New website coming soon By the numBers Ovum: europe trails in retail banking Banking Technology is pleased to announce It spending growth improvements to the usability of www.bankingtech.com lobal spending on retail banking technology will increase according to Knapik, ever-increasing regulatory by 24% over the next five years to hit $132 billion, requirements will also drive investment into technologies that Gaccording to new research from Ovum, but europe reduce costs, such as data management, business intelligence will have the lowest growth of all the regions, despite being and analytics. Global spending on various middle-office the second biggest market in terms of overall spend. Ovum components, such as risk management, anti-fraud, compliance believes the increase in investment will be driven by the need or performance management, based on these technologies, to grow revenues and improve customers’ trust. This will lead to will experience growth of 30% from 2010 to 2015, hitting $7.2 accelerated investment in online and mobile banking, technology billion. in branches (in emerging markets) and channel integration. The emerging markets will also demonstrate strong growth Ovum’s figures show that global investment in technology to with asia Pacific growing by 49% from 2010 to 2015 to hit $12.7 allow customers to access banking services via the internet will billion. Middle east and africa will grow by 36% during the experience growth of 33% from 2010 to 2015, to hit $9.7 billion. same timeframe to hit $5.5 billion. Senior analyst Jaroslaw Knapik said: “There is a strong focus on an increase in spending on technology in branches is online platforms and their extension onto mobile devices and expected be one of the major driving forces behind this rise tablets, given their ability to service clients at a lower cost. In in the emerging markets. The area will experience global addition, technologies that allow ‘smarter’ selling and servicing, growth of 28% over the next five years to hit $18.6 billion. as www.bankingtech.com provides: such as customer analytics and channel integration are expected new branches open in less saturated markets, investment is to remain hot spot areas in the near future.” needed in new operations. ■ Better navigation – our news and features are now grouped by topic to make it easier for you to view the specific information that you want to read Financial services activity grows but job prospects look grim

■ Breaking news and editorial comment ctivity in the uK financial services 23% said they fell. The resulting balance business is eventually expected to sector grew for the second of +27% is roughly in line with firms’ increase significantly too.” ■ Features and analysis of industry developments Aquarter in a row up until 31 expectations (+24%). a slower rate of One investment area expected to December last year, according to the growth in volumes is expected in the next grow despite the overall downward ■ Company announcements latest Confederation of british Industry/ three months (+15%) however, as the trend concerns compliance and PricewaterhouseCoopers Financial economy generally slows following the regulatory spend, with some new jobs ■ Services Survey, but the pace of growth end of government stimulation measures and technology budgets available here Download the latest issue and search the archive of previous issues is now slowing and each sector differed and budget cuts. as the industry faces up the raft of new sharply with investment management Summing up the latest survey, John stipulations post-crash. ■ Whitepapers and reports and securities trading still doing well, Cridland, CbI Director-General Designate, according to andrew Gray, uK banking while High Street banks struggled. said that while financial services firms leader at PwC, new entrants on the High ■ Editor’s blog Job prospects overall look grim as had seen growth over the second half of Street, such as Metro bank and others, employment in the sector fell by 30,000 2010, that growth is now expected to slow may mop up some of the many jobs ■ Directory of services in Q4 last year and the CbI is predicting a considerably in Q1 2011 with only a “fairly that are going in the retail banking sector further 15,000 jobs will go during Q1 2011. moderate increase in profitability”. too, although there won’t be enough ■ Banking Technology Awards and employment in uK financial services “Numbers employed have fallen newcomers to give everyone a job. “The last quarter fell at the fastest rate since the significantly and investment plans have newcomers tend to focus more on using Daily News at Sibos information previous recession in March 1993 and Lai weakened since September, reflecting technology and less staff,” he explained, Wah Co, head of economic analysis at the renewed cost control measures, given “and as back office efficiencies are made ■ Quick links to our Twitter, LinkedIn, RSS feeds and CbI, said that employment in the sector little growth in incomes and slower growth across the High Street operations not all of overall will drop to 970,000 during this in profitability,” he added.b “ usiness the jobs come back.” More optimistically email bulletin quarter, falling from a peak of 1.1 million conditions vary across financial services Gray did agree that there would be jobs jobs in 2008. sub-sectors, however, so whereas the and budget for niche areas like regulation asked how their business volumes banks expect business volumes to and compliance in the retail banking arena, Visit www.bankingtech.com/bulletin to register for our fared in the three months to December, remain subdued next quarter, securities just as elsewhere in the FS industry. “I can regular email bulletin to make sure you receive all the 50% of the 86 respondents to the survey, traders and investment managers have also foresee a quick return to recruitment which has been running every year since fared much better and are continuing to and an increase in headcounts sector-wide news straight to your inbox. 1989, said that volumes increased and take on staff. Looking ahead, commercial if profitability returns strongly.”

www.bankingtech.com I 15 February 2011 Go to www.bankingtech.com for the latest news and comment

By the numBers Ovum: europe trails in retail banking It spending growth

lobal spending on retail banking technology will increase according to Knapik, ever-increasing regulatory by 24% over the next five years to hit $132 billion, requirements will also drive investment into technologies that Gaccording to new research from Ovum, but europe reduce costs, such as data management, business intelligence will have the lowest growth of all the regions, despite being and analytics. Global spending on various middle-office the second biggest market in terms of overall spend. Ovum components, such as risk management, anti-fraud, compliance believes the increase in investment will be driven by the need or performance management, based on these technologies, to grow revenues and improve customers’ trust. This will lead to will experience growth of 30% from 2010 to 2015, hitting $7.2 accelerated investment in online and mobile banking, technology billion. in branches (in emerging markets) and channel integration. The emerging markets will also demonstrate strong growth Ovum’s figures show that global investment in technology to with asia Pacific growing by 49% from 2010 to 2015 to hit $12.7 allow customers to access banking services via the internet will billion. Middle east and africa will grow by 36% during the experience growth of 33% from 2010 to 2015, to hit $9.7 billion. same timeframe to hit $5.5 billion. Senior analyst Jaroslaw Knapik said: “There is a strong focus on an increase in spending on technology in branches is online platforms and their extension onto mobile devices and expected be one of the major driving forces behind this rise tablets, given their ability to service clients at a lower cost. In in the emerging markets. The area will experience global addition, technologies that allow ‘smarter’ selling and servicing, growth of 28% over the next five years to hit $18.6 billion. as such as customer analytics and channel integration are expected new branches open in less saturated markets, investment is to remain hot spot areas in the near future.” needed in new operations.

Financial services activity grows but job prospects look grim

ctivity in the uK financial services 23% said they fell. The resulting balance business is eventually expected to sector grew for the second of +27% is roughly in line with firms’ increase significantly too.” Aquarter in a row up until 31 expectations (+24%). a slower rate of One investment area expected to December last year, according to the growth in volumes is expected in the next grow despite the overall downward latest Confederation of british Industry/ three months (+15%) however, as the trend concerns compliance and PricewaterhouseCoopers Financial economy generally slows following the regulatory spend, with some new jobs Services Survey, but the pace of growth end of government stimulation measures and technology budgets available here is now slowing and each sector differed and budget cuts. as the industry faces up the raft of new sharply with investment management Summing up the latest survey, John stipulations post-crash. and securities trading still doing well, Cridland, CbI Director-General Designate, according to andrew Gray, uK banking while High Street banks struggled. said that while financial services firms leader at PwC, new entrants on the High Job prospects overall look grim as had seen growth over the second half of Street, such as Metro bank and others, employment in the sector fell by 30,000 2010, that growth is now expected to slow may mop up some of the many jobs in Q4 last year and the CbI is predicting a considerably in Q1 2011 with only a “fairly that are going in the retail banking sector further 15,000 jobs will go during Q1 2011. moderate increase in profitability”. too, although there won’t be enough employment in uK financial services “Numbers employed have fallen newcomers to give everyone a job. “The last quarter fell at the fastest rate since the significantly and investment plans have newcomers tend to focus more on using previous recession in March 1993 and Lai weakened since September, reflecting technology and less staff,” he explained, Wah Co, head of economic analysis at the renewed cost control measures, given “and as back office efficiencies are made CbI, said that employment in the sector little growth in incomes and slower growth across the High Street operations not all of overall will drop to 970,000 during this in profitability,” he added.b “ usiness the jobs come back.” More optimistically quarter, falling from a peak of 1.1 million conditions vary across financial services Gray did agree that there would be jobs jobs in 2008. sub-sectors, however, so whereas the and budget for niche areas like regulation asked how their business volumes banks expect business volumes to and compliance in the retail banking arena, fared in the three months to December, remain subdued next quarter, securities just as elsewhere in the FS industry. “I can 50% of the 86 respondents to the survey, traders and investment managers have also foresee a quick return to recruitment which has been running every year since fared much better and are continuing to and an increase in headcounts sector-wide 1989, said that volumes increased and take on staff. Looking ahead, commercial if profitability returns strongly.”

www.bankingtech.com I 15 Cover story: MArKet INFrAstrUCtUre FEBRUARy 2011

the legislative proposals due in June 2011. (The OTC derivatives regs “off target” deadline for replies is 1 March 2011.) The EC says that “CSDs are systemically During a session at Sibos in Amsterdam last October a panel of senior important infrastructures in modern securities industry figures concluded that Attempts to move OTC derivatives to central markets … They perform crucial services that counterparty clearing are not targeting the right issues and run the risk of allow, at a minimum, the registration, safekeeping, moving the concentration of risk from banks and financial institutions to CCPs. settlement of securities in exchange for cash, and On top of that, they could lead to higher costs for end-users of derivative efficient processing of securities transactions in products such as pension funds, create “regulatory arbitrage” between regions financial markets”. Given the systemic importance and create trade reporting data repositories that will be of little use. of CSDs, there is a strong need for an appropriate Cian Burke, head of prime services at HSBC, said: “The OTC derivatives regulatory framework for CSDs, it argues. market actually functions pretty well and did so through the crisis – to say The initiative is an important part of the that the OTC derivatives market is fundamentally broken is wrong: even in the Commission’s agenda to enhance the safety and immediate aftermath of Lehman’s it functioned well.” soundness of the financial system. Together with Because of the extent of the crisis, and its impact on the wider global the EMIR proposal and the Markets in Financial economies, “banks embarrassed the regulators, who had to answer to the Instruments Directive, currently under review, it will politicians, and it has come back down the chain that the banks are not form a framework in which systemically important going to be allowed to do that again,” said Alan Bozian, president and chief securities infrastructures (trading venues, central executive of CLS Bank International. “The market messed up, a lot, but there counterparties, trade repositories and CSDs) are are parts that need extensive regulation and parts that don’t. Heavy regulation subject to common rules on a European level. will lead to more risk.” Bozian said regulators need to, “take a sniper rather The need for an appropriate regulatory framework than a shotgun approach”. post-crash is agreed internationally. In its meeting Marco Strimer, chief executive of SIX x-clear, acknowledged that clearing of 20 October 2010, the Financial Stability Board structures such as his would benefit from the drive to CCP clearing, but expressed concerns about how it would be executed in practice. “We’re certainly not crying about it, but a central part of it is risk management, and to do that you have to understand products. Regulators are now establishing “Due to an increase in cross are which products are eligible for clearing.” The problem, said CLS Bozian, is that border investment over the last “CCP is about standard products, which is not what most of the market is”. years, the European Commission Six x-clear’s Strimer said the regulators will have to make it their business to ensure that CCPs work as envisaged, but acknowledged that they are considers that the time has come businesses, and may not always have the liquidity required. to install a common and binding Bozian was more blunt, saying: “One of the problems the regulators face is that there may not be enough collateral in some markets. It is a big concern for regulatory framework for CSDs the market – we are concentrating a lot of risk into what are in many casesde on a European level.” novo institutions. There is a visceral feeling that they are really utilities, but they operate as for-profit concerns, which is creating a lot of concern.” Burke agreed: “There is a dichotomy in their risk/reward structures – as re-iterated the call for updated standards for more for-profit business any profit will go to their shareholders, but the risks and Fixing the markets robust core market infrastructures and asked for the underlying costs will be borne by their clearing member banks.” revision and enhancement of existing standards for While this is true, “we have no better solution”, said Eddy Wymeersch, financial market infrastructures. Recommendations a former chairman of the Committee of European Securities Regulators. Regulations to alter the structure of the European trading markets are focusing closely on the post-trade have been adopted by central banks and securities Some cynicism was justified, but he said there are many checks and balances environment, with new legislative proposals scheduled for early summer, writes David Bannister regulators both at global and at European level. in the system. The new regulations will take time to work through, however While these rules are important, they remain of a he argued that it was heading in the right direction and CCPs are able to In the wake of the ﬁ nancial crisis there was a lot of need to be supervised effectively. So the European high-level and non-binding in nature. participate in developing the rules about what is and isn’t eligible for clearing. focus on the over-the-counter derivatives markets, Commission is proposing a new European Market Due to an increase in cross are border investment CLS’ Bozian expressed doubts about the ability of regulators to push forward, particularly on instruments like credit default Infrastructure Regulation – EMIR – that will satisfy over the last years, the European Commission particularly in the US. The Commodities and Futures Trade Commission, which swaps. the G20 requirements. It will: considers that the time has come to install a is charged with writing the rules there, has already said it lacks the resources Because these deals are negotiated and executed ■ Mandate central clearing of eligible derivatives common and binding regulatory framework for needed to fulfil all its tasks, despite having 600 lawyers and 30 project teams. on a bilateral basis there is concern among contracts, and strengthen market infrastructure CSDs on a European level. Despite the problems facing the regulators in Europe and the US, they are regulators about the increased risks to individual standards; Historically, securities markets in the European working very closely, and the risk of “regulatory arbitrage” causing institutions counterparties and the visibility of the exposures ■ Create an EU legislative framework for central Union have developed along national lines. In to move their operations to different jurisdictions is small. Wymeersch said that result from OTC trading. counterparties, so that shocks to markets are 2001 and 2003, a High-level expert group chaired CESR and the CFTC have a joint working group to ensure that the possibility The G20 decided to address the risks in over- dampened rather than amplifi ed; and by Professor Giovannini identified 15 barriers to is minimised, and Bozian said the evidence is that the regulators are working the-counter trading by imposing mandatory central ■ Require OTC trades to be reported to electronic an efficient market for services that are rendered closely together. clearing for standard derivatives. Central clearing trade repositories after a trade has taken place in the European Union. “I’ve never seen more focus on being shoulder to shoulder in terms of involves a central counterparty sitting between In September 2010, the Commission adopted The report pointed out a number of barriers that cooperation between the US and Europe,” Bozian said, but go to Asia and buyers and sellers. By dispensing with bilateral EMIR to address issues relating to OTC derivatives, render the provision of cross border post trading they’ll tell you it’s not their problem. They don’t see why they should have to agreements, the CCP absorbs the risks facing central counterparties and trade repositories. services (whether performed by CSDs or other fall into line. US and European regulators are having a hard time persuading individual fi rms and acts as the ‘circuit-breaker’ in Last month the EC announced a consultation market participants) more costly and less safe than them to join the chorus line.” the event of market stress, as HM Treasury phrases it. on Central Securities Depositories and on the domestic transactions. These barriers have not yet However, greater central clearing in turn harmonisation of aspects of securities settlement been fully removed. In order to increase the safety Continued on page 19 increases the systemic importance of CCPs. These in the European Union that will be used to inform and efficiency of the internal market for securities >

16 I www.bankingtech.com www.bankingtech.com I 17 the legislative proposals due in June 2011. (The OTC derivatives regs “off target” deadline for replies is 1 March 2011.) The EC says that “CSDs are systemically During a session at Sibos in Amsterdam last October a panel of senior important infrastructures in modern securities industry figures concluded that Attempts to move OTC derivatives to central markets … They perform crucial services that counterparty clearing are not targeting the right issues and run the risk of allow, at a minimum, the registration, safekeeping, moving the concentration of risk from banks and financial institutions to CCPs. settlement of securities in exchange for cash, and On top of that, they could lead to higher costs for end-users of derivative efficient processing of securities transactions in products such as pension funds, create “regulatory arbitrage” between regions financial markets”. Given the systemic importance and create trade reporting data repositories that will be of little use. of CSDs, there is a strong need for an appropriate Cian Burke, head of prime services at HSBC, said: “The OTC derivatives regulatory framework for CSDs, it argues. market actually functions pretty well and did so through the crisis – to say The initiative is an important part of the that the OTC derivatives market is fundamentally broken is wrong: even in the Commission’s agenda to enhance the safety and immediate aftermath of Lehman’s it functioned well.” soundness of the financial system. Together with Because of the extent of the crisis, and its impact on the wider global the EMIR proposal and the Markets in Financial economies, “banks embarrassed the regulators, who had to answer to the Instruments Directive, currently under review, it will politicians, and it has come back down the chain that the banks are not form a framework in which systemically important going to be allowed to do that again,” said Alan Bozian, president and chief securities infrastructures (trading venues, central executive of CLS Bank International. “The market messed up, a lot, but there counterparties, trade repositories and CSDs) are are parts that need extensive regulation and parts that don’t. Heavy regulation subject to common rules on a European level. will lead to more risk.” Bozian said regulators need to, “take a sniper rather The need for an appropriate regulatory framework than a shotgun approach”. post-crash is agreed internationally. In its meeting Marco Strimer, chief executive of SIX x-clear, acknowledged that clearing of 20 October 2010, the Financial Stability Board structures such as his would benefit from the drive to CCP clearing, but expressed concerns about how it would be executed in practice. “We’re certainly not crying about it, but a central part of it is risk management, and to do that you have to understand products. Regulators are now establishing “Due to an increase in cross are which products are eligible for clearing.” The problem, said CLS Bozian, is that border investment over the last “CCP is about standard products, which is not what most of the market is”. years, the European Commission Six x-clear’s Strimer said the regulators will have to make it their business to ensure that CCPs work as envisaged, but acknowledged that they are considers that the time has come businesses, and may not always have the liquidity required. to install a common and binding Bozian was more blunt, saying: “One of the problems the regulators face is that there may not be enough collateral in some markets. It is a big concern for regulatory framework for CSDs the market – we are concentrating a lot of risk into what are in many casesde on a European level.” novo institutions. There is a visceral feeling that they are really utilities, but they operate as for-profit concerns, which is creating a lot of concern.” Burke agreed: “There is a dichotomy in their risk/reward structures – as re-iterated the call for updated standards for more for-profit business any profit will go to their shareholders, but the risks and robust core market infrastructures and asked for the underlying costs will be borne by their clearing member banks.” revision and enhancement of existing standards for While this is true, “we have no better solution”, said Eddy Wymeersch, financial market infrastructures. Recommendations a former chairman of the Committee of European Securities Regulators. have been adopted by central banks and securities Some cynicism was justified, but he said there are many checks and balances regulators both at global and at European level. in the system. The new regulations will take time to work through, however While these rules are important, they remain of a he argued that it was heading in the right direction and CCPs are able to high-level and non-binding in nature. participate in developing the rules about what is and isn’t eligible for clearing. Due to an increase in cross are border investment CLS’ Bozian expressed doubts about the ability of regulators to push forward, over the last years, the European Commission particularly in the US. The Commodities and Futures Trade Commission, which considers that the time has come to install a is charged with writing the rules there, has already said it lacks the resources common and binding regulatory framework for needed to fulfil all its tasks, despite having 600 lawyers and 30 project teams. CSDs on a European level. Despite the problems facing the regulators in Europe and the US, they are Historically, securities markets in the European working very closely, and the risk of “regulatory arbitrage” causing institutions Union have developed along national lines. In to move their operations to different jurisdictions is small. Wymeersch said 2001 and 2003, a High-level expert group chaired CESR and the CFTC have a joint working group to ensure that the possibility by Professor Giovannini identified 15 barriers to is minimised, and Bozian said the evidence is that the regulators are working an efficient market for services that are rendered closely together. after a trade has taken place in the European Union. “I’ve never seen more focus on being shoulder to shoulder in terms of The report pointed out a number of barriers that cooperation between the US and Europe,” Bozian said, but go to Asia and render the provision of cross border post trading they’ll tell you it’s not their problem. They don’t see why they should have to services (whether performed by CSDs or other fall into line. US and European regulators are having a hard time persuading market participants) more costly and less safe than them to join the chorus line.” domestic transactions. These barriers have not yet been fully removed. In order to increase the safety Continued on page 19 and efficiency of the internal market for securities >

www.bankingtech.com I 17 Cover story: MArKet INFrAstrUCtUre FEBRUARy 2011 transactions, the European Commission intends to OTC derivatives regs “off target” introduce harmonisation of key aspects of securities settlement. HSBC’s Burke said he felt that there was little chance of regulatory Key elements of the EMIR consultation include: arbitrage, but there are still issues. “From a derivatives perspective, the balance ■ Common regulatory framework for CSDs. CSDs of transactions is in Europe and the US and most of the risk is denominated in in the European Union should operate under a US dollars, euros or sterling, and some Japanese yen,” he said. “But there is still common regulatory framework that ensures the a lack of clarity on what needs to clear and who needs to clear.” robustness of their operation. Such a framework There is a similar lack of clarity on what role trade repositories will play. should include common definitions of CSD Regulators want increased trade reporting, but panellists were not sure that services, common rules on authorisation on this will reduce risk. “CLS is the de facto repository for FX trade, and we know ongoing supervision of CSDs, high prudential that we are going to have to provide more information,” said Bozian, but he standards for CSDs and rules on access queried how it would improve the public provision of pricing information. “FX and interoperability. The Consultation seeks is probably the most transparent area there is in terms of pricing – type FX stakeholders’ comments on the proper design of prices into Google and you’ll get 30 or 40 sources.” such a common regulatory structure. Where a trade repository will be useful is in the operation of “living ■ Harmonisation of key aspects of securities wills” when it is necessary to unwind the positions of large banks or other settlement. The consultation also asks what institutions. Wymeersch said during the Greek sovereign debt crisis that having measures could be taken to address concerns granular trade data was essential in matching collateral default swaps and relating to the well-functioning of securities related bonds. settlement. It seeks stakeholders’ input on HSBC’s Burke said it doesn’t do anything to reduce systemic risk. “What how to improve settlement discipline, i.e. that information are you looking for?” he said. “Price is not an issue, and reporting a transaction actually settles on the intended of trades doesn’t have a lot of value – but the regular reporting of risk positions settlement date. This question is linked to the could give a much greater level of protection.” Even then, he said, the tendency Proposal for a short selling regulation adopted is to concentrate on asset classes, so a true risk position could only be obtained by the Commission on 15 September 2010 which by aggregating risk across portfolios, which would be difficult. already foresees specific measures arising from patterns that factor in late settlement into a trading strategy. Another important aspect of the consultation concerns the harmonisation “The CCPs agreed to work on interoperability of settlement periods, i.e. the time between in 2009, but have been faced with the issue the conclusion of a transaction and settlement. Currently, European securities markets do not of how the system would work in a stressed follow a common settlement period (e.g. for market – if one of them failed, would the whole equities, regulated markets either settle two days or three days after trade (T+2 or T+3). system come crashing down?” Not everyone is in agreement with the proposals – see panel – but they are moving towards getting a practical agreement on interoperability between the existing clearing houses, which is part of the overall European scene is much more fragmented, and EC proposals, at least for cash equities. involves different models. More fundamentally, In the US, clearing is done solely by the some clearing mechanisms are tied to particular Depository Trust and Clearing Company, but the exchanges – trades on the Deutsche Börse exchange are all carried out through its Eurex subsidiary, for example. The regulators feel that market participants should be free to choose their clearing mechanism, largely because they think that introducing competition will lower the overall cost of trading in Europe, which is some eight times greater than in the US. The CCPs agreed to work on interoperability in 2009, but have been faced with the issue of how the system would work in a stressed market – if one of them failed, would the whole system come crashing down? This question of the concentration of risk is now the major focus of the debate, and there are signs that this is now moving forward and progress will be made in the next few months. Whether that progress will have the outcomes that the regulators want is, of course, a whole different question. BT

www.bankingtech.com I 19 Cover story: MArKet INFrAstrUCtUre FEBRUARy 2011 transactions, the European Commission intends to OTC derivatives regs “off target” introduce harmonisation of key aspects of securities settlement. HSBC’s Burke said he felt that there was little chance of regulatory Key elements of the EMIR consultation include: arbitrage, but there are still issues. “From a derivatives perspective, the balance ■ Common regulatory framework for CSDs. CSDs of transactions is in Europe and the US and most of the risk is denominated in in the European Union should operate under a US dollars, euros or sterling, and some Japanese yen,” he said. “But there is still common regulatory framework that ensures the a lack of clarity on what needs to clear and who needs to clear.” robustness of their operation. Such a framework There is a similar lack of clarity on what role trade repositories will play. should include common definitions of CSD Regulators want increased trade reporting, but panellists were not sure that services, common rules on authorisation on this will reduce risk. “CLS is the de facto repository for FX trade, and we know ongoing supervision of CSDs, high prudential that we are going to have to provide more information,” said Bozian, but he standards for CSDs and rules on access queried how it would improve the public provision of pricing information. “FX and interoperability. The Consultation seeks is probably the most transparent area there is in terms of pricing – type FX stakeholders’ comments on the proper design of prices into Google and you’ll get 30 or 40 sources.” such a common regulatory structure. Where a trade repository will be useful is in the operation of “living ■ Harmonisation of key aspects of securities wills” when it is necessary to unwind the positions of large banks or other settlement. The consultation also asks what institutions. Wymeersch said during the Greek sovereign debt crisis that having measures could be taken to address concerns granular trade data was essential in matching collateral default swaps and relating to the well-functioning of securities related bonds. settlement. It seeks stakeholders’ input on HSBC’s Burke said it doesn’t do anything to reduce systemic risk. “What how to improve settlement discipline, i.e. that information are you looking for?” he said. “Price is not an issue, and reporting a transaction actually settles on the intended of trades doesn’t have a lot of value – but the regular reporting of risk positions settlement date. This question is linked to the could give a much greater level of protection.” Even then, he said, the tendency Proposal for a short selling regulation adopted is to concentrate on asset classes, so a true risk position could only be obtained by the Commission on 15 September 2010 which by aggregating risk across portfolios, which would be difficult. already foresees specific measures arising from patterns that factor in late settlement into a trading strategy. Another important aspect of the consultation concerns the harmonisation “The CCPs agreed to work on interoperability of settlement periods, i.e. the time between in 2009, but have been faced with the issue the conclusion of a transaction and settlement. Currently, European securities markets do not of how the system would work in a stressed follow a common settlement period (e.g. for market – if one of them failed, would the whole equities, regulated markets either settle two days or three days after trade (T+2 or T+3). system come crashing down?” Not everyone is in agreement with the proposals – see panel – but they are moving towards getting a practical agreement on interoperability between the existing clearing houses, which is part of the overall European scene is much more fragmented, and EC proposals, at least for cash equities. involves different models. More fundamentally, In the US, clearing is done solely by the some clearing mechanisms are tied to particular Depository Trust and Clearing Company, but the exchanges – trades on the Deutsche Börse exchange are all carried out through its Eurex subsidiary, for example. The regulators feel that market participants should be free to choose their clearing mechanism, largely because they think that introducing competition will lower the overall cost of trading in Europe, which is some eight times greater than in the US. The CCPs agreed to work on interoperability in 2009, but have been faced with the issue of how the system would work in a stressed market – if one of them failed, would the whole system come crashing down? This question of the concentration of risk is now the major focus of the debate, and there are signs that this is now moving forward and progress will be made in the next few months. Whether that progress will have the outcomes that the regulators want is, of course, a whole different question. BT

www.bankingtech.com I 19 Trading: Surveillance SySTemS February 2011

“a ny entity can have an individual response, The lack of standardisation is a problem because the but if it’s out of concert with what everybody else is exchanges and brokers operate on different platforms. doing, it doesn’t necessarily solve the problem. It can There are different versions of FIX, and the levels of exacerbate it,” says Dan Hubscher, industry manager information offered on the market data feeds vary. for capital markets at Progress Software. “High speed Some offer client and beneficial ownership information trading needs high speed controls.” and others do not, for example. automated intelligence systems use Complex event according to the report, there are about 200 Processing technology to detect patterns and raise exchanges with regulatory oversight requiring market alerts when certain thresholds have been breached. surveillance technology of any significance. Of that They use profiling functionality to highlight whether a market, Smarts Group has a 25% market share. particular account, client or group of clients is deviating Technology solutions sold by exchanges or exchange from their normal behavior or from the behavior of technology providers account for another 18% of the their peer group at that particular time. Moreover, market, and CeP engines comprise the rest of the they deploy techniques to discover hidden links commercial technology. Most of the technology has between various clients. a broker may have multiple been built internally or custom to the local market.a ite accounts in the names of several connected people, Group estimates that in 2010 exchanges and regulators and while their individual volume may not appear to spent about $38 million on market surveillance, and be important, the aggregate may be significant. broker-dealers spent $168 million on commercial an alert triggers a human-based investigation market surveillance technology. process. a series of steps have to be taken to australia, Singapore and Canada are setting determine intent and develop a solid case backed by an example by integrating Nasdaq OMX market evidence. The process needs to be executed quickly surveillance technology across brokers, the regulator and efficiently not only to eliminate the abuse or error, and the exchange. being on the same platform enables but also to contain costs and instill confidence in the stakeholders to access the same data and obtain a markets. single view of the truth, which is particularly beneficial regardless of whether the abuse or error is a slow- in multi-market operations. In australia, the brokers or fast-moving type of condition, the timing and were the first to deploy a common platform based on sequencing of events is important in reconstructing an aSP/Software as a Service solution using the same Nowhere to run; events. Many exchanges can replay events, and that data feed from aSX. can be used, for example, to match the timing of a news release or earnings report with a market moving nowhere to hide … trade on that company’s stock to ensure they were in the right order. even with this capability, after a major event like the Flash Crash, it can take months of data “There is a constant tension between giving the As international regulators move to prevent another crisis, surveillance systems mining to piece together what happened. compliance department adequate resources to are becoming increasingly sophisticated, says Sherree Decovny. “The regulators did a fairly decent job of producing a report that explained the Flash Crash step by step, get the data that they need and ensuring that minute by minute,” notes Hubscher. “but taking the costs are kept down as much as possible” Corporate scandals, the economic meltdown and european regulators generally take a principles- months to reconstruct something like that is not going the uS Flash Crash on 6 May last year have focused based approach to market surveillance, allowing to work, because by the time we figure out what Trevor Barritt, Nice Actimize attention on the threats that lurk in the financial exchanges and brokers to put policies and procedures happened and put something in place to prevent it, it’s markets. To this end, market surveillance is becoming in place to manage their risk as they see fit. Theu K’s going to break again.” a higher priority at brokers, exchanges and regulators Financial Services authority expects the exchanges another troubling issue is that surveillance alike. Considering the huge volumes going through and brokers to know what typologies look for based efforts are hindered by the number of false positives “brokers decided that regulatory compliance marketplaces at lightning speed, it is impossible to on their experience and knowledge of their particular generated by the systems. These can be reduced by monitoring is an area suited to cooperation rather manually monitor for abuse and erroneous trading. business. Other regulators, however, put out numerous deploying detection scenarios tailored to a particular than commercial competition, and they agreed to Without sophisticated surveillance systems, all three pages of typologies describing what exchanges and type of account, activity or business (retail vs. work together to establish best practices in this area,” categories of participants are exposed to reputational brokers should do when looking for market abuse and institutional, equities, fixed income, derivatives, on- or says andreas Furche, chief executive of Smarts Group, damage, and the brokers and exchanges are vulnerable erroneous trades. In Germany, for example, brokers off-exchange derivatives or structured products). False which is owned by Nasdaq OMX. to a gradual attrition of business. are required to do a periodic risk analysis and explain positives also can be avoided by setting the thresholds both aSX and the australian Securities and Market surveillance is most effective when done to regulators how and why they allocated resources in in each area at the right levels and establishing proper Investments Commission followed suit and collaboratively between brokers, exchanges and a particular way. scoring criteria to prioritise alerts. implemented the same Smarts real-time market regulators. The brokers are the primary gatekeepers Gaining access to transactional, order and “It’s a continual learning process,” says Hubscher. surveillance platform. aSIC also uses an historical against market abuse and erroneous trading. If settlement data can be a challenge, notes Trevor barritt, “If you’ve eliminated all false positives, it doesn’t take database to help detect patterns and relies on skilled something slips through their net, there is a second head of Compliance for Nice actimize europe. “There long for the market to innovate around that, so you analysts to interpret the data, identify potential market line of defence at the exchange. The regulators are is a constant tension between giving the compliance need to consistently revisit your detection patterns.” abuses and eliminate false positives. This surveillance responsible for overseeing both those entities, and department adequate resources to get the data that a recent aite Group study entitled Market technology enables aSIC to advise brokers about the ultimately prosecuting offenders. They set goals and they need and ensuring that the costs are kept down Surveillance Technology: Too Little, Definitely Too Late behaviours they do (and do not) want to see and helps targets and establish specific requirements pertaining as much as possible,” he says. suggests that collaboration is limited by the disparity the regulator expedite investigations. to certain types of abuse. In addition, about 38 self- Considering today’s fragmented, globalised between the data and technology used by the brokers, “Our deterrence team brought forward for regulatory organisations and exchanges worldwide environment, all these stakeholders need a full view exchanges versus the regulators. Many regulators investigation nine matters within the first 10 weeks of work closely together to share practical experiences of the markets and the ability to execute a coordinated do not have the technical acumen, staff or budget to implementing the solution,” says Greg yanco, senior through the Intermarket Surveillance Group. response should an event occur. deploy a sophisticated market surveillance solution. executive, Market and Participant Supervision at aSIC. >

20 I www.bankingtech.com www.bankingtech.com I 21 “a ny entity can have an individual response, The lack of standardisation is a problem because the but if it’s out of concert with what everybody else is exchanges and brokers operate on different platforms. doing, it doesn’t necessarily solve the problem. It can There are different versions of FIX, and the levels of exacerbate it,” says Dan Hubscher, industry manager information offered on the market data feeds vary. for capital markets at Progress Software. “High speed Some offer client and beneficial ownership information trading needs high speed controls.” and others do not, for example. automated intelligence systems use Complex event according to the report, there are about 200 Processing technology to detect patterns and raise exchanges with regulatory oversight requiring market alerts when certain thresholds have been breached. surveillance technology of any significance. Of that They use profiling functionality to highlight whether a market, Smarts Group has a 25% market share. particular account, client or group of clients is deviating Technology solutions sold by exchanges or exchange from their normal behavior or from the behavior of technology providers account for another 18% of the their peer group at that particular time. Moreover, market, and CeP engines comprise the rest of the they deploy techniques to discover hidden links commercial technology. Most of the technology has between various clients. a broker may have multiple been built internally or custom to the local market.a ite accounts in the names of several connected people, Group estimates that in 2010 exchanges and regulators and while their individual volume may not appear to spent about $38 million on market surveillance, and be important, the aggregate may be significant. broker-dealers spent $168 million on commercial an alert triggers a human-based investigation market surveillance technology. process. a series of steps have to be taken to australia, Singapore and Canada are setting determine intent and develop a solid case backed by an example by integrating Nasdaq OMX market evidence. The process needs to be executed quickly surveillance technology across brokers, the regulator and efficiently not only to eliminate the abuse or error, and the exchange. being on the same platform enables but also to contain costs and instill confidence in the stakeholders to access the same data and obtain a markets. single view of the truth, which is particularly beneficial regardless of whether the abuse or error is a slow- in multi-market operations. In australia, the brokers or fast-moving type of condition, the timing and were the first to deploy a common platform based on sequencing of events is important in reconstructing an aSP/Software as a Service solution using the same events. Many exchanges can replay events, and that data feed from aSX. can be used, for example, to match the timing of a news release or earnings report with a market moving trade on that company’s stock to ensure they were in the right order. even with this capability, after a major event like the Flash Crash, it can take months of data “There is a constant tension between giving the mining to piece together what happened. compliance department adequate resources to “The regulators did a fairly decent job of producing a report that explained the Flash Crash step by step, get the data that they need and ensuring that minute by minute,” notes Hubscher. “but taking the costs are kept down as much as possible” months to reconstruct something like that is not going to work, because by the time we figure out what Trevor Barritt, Nice Actimize happened and put something in place to prevent it, it’s going to break again.” another troubling issue is that surveillance efforts are hindered by the number of false positives “brokers decided that regulatory compliance generated by the systems. These can be reduced by monitoring is an area suited to cooperation rather deploying detection scenarios tailored to a particular than commercial competition, and they agreed to type of account, activity or business (retail vs. work together to establish best practices in this area,” institutional, equities, fixed income, derivatives, on- or says andreas Furche, chief executive of Smarts Group, off-exchange derivatives or structured products). False which is owned by Nasdaq OMX. positives also can be avoided by setting the thresholds both aSX and the australian Securities and in each area at the right levels and establishing proper Investments Commission followed suit and scoring criteria to prioritise alerts. implemented the same Smarts real-time market “It’s a continual learning process,” says Hubscher. surveillance platform. aSIC also uses an historical “If you’ve eliminated all false positives, it doesn’t take database to help detect patterns and relies on skilled long for the market to innovate around that, so you analysts to interpret the data, identify potential market need to consistently revisit your detection patterns.” abuses and eliminate false positives. This surveillance a recent aite Group study entitled Market technology enables aSIC to advise brokers about the Surveillance Technology: Too Little, Definitely Too Late behaviours they do (and do not) want to see and helps suggests that collaboration is limited by the disparity the regulator expedite investigations. between the data and technology used by the brokers, “Our deterrence team brought forward for exchanges versus the regulators. Many regulators investigation nine matters within the first 10 weeks of do not have the technical acumen, staff or budget to implementing the solution,” says Greg yanco, senior deploy a sophisticated market surveillance solution. executive, Market and Participant Supervision at aSIC. >

www.bankingtech.com I 21 Trading: Surveillance SySTemS TRANSACTION BANKING: TRADE FINANCE February 2011 February 2011

The exchange also uses the tool to monitor pre- and post-trade transparency and participant behaviour. The objective is to ensure market makers and brokers comply with their obligations under the trading rules. In the next round of MiFID in 2012, exchanges will likely be required to assist in best execution as well. Plus Markets previously used a market surveillance platform from Smarts Group, but it recently it switched to apama, which is also used by Turquoise. apama was selected for several reasons. The exchange has access to scripting language, so not only is the tool adaptable and controllable, but it also allows Plus Markets to react to a threat and build and recalibrate alerts quickly. The tool offers sophisticated underlying algorithms and off-the-shelf alerts, some of which Plus Markets has added to its collective memory bank. Moreover, apama is cost-effective. Some of the emerging markets also are beefing up surveillance. Several incidents of abuse have “Having the ability to resolve issues much faster is one undermined confidence in russia’s markets, and to of the benefits we were hoping to achieve.” restore credibility, new laws have been introduced aSX uses the technology for real-time continuous reflecting international best practices for dealing disclosure, post-trade analysis and quantitative with market manipulation and insider trading. To deconstruction of the market. Workflow elements complement the legislative effort, russia’s regulator, in the platform track the interaction between the the Federal Financial Markets Service, implemented a exchange’s surveillance and issuers units. market surveillance solution from Nice actimize. “The auditability of the system is a real benefit to us when it comes to annual licensing reviews conducted by aSIC because we can clearly demonstrate Going with the ﬂ ow compliance with the license obligations,” says David “Brokers decided that regulatory Lawrence, general manager, Surveillance at aSX. compliance monitoring is an area “a nother benefit is the evidentiary quality of the suited to cooperation rather than As trade fi nance activities recover post-crisis, banks are facing challenges from government system output, which makes it easier for us to build regulation and corporate competition. Tom Groenfeldt fi nds that systems need to be strong circumstantial cases for prosecution.” commercial competition, and The uK’s FSa spent more than£15 million ﬂ exible to protect and grow a vital part of the transaction banking business. developing its market abuse detecting tool, known as they agreed to work together to Surveillance analysis of business reporting II system establish best practices in this area,” Coming out of the global fi nancial crisis, international by air freight. enrico Camerinelli, a researcher at the (Sabre II). Since Sabre II went live in November 2007, trade has picked up sharply. Along with it, banks, aite Group, says that corporate treasurers, often the FSa spent another £289,000 on enhancements to Andreas Furche, Smarts corporations and governments are pushing to make frustrated by lack of information about payments, are the system so it could exchange reports with other the business more electronic. Trade fi nance, which struggling to fi nd the best use of working capital. One european states in accordance with MiFID. yet the was in trouble as a line of business in 2008 and 2009 lesson many of them learned from the fi nancial crisis regulator has been criticised in the press for securing FFMS currently monitors tens of millions of orders as banks faced liquidity challenges, is recovering and is that conserving capital and treating payments as a convictions against just seven insider traders. daily from the two primary russian exchanges, the open accounts and direct fi nancing are replacing much zero sum game doesn’t always make sense. Since 2007, when MiFID was introduced and Moscow Interbank Currency exchange (MICeX) and of the paper-intensive letter of credit business. “Some big companies had nearly wiped out their the financial crisis began, the Plus Stock exchange the russian Trading System (rTS), involving some one “every indicator shows a pickup in volumes over suppliers by paying late in order to hoard cash. in London has reinforced its market surveillance million executions. Working alongside implementation what was there during the last two years,” says adnan Now they are looking at support for their suppliers technology to comply with new expectations and partners FuN, one of the largest systems integrators Ghani, global head of trade fi nance for rbS Global as a competitive advantage, so managing their regulatory standards. “We need to protect our offering, in russia, and Prognoz, a business intelligence Transaction Services. payables and inventory is part of the strategy,” he which is the provision of a transparent, neutral, non- applications provider, Nice actimize executed the Trade expands and contracts faster than the says. although asia wasn’t directly involved in the discriminatory and well-regulated environment for project quickly. The implementation commenced at economy, says Ghani: a 3% decline in GDP can lead fi nancial crisis, estimates are that 20,000 to 30,000 listings and for the trading of securities,” says James the beginning of July 2010 and the solution went live to an 8% decline in trade, while the reverse is roughly small and medium size Chinese companies went Godwin, director of regulation at Plus Markets. within a span of just 10 weeks. Within two weeks of true as economic growth resumes. bankrupt because they couldn’t get credit. The market surveillance tool used at Plus Markets going live with the solution, FFMS identified three but banks face competition from cash-rich Ghani is surprised this isn’t better understood detects patterns that indicate potential abuses such potential wash trade cases that are currently under corporations that are starting to offer to fi nance their by corporations. In a recent meeting with corporate as insider trading and various forms of market abuse investigation. suppliers, and from logistics companies that can fi nance offi cers, he found many didn’t know that including “painting the tape”. This is where modest regulators worldwide are restructuring their use their knowledge of the supply chain to provide trade could provide a cheaper source of fi nance, orders are frequently pinged through to create the organisations and introducing new rules to prevent fi nancing directly. benefi tting the importer or exporter, depending on illusion of demand, when ultimately the intention is to potential financial meltdowns and restore confidence Strange as it may seem to a retail customer whose the terms. manipulate the price of a security. The tool also can be in the financial markets. Change is coming down the account shows an immediate hit after a debit card “People didn’t really understand how trade could used to detect disorderly trading arising from deficient pike, but little is engraved in stone yet. but one thing is used at Tesco, payments in trade can take weeks be a cheaper form of fi nance. That was a good eye- technology, rogue algorithms and certain phenomena is for certain: market surveillance will play a significant to travel from asia to europe, even while high end opener for me. Technology has really simplifi ed and associated with high frequency trading. role in the markets of the future. BT consumer goods sometimes make the trip overnight made trade effi cient,” he says. >

22 I www.bankingtech.com www.bankingtech.com I 23 TRANSACTION BANKING: TRADE FINANCE February 2011

Going with the ﬂ ow

As trade fi nance activities recover post-crisis, banks are facing challenges from government regulation and corporate competition. Tom Groenfeldt fi nds that systems need to be ﬂ exible to protect and grow a vital part of the transaction banking business.

Coming out of the global fi nancial crisis, international by air freight. enrico Camerinelli, a researcher at the trade has picked up sharply. Along with it, banks, aite Group, says that corporate treasurers, often corporations and governments are pushing to make frustrated by lack of information about payments, are the business more electronic. Trade fi nance, which struggling to fi nd the best use of working capital. One was in trouble as a line of business in 2008 and 2009 lesson many of them learned from the fi nancial crisis as banks faced liquidity challenges, is recovering and is that conserving capital and treating payments as a open accounts and direct fi nancing are replacing much zero sum game doesn’t always make sense. of the paper-intensive letter of credit business. “Some big companies had nearly wiped out their “every indicator shows a pickup in volumes over suppliers by paying late in order to hoard cash. what was there during the last two years,” says adnan Now they are looking at support for their suppliers Ghani, global head of trade fi nance for rbS Global as a competitive advantage, so managing their Transaction Services. payables and inventory is part of the strategy,” he Trade expands and contracts faster than the says. although asia wasn’t directly involved in the economy, says Ghani: a 3% decline in GDP can lead fi nancial crisis, estimates are that 20,000 to 30,000 to an 8% decline in trade, while the reverse is roughly small and medium size Chinese companies went true as economic growth resumes. bankrupt because they couldn’t get credit. but banks face competition from cash-rich Ghani is surprised this isn’t better understood corporations that are starting to offer to fi nance their by corporations. In a recent meeting with corporate suppliers, and from logistics companies that can fi nance offi cers, he found many didn’t know that use their knowledge of the supply chain to provide trade could provide a cheaper source of fi nance, fi nancing directly. benefi tting the importer or exporter, depending on Strange as it may seem to a retail customer whose the terms. account shows an immediate hit after a debit card “People didn’t really understand how trade could is used at Tesco, payments in trade can take weeks be a cheaper form of fi nance. That was a good eye- to travel from asia to europe, even while high end opener for me. Technology has really simplifi ed and consumer goods sometimes make the trip overnight made trade effi cient,” he says. >

www.bankingtech.com I 23 TRANSACTION BANKING: TRADE FINANCE February 2011

the International Chamber of Commerce to develop becoming hubs for business to business flows. “This The Benche: SEB’s trade finance forum appropriate legal frameworks. is about connecting the banking world to the physical “We and the ICC have established a multi-bank world,” he explained. “Swift is working more and more scheme so smaller banks don’t have to adopt all the with those platforms to involve them in the financial One of the most innovative specific schemes created by the larger banks,” he says. process that the banks enable. We are helping the approaches to trade finance is Then the buyer and seller can work through their own banks to move to electronics. Otherwise we will only The Benche, a web-based service banks with Swift in the middle. find paper in the banking world.” Swift now has 600 provided by SEB as a free service roland Hartley, head of North america trade corporates signed up and aims to have 5,000 by 2015, to financial professionals from sales at Citi Global Transaction Services, says that he added. corporates, as well as from financial paper is not going away soon though, because while Olivier berthier, head of product management for institutions. The purpose is to technology can solve many of the problems, laws have trade services at Misys, said that for the first time a encourage sharing of knowledge to be changed in many countries for the electronic data corporate can communicate with multiple banks over and experience, open discussions exchanges to function. Swift. and networking between such professionals. “Information technology certainly is capable of “When a corporate wants its bank to issue a letter It’s named after the benches that were originally used – bank is a corruption replacing our paper-based systems in a flash, and of credit, if it is on Swift then it can put the instruction of the Italian word for bench – and though it has branched out over the many banks, including Citi, spend a lot of money in a S798 message and send it to his bank. That is very years to cover cash management and custody issues, there is still a core of and bandwidth converting paper to digital records,” fresh. I think we were the first to go live with this about trade finance professionals asking each other questions, supplying answers Now, larger buyers who understand the potential he says. “However, for financing trade, paper cannot a year ago.” and generally sharing information in the ways that the bank intended – and scope of trade finance are looking at a variety of strategies go away until the legal infrastructure that defines It is still early days in corporate to bank probably in some that it wouldn’t have thought of. (During January there was including factoring, reverse factoring, inventory and protects ownership of goods and security rights communications, he added, but Swift seems to be a discussion going on over which country’s domestic payments system is best.) financing and payables discounting to manage both evolves to allow for the use of electronic documents. offering the way forward. The bulk of the site is taken up with forums and blogs relating to issues that their physical and financial supply chains. Siemens is In many countries, ownership or security rights can “We have live corporate and banks solutions, people find in their daily business – what is a Usance letter of credit? Is it the pursuing a banking license to reduce its dependency only be transferred via wet, notarised signatures on volumes are increasing and the industry realises that same as a deferred LC (pretty much, apparently). on troubled eurozone banks, says Camerinelli, and HP paper. until the legal infrastructure catches up with it is the first standards-based attempt with the right Other features of the site include presentations and documentations, all has long offered quick payment to suppliers who need the technological capabilities that exist today, we level of reach to multiple banks, since all the banks ordered in a “library section”, and a range of podcasts and webinars covering liquidity in return for discounts. will remain mired in paper. Countries that adapt will are on Swift. This offers multi-bank connectivity from international topics. A recent example featured an SEB country analyst benefit from lower transaction costs.” a corporate point of view.” discussing the market in Bangladesh, for instance. A whole section of the site is Automating trade finance rbS’s Ghani said that perceptions about trade Misys finds that its customers expect a lot more deveoted to risk ratings of countries. These are derived from the bank’s rating Governments, logistics firms, manufacturers, retailers finance lag behind its potential as a cheap source agility, tool kits, and the capability to modify work procedures, but you don’t get the final risk assessment. and banks are working with organisations like Swift of finance which is relatively easy to use. The bank’s flows or change trigger points. “We need to be a lot On the technology front – apart from being a good example of how a to make the business more efficient by improving MaxTrad supply chain module has eliminated paper more agile, more flexible, in our systems today than professional web community ought to look – there have been a number of and expanding the use of standards. While banks are and sharply improved efficiency. It doesn’t even a year ago,” berthier says, adding that trade finance relevant discussions, such as on the role of third party platforms for managing cutting out paper, companies, insurers and shippers require access to a PC – users can check the progress has moved up the organisation in banking hierarchies. a corporate’s Supply Chain Financing arrangements. There are even proper still have a distance to go before they have made their of a trade through an iPhone, iPad or blackberry and “Two years ago, all the decisions about trade finance social and lifestyle areas, and a pub ... part of the business digital. approve transactions or exceptions from an airport were with trade finance practitioners, letter of credit guys www.the.benche.com andré Casterman, head of trade and supply lounge or other remote location. who had been doing it for years.” but then banks began chain at Swift, said that the european union wants “Trade in 10 years will be all technology driven, and to bring in other participants such as the transaction to move the entire european market to electronic we are investing heavily in that kind of technology,” he banking group and cash management, which led to a putting transaction banking together – to improve invoicing by 2020. In many other countries around the added. rbS has added 25% to its trade finance team, in higher level interest in trade finance. During the crisis, cost, improve efficiency and provide a unified service world governments are pushing for electronic trade part because it continued to make money for the bank the not-so-sexy transaction banking groups remained so the bank is not just selling products but providing finance instruments to reduce costs and make their during the downturn and margins have increased. consistently profitable. banks were even talking about solutions.” companies more competitive in a global marketplace. Many banks would like to keep trade finance trade finance at the C level , berthier said. Governments in Taiwan and South Korea, for example, clients on their own proprietary portals, although “Citi and Deutsche have publicly admitted that their Regulation pending have given electronic documents full legal force. aite’s Camerinelli says that savvy financial institutions transaction banking units have saved the business of regulatory change is still a potential threat. The banks aren’t necessarily the obvious winners in are moving to opening their systems with standards the bank,” says aite’s Camerinelli, “and trade finance is bank for International Settlement has proposed the movement toward electronic trade processing. like Swift’s Trade Services utility and vendor-supplied a significant portion of transaction banking.” much higher capital charges for trade finance, even They risk being sidelined by corporate-to-corporate software which evolves with market demands. at Citi, Hartley, agrees that transactions are a rising though its losses are relatively rare. purchase arrangements, says Casterman, and He suggests that banks which don’t adapt quickly star. “The transaction side of most banks continued Ghani at rbS says trade is relatively secure traditional instruments like letters of credit are not could lose business to other financial organisations to make money at times when lending and global and has had low losses even during financial going to win back business for them. which don’t threaten corporations with technology markets businesses suffered or experienced wild crises in asia, russia and Latin america. Daniel In its place, Swift is developing interbank lock-in, or to other, non-financial, providers. Fourth- swings in profitability. banks generally break out Cotti, JP Morgan’s global trade executive, writes instruments to combine the benefits of the letter of party logistics (4PL) companies that contract for all the earnings attributed to their transaction processing in a recent bankers’ association for Finance and credit and open accounts. The information exchange logistics in the supply chain, have a comprehensive businesses, as analysts will often assign a substantially Trade newsletter that the International Chamber between buyers and sellers would go through a bank view of the supply chain and can also supply the higher Pe multiple to these business lines than they of Commerce and the asian Development bank electronically and create a bank Payment Obligation finance, with lower costs than regulated banks.a nother do to investment banking operations. Steady, growing used data on 5.22 million transactions worth $2.5 that lets the buyer’s bank offer an obligation of payment threat comes from the corporations themselves. Many revenue, low losses – that’s what’s really sexy in trillion conducted around the world by nine leading to the seller’s bank. The seller can use the obligation have lots of cash sitting on their books (an estimated banking now.” international banks over the last five years. The to obtain additional financing. Swift wants to provide $2 trillion in the uS), better credit ratings than many berthier says that ambitious banks are recognising participating banks reported 1,140 defaults and support for four-corner trades, such as one with a banks, and an interest in keeping their small and that trade finance and cash management are a key to even during the depths of the financial crisis only small supplier in China using a Chinese regional bank medium-size suppliers in business, by financing them attracting corporate business. 445 defaults out of 2.8 million transactions. and a uS buyer with an american bank – two banks if necessary. “If a bank wants to support corporate business, “Such tiny percentages dramatically challenge and two corporates with the same secure framework Casterman said that asian logistics platforms it understands trade finance is key to the value the necessity for the stringent capital requirements that a letter of credit offers. Swift is working with created by governments to facilitate trade are proposition for corporates. This was a driver for proposed under basel III,” he concluded. BT

24 I www.bankingtech.com www.bankingtech.com I 25 becoming hubs for business to business flows. “This The Benche: SEB’s trade finance forum is about connecting the banking world to the physical world,” he explained. “Swift is working more and more with those platforms to involve them in the financial One of the most innovative process that the banks enable. We are helping the approaches to trade finance is banks to move to electronics. Otherwise we will only The Benche, a web-based service find paper in the banking world.” Swift now has 600 provided by SEB as a free service corporates signed up and aims to have 5,000 by 2015, to financial professionals from he added. corporates, as well as from financial Olivier berthier, head of product management for institutions. The purpose is to trade services at Misys, said that for the first time a encourage sharing of knowledge corporate can communicate with multiple banks over and experience, open discussions Swift. and networking between such professionals. “When a corporate wants its bank to issue a letter It’s named after the benches that were originally used – bank is a corruption of credit, if it is on Swift then it can put the instruction of the Italian word for bench – and though it has branched out over the in a S798 message and send it to his bank. That is very years to cover cash management and custody issues, there is still a core of fresh. I think we were the first to go live with this about trade finance professionals asking each other questions, supplying answers a year ago.” and generally sharing information in the ways that the bank intended – and It is still early days in corporate to bank probably in some that it wouldn’t have thought of. (During January there was communications, he added, but Swift seems to be a discussion going on over which country’s domestic payments system is best.) offering the way forward. The bulk of the site is taken up with forums and blogs relating to issues that “We have live corporate and banks solutions, people find in their daily business – what is a Usance letter of credit? Is it the volumes are increasing and the industry realises that same as a deferred LC (pretty much, apparently). it is the first standards-based attempt with the right Other features of the site include presentations and documentations, all level of reach to multiple banks, since all the banks ordered in a “library section”, and a range of podcasts and webinars covering are on Swift. This offers multi-bank connectivity from international topics. A recent example featured an SEB country analyst a corporate point of view.” discussing the market in Bangladesh, for instance. A whole section of the site is Misys finds that its customers expect a lot more deveoted to risk ratings of countries. These are derived from the bank’s rating agility, tool kits, and the capability to modify work procedures, but you don’t get the final risk assessment. flows or change trigger points. “We need to be a lot On the technology front – apart from being a good example of how a more agile, more flexible, in our systems today than professional web community ought to look – there have been a number of a year ago,” berthier says, adding that trade finance relevant discussions, such as on the role of third party platforms for managing has moved up the organisation in banking hierarchies. a corporate’s Supply Chain Financing arrangements. There are even proper “Two years ago, all the decisions about trade finance social and lifestyle areas, and a pub ... were with trade finance practitioners, letter of credit guys www.the.benche.com who had been doing it for years.” but then banks began to bring in other participants such as the transaction banking group and cash management, which led to a putting transaction banking together – to improve higher level interest in trade finance. During the crisis, cost, improve efficiency and provide a unified service the not-so-sexy transaction banking groups remained so the bank is not just selling products but providing consistently profitable. banks were even talking about solutions.” trade finance at the C level , berthier said. “Citi and Deutsche have publicly admitted that their Regulation pending transaction banking units have saved the business of regulatory change is still a potential threat. The the bank,” says aite’s Camerinelli, “and trade finance is bank for International Settlement has proposed a significant portion of transaction banking.” much higher capital charges for trade finance, even at Citi, Hartley, agrees that transactions are a rising though its losses are relatively rare. star. “The transaction side of most banks continued Ghani at rbS says trade is relatively secure to make money at times when lending and global and has had low losses even during financial markets businesses suffered or experienced wild crises in asia, russia and Latin america. Daniel swings in profitability. banks generally break out Cotti, JP Morgan’s global trade executive, writes earnings attributed to their transaction processing in a recent bankers’ association for Finance and businesses, as analysts will often assign a substantially Trade newsletter that the International Chamber higher Pe multiple to these business lines than they of Commerce and the asian Development bank do to investment banking operations. Steady, growing used data on 5.22 million transactions worth $2.5 revenue, low losses – that’s what’s really sexy in trillion conducted around the world by nine leading banking now.” international banks over the last five years. The berthier says that ambitious banks are recognising participating banks reported 1,140 defaults and that trade finance and cash management are a key to even during the depths of the financial crisis only attracting corporate business. 445 defaults out of 2.8 million transactions. “If a bank wants to support corporate business, “Such tiny percentages dramatically challenge it understands trade finance is key to the value the necessity for the stringent capital requirements proposition for corporates. This was a driver for proposed under basel III,” he concluded. BT

www.bankingtech.com I 25 A NEW DECADE OF REGULATION FEBRUARY 2011

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The fi nancial services industry faces a daunting task in preparing for the new regulatory regimes that are being put in place around the globe. Even some of the regulators fi nd it hard to keep up – and they have only just started, says David Bannister.

Even before the banking crisis, the ﬁ nancial services London School of Economics and fi rst chairman of industry found itself facing a pile of regulation. It was the Financial Services Authority has described the inevitable that after the collapse of Lehman Brothers restructure of the UK’s fi nancial regulatory regime as and all that followed, this would increase. “a bit of a shambles”. It was also inevitable that the industry’s ability to No stranger to the corridors of power – he worked deploy legal and free market economics arguments to at the British Embassy in Paris, and at the UK Treasury defer or defeat legislation has been severely curtailed: when Nigel Lawson was Chancellor of the Exchequer – bankers lost the moral high ground quite spectacularly Sir Howard, in a keynote address at SunGard’s London – falling below politicians and journalists in public City Day last September, singled out the decision to opinion polls. hand responsibility for combating insider dealing to Equally inevitable is that it is politicians who are now a new police fi nancial crime unit while oversight of deciding the direction of that legislation and journalists listed companies is handled by another authority, as who are fuelling their righteous indignation. an example,. pointing out that most insider dealing The upshot is that what used to be called the occurs at the time of a new listing. “I think it’s a “regulatory burden” has become the regulatory shambles, because it is not properly grounded in an tsunami – some followers of the scene say that there analysis of what went wrong,” he said are more than 250,000 pages of draft legislation On the wider fi nancial crisis, his own explanation currently circulating: the summary of the US Dodd- is relatively straightforward: “The technology of Frank Act, signed by President Obama last year runs to product innovation ran ahead of the technology of risk more than 1,000 pages. management.” More signifi cantly, what used to be guidelines or Whatever the true cause, the outcome has been a principles are now being framed as law: in Europe, the change in the way regulations are framed, which will European Commission has begun issuing regulations necessitate a different response from the industry. rather than directives. “The political framework regulators operate in has Even those close to the political world say that changed, and that changes the way they think,” he said. these changes are more important than might at The result is that, in areas like product innovation, fi rst be thought. Sir Howard Davies, director ofthe “it is now quite reasonable for regulators to question >

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To protect now and they are really starting to look at the data From that perspective, almost everyone the position problem and create new standards. That is only step agrees that international regulators are working of London, he one – you then have to implement those standards.” closely to remove that risk: speaking at a Sibos session said that that “the There is also the issue of where these regulations last year Alan Bozian, president and chief executive of UK must maintain a strong are coming from and whether they will be globally CLS Bank International, said the evidence is that the voice in Europe, and not hesitate to propose rather applicable – one of the key functions of the new regulators are working closely together. than just react.” The new European Securities and European financial oversight bodies is to avoid “I’ve never seen more focus on being shoulder to Markets Authority will “promulgate regulation on the “regulatory arbitrage”, whereby firms might seek to shoulder in terms of cooperation between the US and basis of a majority vote – the UK has 8% of that vote, move operations to jurisdictions with less regulation. Europe,” Bozian said, but go to Asia and they’ll tell you but London represents 60% of production in fi nancial This is not good for a country’s economic structure, it’s not their problem. They don’t see why they should services,” Rolet said. “The UK must develop a strategy but, more importantly, it does not remove the risk that have to fall into line. US and European regulators are of response.” the financial system might collapse again – it probably having a hard time persuading them to join the chorus ESMA is one of the new European oversight increases it, in fact. line.” > authorities that have already begun to set out their plans (see panel opposite). Another is the European Banking Authority, which has already announced a Meet the new boss(es) new round of EU-wide stress test to take place in the fi rst half of 2011 and to publish results in mid-2011. Among the changes that have happened in the stability of the financial system, the in contributing to more efficient and sound whether you’ve modelled your new instrument The 2011 stress test will be carried out in cooperation the post-crisis regulatory environment is the transparency of markets and financial European financial markets and, through properly” before they allow it. with the national supervisory authorities, the European establishment of new European supervisory products, and the protection of depositors this, promotes a more competitive European The ramifi cations of new regulation were also Systemic Risk Board, the European Central and the authorities covering banking, securities and investors. economy. ” addressed by another speaker at the event, Xavier European Commission, and will cover a broadly trading and insurance and occupational On the securities/capital markets side, ESMA’s brief on securities legislation is Rolet, chief executive of the London Stock Exchange. similar group of banks as last year. pensions. the European Securities and Markets part of the EC’s work on the development “The regulatory and political fi nancial oversight The objective of the stress test is to “assess the These officially came into being at the Authority replaced the Committee of of a single rule book in Europe. This serves system is working in overdrive,” he said, cautioning resilience of the EU banking system to hypothetical beginning of the year, and have moved European Securities Regulators, an advisory two purposes: the first is to ensure the against creating the potential for regulatory stress events under certain restrictive conditions”. The quickly to establish their structures and work body made up of EU securities regulators consistent treatment of investors across arbitrage. “Regulatory over-reach will affect Western stress test is one of a range of supervisory tools for plans for the year ahead, building on work that has been advising the European the EU, “enabling an adequate level of competitiveness – there are new capital bases in Asia, assessing the strength of individual institutions as well done by their predecessor organisations. Commission since 2001. protection of investors through effective and regulatory arbitrage could drive a move to there.” as the overall resilience of the system. The European Banking Authority As with the EBA, ESMA is controlled by a regulation and supervision”. The second is Overall, however, he sees a move to international The EBA also announced that it will, as part of its has taken over the existing tasks and Board of Supervisors – in this case consisting to promote equal conditions of competition cooperation to prevent this: “A major outcome will regular cycle of risk assessments, initiate a separate responsibilities from the Committee of of the heads of the relevant national for financial service providers, as well as be a slow, but reasonably sure emergence of a global thematic review of liquidity funding risks across the European Banking Supervisors. The EBA’s supervisors – and its first move at the turn ensuring the effectiveness and cost efficiency regulatory framework,” he said. EU banking sector in the fi rst quarter of 2011. It will use Board of Supervisors, the main decision- of the year was to elect its members. Carlos of supervision for supervised companies. this internal review to inform supervisory authorities making body, selected Andrea Enria as the Tavares, the chairman of the Portuguese As part of its role in standard setting and about areas of vulnerability in relation to liquidity risk. EBA chairperson. CMVM, and last chairman of CESR, is acting reducing the scope of regulatory arbitrage, European Financial Services legislation While efforts like this go some way to address the Thomas Huertas was picked as the EBA as chairman of ESMA until someone is ESMA strengthens international supervisory currently being enacted – a partial list issue of risk and stability, others say that the European alternate chairperson. Huertas, formerly elected. co-operation, the EC says. framework is a long way from being homogeneous. vice-chairman of CEBS and currently banking The board of Supervisors also appointed Perhaps more importantly, ESMA has ■ Capital requirements Directive III & IV “The question is: what’s the political will for the sector director at the UK Financial Services the first members of the Management powers to undertake the supervision of ■ Remuneration and bonuses governments, in this economic situation that we are Authority, will carry out the functions of Board: Karl-Burkhard Caspari, BaFin, certain entities with pan European reach ■ Pan-EU Supervisory Mechanisms in, to ramp up the regulatory functions and run around the chairperson in his absence and until the Germany; Jean Guill, Commission “where requested in European law” It also ■ Hedge Funds & Private Equity beating up the banks?” says PJ Di Giammarino, chairperson has officially taken up his duties. de Surveillance du Secteur Financier, contributes to the work of the European ■ OTC Derivatives, Short-selling chief executive of JWG, a think-tank that has been Six representatives from the national Luxembourg; Alexander Justham, Financial Systemic Risk Board, which identifies ■ Solvency II – Insurance monitoring regulatory developments for several years. supervisory Authorities serve as members Services Authority, UK; Raul Malmstein, potential risks to the financial system and ■ Responsible Lending & Borrowing Di Giammarino says that there are clear signs that of the EBA Management Board: Martin Finantsinspektsioon Estonia; Kurt Pribil, “provides advice to diminish possible threats ■ Packaged Retail Investment Products different governments and regulators have different Andersson, Finansinspektionen, Sweden; Finanzmarktaufsicht, Austria; Fernando to the financial stability of the Union”. As ■ UCITs IV appetites for this. He points out that while the UK’s Sabine Lautenschlager, BaFin, Germany; Restoy, Comision Nacional del Mercado de part of that, ESMA is also responsible for ■ Credit Rating Agencies Financial Services Authority has hit a number of large Danièle Nouy, Autorité de Contrôle Valores, Spain. coordinating actions of securities supervisors ■ MiFID and Market Abuse updated rules fi rms, including Barclays and Credit Suisse, with Prudentiel, France; David Rozumek, Introducing the new body, Tavares said: or adopting emergency measures if and/or ■ Financial Transactions Tax (FTT) signifi cant fi nes, this has not been happening in other Ceska Narodni Banka, Czech Republic; “During the next few months it is clear that “when a crisis situation arises”. ■ the audit industry European jurisdictions. Karoly Szasz, Pénzügyi Szervezetek Állami our attention will continue to be steadfastly Before that, however, is the important ■ Pensions “It is having an impact, but I’m not sure what it is going Felügyelete, Hungary; Jukka Vesala, focused on ensuring the effectiveness of business of creating its internal structures. ■ Corporate governance to take for the regulators to be consistent across Europe,” Finanssivalvonta, Finland. ESMA’s functioning as it begins its new At its inaugural meeting in January, the ■ Directive on responsible lending and borrowing Legislative he says. “It is a market-wide problem – you need the The search for the EBA executive director life. Much has been achieved to ensure first set of internal rules and procedures ■ Legislative proposal on access to basic banking services French regulators, and the German regulators and the is still underway: Arnoud Vossen, acting a successful transformation of CESR to that define how ESMA will function were ■ Green Paper on a framework initiative on corporate governance Dutch regulators, all singing from the same hymn sheet.” secretary general of the EBA, is in charge ESMA, nevertheless ESMA has significant adopted. Among these were rules and ■ Regulation on Central Securities Depositories (CSD’s) Like Rolet and Sir Howard, Di Giammarino does of the EBA day-to-day management an new responsibilities which we will need procedures on issues such as terms of ■ Securities Law Directive see the emergence of a global regulatory framework. appointment is made. to exercise mindfully and gradually over reference for both the Board of Supervisors ■ Amendment of the UCITS Directive depositaries and remuneration policies “It is very diffi cult for one regulator to take a position In terms of mission statements, the EBA the coming years. The national competent and the Management Board, the decision- ■ Review of Directive concerning Institutions for Occupational Retirement unilaterally, and what we are seeing this year is that is charged with ensuring “a high quality, authorities will be active partners in ensuring making process for the adoption of technical Provision (IORP) this is a good year to start your regional – and global – effective and consistent level of regulation the success of ESMA and in the framework standards and guidelines, as well as a ■ Special Committee on the Financial, Economic and Social Crisis (CRIS) engagement with a new crew of regulators. You have and supervision in its areas of competence. of the new European System of Financial human resources package, including the ■ Single Euro Payment Area the Financial Stability Board and others coming online It will also promote public values such as Supervision. ESMA must deliver effectively code of conduct and a financial set of rules.

28 I www.bankingtech.com www.bankingtech.com I 29 now and they are really starting to look at the data From that perspective, almost everyone problem and create new standards. That is only step agrees that international regulators are working one – you then have to implement those standards.” closely to remove that risk: speaking at a Sibos session There is also the issue of where these regulations last year Alan Bozian, president and chief executive of are coming from and whether they will be globally CLS Bank International, said the evidence is that the applicable – one of the key functions of the new regulators are working closely together. European financial oversight bodies is to avoid “I’ve never seen more focus on being shoulder to “regulatory arbitrage”, whereby firms might seek to shoulder in terms of cooperation between the US and move operations to jurisdictions with less regulation. Europe,” Bozian said, but go to Asia and they’ll tell you This is not good for a country’s economic structure, it’s not their problem. They don’t see why they should but, more importantly, it does not remove the risk that have to fall into line. US and European regulators are the financial system might collapse again – it probably having a hard time persuading them to join the chorus increases it, in fact. line.” >

Meet the new boss(es)

Among the changes that have happened in the stability of the financial system, the in contributing to more efficient and sound the post-crisis regulatory environment is the transparency of markets and financial European financial markets and, through establishment of new European supervisory products, and the protection of depositors this, promotes a more competitive European authorities covering banking, securities and investors. economy. ” trading and insurance and occupational On the securities/capital markets side, ESMA’s brief on securities legislation is pensions. the European Securities and Markets part of the EC’s work on the development These officially came into being at the Authority replaced the Committee of of a single rule book in Europe. This serves beginning of the year, and have moved European Securities Regulators, an advisory two purposes: the first is to ensure the quickly to establish their structures and work body made up of EU securities regulators consistent treatment of investors across plans for the year ahead, building on work that has been advising the European the EU, “enabling an adequate level of done by their predecessor organisations. Commission since 2001. protection of investors through effective The European Banking Authority As with the EBA, ESMA is controlled by a regulation and supervision”. The second is has taken over the existing tasks and Board of Supervisors – in this case consisting to promote equal conditions of competition responsibilities from the Committee of of the heads of the relevant national for financial service providers, as well as European Banking Supervisors. The EBA’s supervisors – and its first move at the turn ensuring the effectiveness and cost efficiency Board of Supervisors, the main decision- of the year was to elect its members. Carlos of supervision for supervised companies. making body, selected Andrea Enria as the Tavares, the chairman of the Portuguese As part of its role in standard setting and EBA chairperson. CMVM, and last chairman of CESR, is acting reducing the scope of regulatory arbitrage, Thomas Huertas was picked as the EBA as chairman of ESMA until someone is ESMA strengthens international supervisory alternate chairperson. Huertas, formerly elected. co-operation, the EC says. vice-chairman of CEBS and currently banking The board of Supervisors also appointed Perhaps more importantly, ESMA has sector director at the UK Financial Services the first members of the Management powers to undertake the supervision of Authority, will carry out the functions of Board: Karl-Burkhard Caspari, BaFin, certain entities with pan European reach the chairperson in his absence and until the Germany; Jean Guill, Commission “where requested in European law” It also chairperson has officially taken up his duties. de Surveillance du Secteur Financier, contributes to the work of the European Six representatives from the national Luxembourg; Alexander Justham, Financial Systemic Risk Board, which identifies supervisory Authorities serve as members Services Authority, UK; Raul Malmstein, potential risks to the financial system and of the EBA Management Board: Martin Finantsinspektsioon Estonia; Kurt Pribil, “provides advice to diminish possible threats Andersson, Finansinspektionen, Sweden; Finanzmarktaufsicht, Austria; Fernando to the financial stability of the Union”. As Sabine Lautenschlager, BaFin, Germany; Restoy, Comision Nacional del Mercado de part of that, ESMA is also responsible for Danièle Nouy, Autorité de Contrôle Valores, Spain. coordinating actions of securities supervisors Prudentiel, France; David Rozumek, Introducing the new body, Tavares said: or adopting emergency measures if and/or Ceska Narodni Banka, Czech Republic; “During the next few months it is clear that “when a crisis situation arises”. Karoly Szasz, Pénzügyi Szervezetek Állami our attention will continue to be steadfastly Before that, however, is the important Felügyelete, Hungary; Jukka Vesala, focused on ensuring the effectiveness of business of creating its internal structures. Finanssivalvonta, Finland. ESMA’s functioning as it begins its new At its inaugural meeting in January, the The search for the EBA executive director life. Much has been achieved to ensure first set of internal rules and procedures is still underway: Arnoud Vossen, acting a successful transformation of CESR to that define how ESMA will function were secretary general of the EBA, is in charge ESMA, nevertheless ESMA has significant adopted. Among these were rules and of the EBA day-to-day management an new responsibilities which we will need procedures on issues such as terms of appointment is made. to exercise mindfully and gradually over reference for both the Board of Supervisors In terms of mission statements, the EBA the coming years. The national competent and the Management Board, the decision- is charged with ensuring “a high quality, authorities will be active partners in ensuring making process for the adoption of technical effective and consistent level of regulation the success of ESMA and in the framework standards and guidelines, as well as a and supervision in its areas of competence. of the new European System of Financial human resources package, including the It will also promote public values such as Supervision. ESMA must deliver effectively code of conduct and a financial set of rules.

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Di Giammarino says that his experience contradicts comments JWG on its website. “However, at its heart Sants outlines future scope of UK regulations this: “At a regulatory conference in Hong Kong in lies a deeper point: the scale and detail of the OTC “Dodd-Frank is on the agenda, but we have December it was fascinating to watch regulators from derivatives reform taking place is mind-boggling. yet to see how it will play out – there is a lot The need to “ensure the taxpayer never has to foot the bill again”, for 13 Asian countries all singing from the international Distinctions such as these, which may seem trivial to fi nancial failure and to improve regulatory co-ordination with Europe, was regulatory hymn sheet.” In part, he says, this is because the majority of us, could trip up the largest of financial of it that is simply not implementable in the uppermost in Hector Sants mind, when the chief executive of the Financial they have no central authority such as Washington or firms. Readying systems and contracts to comply with timeframes laid out, and there are parts that Services Authority gave a speech in December, writes Neil Ainger. Brussels, and also because some of the players fi nd it the new rules and training staff to understand the new At a Thomson Reuters event, Sants gave a progress update on regulatory attractive to promote Asian thought leadership in this modus operandi will be a mammoth task for 2011.” could just as easily end up on the scrapheap.” changes in the UK, admitting that “the FSA was seen as out of touch and area. In the face of this mammoth task, it is clear that that PJ Di Giammarino, JWG that this must change” in the new structure that he went on to highlight, While it is good news that the regulators are 2011 is going to be an interesting year because this new explaining how the new Prudential Regulation Authority, which he will head, working together to avoid regulatory arbitrage, what assertiveness on the part of the regulatory authorities a whole raft of different objectives and pull together will in future regulate individual fi rms and promote stability more effectively, happens in the US is going to have a big effect. The clarifies at least some of the tasks that the industry this aggregated picture of risk both internally, within while linking much more closely with the Financial Policy Committee, also Dodd-Frank Act is described on Wikipedia as “the most faces in implementation of compliance systems and our organisations, and across the market as a whole’. overseen by the Bank of England, which will handle macro prudential issues. sweeping change to fi nancial regulation in the United processes. What’s coming out in regulation people had to do The role of the Consumer Protection and Markets Authority in protecting States since the Great Depression, and represents a This is not necessarily a bad thing for the industry anyway, but they couldn’t because their infrastructures consumers and ensuring market integrity was also addressed. The new signifi cant change in the American fi nancial regulatory as a whole: it is often said that this is the way the weren’t up to it, and on top of that you have a whole bodies are “accountable to Parliament, not to the industry,” stressed Sants, environment affecting all Federal fi nancial regulatory world is going, so the industry should use the changes slew of new stuff that they have to digest and be able before adding that the “the FSA was accused of suffering from regulatory agencies and affecting almost every aspect of the demanded by regulation to effect more fundamental to do immediately.” capture [by the industry] and that’s it is “vital this doesn’t happen again.” nation’s fi nancial services industry”. business and systems modifications that will result in The use of a tsunami as a metaphor should perhaps In a clear repudiation of the discredited ‘principles-based’ approach to For once, Wikipedia is not wrong, at least in terms of greater efficiency and greater profitability. be followed through: at what point do the waters regulation that used to operate in the UK, Sants added that: “The PRA will the scope of the Act, but it is a long way from being put “That is the long term view. Effectively what this recede? build on the FSA’s work since the crisis began in 2007 and use intrusive and into practice “Dodd-Frank was really just getting out tsunami of regulation – and we are halfway through a “There is high ground now,” says Di Giammarino judgement-based oversight procedures.” In his opinion this carries on the of the blocks in 2010, and clearly it will be moving up 250,000 page dump as far as page count is concerned “There has been a massive wave, but there are pieces of work undertaken by the FSA to transform itself into a proactive organisation, the radar, [but] it is very hard to single out one theme – has refocused everyone’s attention on what they dry land that people can start looking at understanding not a reactive one and a body that is capable of doing comprehensive and out of the tsunami that is going to drive everyone in are doing today, and gives them a licence to say that what they have to do to cultivate and redevelop the rigorous stress testing. the same direction,” says Di Giammarino. “Dodd- they will not be able to handle it without knowing real estate. You can’t ignore this anymore, because The new regulatory environment does not mean that there will be a zero Frank is on the agenda, but we have yet to see how first where they stand and what some of the basic there are timelines and deadlines expiring on you. failure culture in the UK moving forward. Indeed the assumption is that it will play out – there is a lot of it that is simply not definitions are” says Di Giammarino. “We didn’t worry What you have to do is, in a smart way, get some quick there will be failures of fi nancial institutions because this means that the UK implementable in the timeframes that they have laid about it so much when it was all go, go go, but now we wins, and be able to prove to the regulators, as well as will be ready for it in future and can ensure an orderly demise that does not out, and there are parts that could just as easily end up have to stop and think, ‘how do we put this thing back to yourself and your shareholders, that you are doing require a taxpayer-funded bailout. Low and medium risk impact fi rms will on the scrapheap.” together again and – hand-on-heart – check off against the right thing.” BT be assessed for failure and provided with planning help and other assistance In particular, “the whole commodities space is but ultimately their loss can be tolerated, said Sants, as long as it proceeds in going to be a real mess,” says Di Giammarino. The an orderly fashion. High impact fi rms will in future be assessed much more US Commodity Futures Trading Commission has strongly for a risk of failure, as the primary objective of the PRA is to remove a historical role of supporting the US agricultural the ‘too big to fail conundrum’ by trying to ensure the situation doesn’t arise industry to establishing guaranteed process for in the fi rst place – and by being ready for it if, god forbid, it does. farmers, which is why the commodities trading part of “Talking with Europe and ensuring strong co-ordination across borders, the fi nancial services industry has its roots in the mid- and indeed between the three new UK bodies – the PRA, FPC and CPMA West centre of Chicago and is governed by the CFTC. – is at the top of our agenda,” explained Sants as he believes it is key to Balancing this modern role with its agricultural roots ensuring good outcomes for society as a whole. “This is a once in a lifetime is going to be diffi cult. “It’s a whole new level of trying opportunity to learn from past mistakes and implement a new structure that to control the economy through central planning that incorporates the lessons we have learnt,” he added. hasn’t been done since Russia was part of the USSR,” In terms of designing new technology to suit the new regulatory structure, says Di Giammarino. Sants said that he would always “look to ensure the lowest possible cost for This leads to peculiarities in the market, one of fi rms and to ensure simple-to-use systems.” which involves onions, and while amusing, it also The diffi culty of overhauling the UK regulatory environment, while indicative of devils lurking in the details of new OTC regaining public trust and introducing greater transparency, was highlighted derivative rules. in the subsequent Q&A session, when Sants admitted he was sympathetic In the federal register on 28 September, the CFTC to the view that the FSA’s published a list of commodities reading: “wheat, cotton, recent internal investigation rice, corn, oats, barley, rye, fl axseed, grain sorghums, into RBS’ near collapse mill feeds, butter, eggs, solanum tuberosum (Irish should be made publicly potatoes), wool, wool tops, fats and oils (including available, while explaining lard, tallow, cottonseed oil, peanut oil, soybean oil, and that it couldn’t without the all other fats and oils), cottonseed meal, cottonseed, permission of the senior peanuts, soybeans, soybean meal, livestock, livestock bankers questioned in the products, and frozen concentrated orange juice, and all report. Getting people to other goods and articles, except onions”. cooperate without gagging “Apparently the CFTC is known among the legal clauses will be just one of community as producers of somewhat idiosyncratic the many challenges ahead output [and] we would be lying if we claimed these for the new regulatory small oddities did not provide some small respite regime in the UK. Sants:Sants: assumingassuming therethere willwill bebe failuresfailures from the process of trawling through new regulation,” JWG’s regulatory radar tracks the issues generated by regulations – www.jwg-it.eu

30 I www.bankingtech.com Picture: Reuters/Stefan Wermuth www.bankingtech.com I 31 comments JWG on its website. “However, at its heart lies a deeper point: the scale and detail of the OTC “Dodd-Frank is on the agenda, but we have derivatives reform taking place is mind-boggling. yet to see how it will play out – there is a lot Distinctions such as these, which may seem trivial to the majority of us, could trip up the largest of financial of it that is simply not implementable in the firms. Readying systems and contracts to comply with timeframes laid out, and there are parts that the new rules and training staff to understand the new modus operandi will be a mammoth task for 2011.” could just as easily end up on the scrapheap.” In the face of this mammoth task, it is clear that that PJ Di Giammarino, JWG 2011 is going to be an interesting year because this new assertiveness on the part of the regulatory authorities a whole raft of different objectives and pull together clarifies at least some of the tasks that the industry this aggregated picture of risk both internally, within faces in implementation of compliance systems and our organisations, and across the market as a whole’. processes. What’s coming out in regulation people had to do This is not necessarily a bad thing for the industry anyway, but they couldn’t because their infrastructures as a whole: it is often said that this is the way the weren’t up to it, and on top of that you have a whole world is going, so the industry should use the changes slew of new stuff that they have to digest and be able demanded by regulation to effect more fundamental to do immediately.” business and systems modifications that will result in The use of a tsunami as a metaphor should perhaps greater efficiency and greater profitability. be followed through: at what point do the waters “That is the long term view. Effectively what this recede? tsunami of regulation – and we are halfway through a “There is high ground now,” says Di Giammarino 250,000 page dump as far as page count is concerned “There has been a massive wave, but there are pieces of – has refocused everyone’s attention on what they dry land that people can start looking at understanding are doing today, and gives them a licence to say that what they have to do to cultivate and redevelop the they will not be able to handle it without knowing real estate. You can’t ignore this anymore, because first where they stand and what some of the basic there are timelines and deadlines expiring on you. definitions are” says Di Giammarino. “We didn’t worry What you have to do is, in a smart way, get some quick about it so much when it was all go, go go, but now we wins, and be able to prove to the regulators, as well as have to stop and think, ‘how do we put this thing back to yourself and your shareholders, that you are doing together again and – hand-on-heart – check off against the right thing.” BT

Sants: assuming there will be failures JWG’s regulatory radar tracks the issues generated by regulations – www.jwg-it.eu

www.bankingtech.com I 31 RouNDTAblE: SEPA FEBrUArY 2011

In association with

TheThe SEPASEPA endend datedate debatedebate Photos: David Bannister

At the end of last year the European Commission unveiled its proposals for the “If we look at this second and third end dates for the Single Euro Payments Area. As was widely anticipated, migration tier – and obviously I’m not going to PARTICIPANTS towards pan-European Credit Transfer and Direct Debit instruments is expected to make publicity for Logica, but my largest be complete by early 2012 and 2013 respectively, if the European Parliament and customer is sitting in front of me using member states approve the proposals. our systems to insource SEPA in this Mike Brennan, Deutsche The EC earlier published its ‘essential requirements’ only approach in March and environment – we are a strong believer Bank Global Transaction June 2010 and the SEPA Council was also established to try to bring the demand and that tier three will not spend the money Banking, vice president and the supply side closer together to achieve an end date schedule and finally complete internally but will go to people like you, UK country product manager the migration to SEPA. The fear of lots of mini-SEPAs, where some fully migrate and knowing that they will still have to spend others don’t, enabling some legacy payments systems to survive, thereby negating the money to link their internal systems to original harmonisation intention has stalked the debate, however, and worried banks. whatever you provide to them. It costs, Lars Schwabe, JP Morgan The latest version of the proposals hasn’t necessarily calmed industry fears that whether you bear it when you acquire Treasury Services, market the whole project could go still off the rails, and take-up remains low. Once the the client or not, and whether it squares Euro/SEPA regulation comes into force, which the EC is obviously hoping will happen quickly in off against the benefits. Tier two’s are 2011, SCTs will be mandatory one year later, making Q1 2012 the effective end date always asking, ‘should I do it or should for these payment instruments, with direct debits following on after another year in I outsource it?’ Not a lot of them have a Michael Burkie, BNY Mellon 2013 – but even Michel Barnier, the EC Internal Market and Services Commissioner, business plan that helps them define the Treasury Services, EMEA hedges his bets: in a statement, he said, “the proposal fixes end dates to make this answer.” Market Development pan-European system a reality, hopefully as early as 2012.” This has long been an area where Before then, there will be a lot of lobbying from all sides. On the eve of the EC large players have been active, and announcement in December, Banking Technology, in partnership with Logica, quantify. “If you look at what SEPA offers it is one that poses difficulties for the Jean Pierre Arens, global brought together a group of experts just prior to the pronouncement to discuss the clients – reduced transaction processing institution that is about to hand over its sales director at Logica implications of the deadline and the work that remains to be done. costs, easier access to new markets, business to what is in most respects a possibly new clients – overall the net competitor. “In terms of a timetable, we are looking to engender the energy that is required gain compared to what they will have to “Every organisation does struggle at issuance immediately and a year for to make this thing happen quickly? spend in-house on IT and infrastructure with that dilemma: how much control do Heather McKenzie, editor, consultation in the market – and not just Deutsche Bank, as an early adopter and change will greatly outweigh the you give over? Do you give over just a file Daily News at Sibos in the banking industry, it’s important that major supporter of SEPA, is very keen benefits.” of payments? And then you are avoiding all stakeholders are involved,” said Mike to see it succeed. From our perspective, He also questioned the benefit to the cost of developing, potentially, Brennan, vice president and UK country we’ve held client advisory boards and most banks other than the large players. XML capabilities,” said Brennan. “It’s a product manager at Deutsche Bank continue to do so, using these forums to “I’m pretty certain that they’re having very slow burn when you start talking Global Transaction Banking. “One of the gauge and drive interest and to describe a great number of small, second, third, chairman of the European Payments to another financial institution about biggest concerns I have is the timing of the benefits of these schemes.” fourth or fifth tier banks coming to them Council – have spoken out against. an outsourcing solution. That said, when the actual end dates will be and This fear of inertia was echoed by and saying “we give up: please help us”, There is a distinct possibility of the we now have on our books over 100 what I mean by that is we are hearing another panellist. “When you talk to as they are to us too – but if you are a major economic powerhouses in Europe financial institutions that we support about 12 months and 24 months – 12 for customers they say that it’s been 10 second tier bank that has multi-regional committing to going the whole hog, but and help them to gain access to the SEPA Credit Transfers and 24 for SEPA years coming, but they are aware of the aspirations, it’s a real dilemma.” others on the economic periphery may SEPA instruments – predominantly, not Direct Debits – after the implementation SEPA advantages. For more than 10, or Aside from the timetable, there are say no way. surprisingly, the SEPA Credit Transfer into law, so for me there may initially be even 25, years our customers have been other aspects of the proposed new Jean Pierre Arens, global sales – and we see that we can continue to ambiguity about when that clock starts making payments in different countries, regulation that muddy the waters further, director at Logica, said that much of the play a role in that space, delivering our ticking.” and the fact is we haven’t had adequate said Brennan. “In the official draft it talks discussion is driven by large banks, but white label solutions, essentially giving The lack of clarity has made it hard payment mechanisms in recent years. about euro payments – what does that this is not who the SEPA legislation is another financial institution the ability to to sell the SEPA concept to customers, Our customers have been through a actually mean? Are we talking about intended to benefit. “We have around send their transactions to us, meaning both on the financial services side and painful exercise and have established migration of the existing non-urgent euro the table organisations who address they don’t have to be XML-enabled.” among corporates, and if those who country accounts and country formats in domestic legacy Automated Clearing global transaction banking, so naturally The ability to move to an XML- advocate pushing the dates back even their processes. Basically, we talk about House push payments or does that scope go after the second tier and third environment is one of the virtues of further get their way, it will be hard to SEPA benefits – and they are absolutely broaden into the urgent world. I’ll refrain tier of banks, and for insourcing we SEPA, many say. “My interpretation is keep what little momentum the project real – but our customers have existing from using the terminology of high-value/ have people who look after the major that it is a must, we have to do it, but has gathered. infrastructures,” said Lars Schwabe, low-value because I think that’s gone corporations in Europe but if you look it depends on the strategy the bank “From a political standpoint, JP Morgan Treasury Services, market away now, or at least is a phrase that is at the wider financial services market, follows,” says JP Morgan’s Schwabe. depending on the energy and desire to manager Euro/SEPA. “The only benefit disappearing. So there is that area, and there are people, admittedly not around “For instance, we made a decision in to them really is when they go after an in addition there is a piece about account 2006 to invest in SEPA and replace our CHAIRMAN get this through the European Parliament this table – and I mean people who are – and the undertaking of the due additional market where the same kind opening. It is broader than just what, serving large retail environments – who infrastructure entirely, enabling me to diligence around offering stakeholders of rules, the same kind of standards, selfishly as an industry, we are looking for will have many more questions than you say today that JP Morgan has end-to- the opportunity to opine on what’s in apply.” in the sense of having finality.” ‘in terms of what does it mean for us’,” end processes in XML if a customer there – we could potentially be looking at Michael Burkie, BNY Mellon Treasury This could lead to a two-tier, disparate he said. “I mean people who only have a wants to do that. Alternatively, we offer Neil Ainger, deputy editor, dates further out than 2012 or 2013,” said Services, EMEA Market Development, implementation of SEPA, which many in national strength and so have no interest filters and converters if a customer is Banking Technology Brennan. “One of my big fears is how said that the benefits of SEPA are hard to the industry – notably Gerald Hartsink, at all as soon as you go cross border. not ready and XML-enabled. That’s a >

32 I www.bankingtech.com www.bankingtech.com I 33 The SEPA end date debate Photos: David Bannister

“If we look at this second and third tier – and obviously I’m not going to make publicity for Logica, but my largest customer is sitting in front of me using our systems to insource SEPA in this environment – we are a strong believer that tier three will not spend the money internally but will go to people like you, knowing that they will still have to spend money to link their internal systems to whatever you provide to them. It costs, whether you bear it when you acquire the client or not, and whether it squares off against the benefits. Tier two’s are always asking, ‘should I do it or should I outsource it?’ Not a lot of them have a business plan that helps them define the answer.” This has long been an area where large players have been active, and quantify. “If you look at what SEPA offers it is one that poses difficulties for the clients – reduced transaction processing institution that is about to hand over its costs, easier access to new markets, business to what is in most respects a possibly new clients – overall the net competitor. gain compared to what they will have to “Every organisation does struggle spend in-house on IT and infrastructure with that dilemma: how much control do change will greatly outweigh the you give over? Do you give over just a file benefits.” of payments? And then you are avoiding He also questioned the benefit to the cost of developing, potentially, most banks other than the large players. XML capabilities,” said Brennan. “It’s a “I’m pretty certain that they’re having very slow burn when you start talking a great number of small, second, third, chairman of the European Payments to another financial institution about fourth or fifth tier banks coming to them Council – have spoken out against. an outsourcing solution. That said, and saying “we give up: please help us”, There is a distinct possibility of the we now have on our books over 100 as they are to us too – but if you are a major economic powerhouses in Europe financial institutions that we support second tier bank that has multi-regional committing to going the whole hog, but and help them to gain access to the aspirations, it’s a real dilemma.” others on the economic periphery may SEPA instruments – predominantly, not Aside from the timetable, there are say no way. surprisingly, the SEPA Credit Transfer other aspects of the proposed new Jean Pierre Arens, global sales – and we see that we can continue to regulation that muddy the waters further, director at Logica, said that much of the play a role in that space, delivering our said Brennan. “In the official draft it talks discussion is driven by large banks, but white label solutions, essentially giving about euro payments – what does that this is not who the SEPA legislation is another financial institution the ability to actually mean? Are we talking about intended to benefit. “We have around send their transactions to us, meaning migration of the existing non-urgent euro the table organisations who address they don’t have to be XML-enabled.” domestic legacy Automated Clearing global transaction banking, so naturally The ability to move to an XML- House push payments or does that scope go after the second tier and third environment is one of the virtues of broaden into the urgent world. I’ll refrain tier of banks, and for insourcing we SEPA, many say. “My interpretation is from using the terminology of high-value/ have people who look after the major that it is a must, we have to do it, but low-value because I think that’s gone corporations in Europe but if you look it depends on the strategy the bank away now, or at least is a phrase that is at the wider financial services market, follows,” says JP Morgan’s Schwabe. disappearing. So there is that area, and there are people, admittedly not around “For instance, we made a decision in in addition there is a piece about account this table – and I mean people who are 2006 to invest in SEPA and replace our opening. It is broader than just what, serving large retail environments – who infrastructure entirely, enabling me to selfishly as an industry, we are looking for will have many more questions than you say today that JP Morgan has end-to- in the sense of having finality.” ‘in terms of what does it mean for us’,” end processes in XML if a customer This could lead to a two-tier, disparate he said. “I mean people who only have a wants to do that. Alternatively, we offer implementation of SEPA, which many in national strength and so have no interest filters and converters if a customer is the industry – notably Gerald Hartsink, at all as soon as you go cross border. not ready and XML-enabled. That’s a >

www.bankingtech.com I 33 RouNDTAblE: SEPA FEBrUArY 2011

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different approach to some other banks, Part of the issue is that a lot of the for the past 15 years. which are using filters as well, but the commentary around SEPA migration “It means that SEPA is not moving other way round – their internal systems has been negative, focusing on costs fast enough, technology is continuing are still on legacy environments. I am and the loss of revenue for banks. “We and people are progressing, and taking not concerned about when we have to banks have not done well in educating initiatives that will make some of the turn off the legacy switches because we our customers, but it’s not only the SEPA instruments no longer useful,” said are ready – and so are other big players banks, it’s governments and others, Arens. “An example is Finland where – because we have made significant like the press, who should have joined e-invoicing has pushed direct debits into investments. Obviously, when it comes forces and been involved. If we’d told the a corner. Luxembourg and Belgium, for to the moment to turn off the legacy customers better, we wouldn’t only be instance, agreed earlier to work together systems, those banks that have made a at 10% uptake – we wouldn’t be at 100% – it’s not that they are doing it better; it is minimal investment are now concerned.” outside the SEPA environment.” either because customers don’t have all just that they have the structures to work Conversely, many larger banks are As the non-banker in the room, their counterparty IBANs in their systems together.” worried that their investments won’t Logica’s Arens has a different perspective. yet – but we would be further down the Brennan felt that this is something of be rewarded if lots of mini-SEPAs are “I’m sorry gentlemen, but you are talking road and the acceptance rate would have a red-herring: “On Payment Institutions, allowed and the ‘essential requirements’ banking between bankers, and SEPA was been higher. I’m very supportive of SEPA as they are known in the PSD, we have approach is followed. not launched for bankers,” he said. “What but there has been proportionally more seen successes and we’ve seen an But whether all SEPA transactions we see as a service company that works negative coverage of SEPA in the press”, explosion of new payment volumes have to be processed end-to-end in XML, 15% for banks and 85% for corporates said Schwabe. “Treasurers may not be in the market, rather than an attrition as is suggested by the EC, will be another is that the corporates are coming back so aware of examples like Luxembourg of existing business from traditional area where there is lobbying for change. to you to push you to be ready for SEPA with 100% SEPA usage or Belgium Payment Service Providers, but let’s “It is our view that we can deliver the we have taken a service attitude, but the Arens said that in Logica’s experience, whatever the end date will be. They will where it’s approaching 30% because the not overlook the fact that the additional benefits of SEPA, from the European question is, do we ask customers to send preparations are surprisingly low. “We not play around whether its 2012, 13 or 14 government has been more supportive volumes are not being processed over Commission’s perspective without us XML/ISO 20022, or do we continue to like to work with tier one clients. We have [as we know the EC has since advocated than others. In Germany one of the new instruments. They are still running necessarily having to go that extra step,” say that they can send us flat files, or 50 of them, three of them represented 2012 and 2013]. Where we are helping government pensions departments over the card processing and ACH legacy said Brennan. “I know that the end-to- EDIFACT or whatever they want to do?” here, but not all of them are ready for some corporates, they are saying ‘we’re has already changed to 100% SEPA rails.” end basis talks about batches rather than Brennan said that there was an SEPA,” he said. “A lot of them have just going to give some of our financial payments, which is one of the reasons Speaking before the end dates were single individual transactions, but one issue of choice, particularly in the retail added a small layer to an obsolete system, processing to you for the next three that we are at 10% – imagine if all the rest finally set by the EC, all of our participants assumes that is about taking the retail market. “I’m a great believer in drawing so it is even more obsolete, and it is going years’, and it has become standard in the moved …” agreed that whatever the deadline, the market away from having to provide XML a line between the collaborative and the to explode as soon as the volumes rise. contract to say it has to do SEPA.” SEPA hare is running and sitting on the and I think that makes a lot of sense. The competitive space, which is why end-to- There is a lot to be done to get to minimal Arens said that, in the corporate fence is no longer an option. other concern I would have, is, are we end slightly concerns me. Why should a compliance, without even mentioning world, “there are now a lot of questions “I still firmly believe that there is the going to find ourselves in the situation consumer or a corporate be railroaded to things like mandate management, coming up around what you can do in “If you don’t know where political will to get this done, but I’d we did with Y2K and the introduction of pursue a particular format? I’m thinking around payment processing in general terms of value-added services around you’re going, every road caveat that by saying that if you don’t the euro where good IT resources are of XML here, which is why I would and SEPA in particular.” SEPA”, such as mandate management. have the timelines defined, it will be going to be scarce if everyone who is personally lobby against the use of XML “From a banking perspective, we are “At the moment it is not critical but will lead to it” more challenging to gain the attention of not SEPA ready is racing to get over the on an end-to-end basis,” he said. all under pressure to deliver on SEPA, but large corporates know they will soon your senior management and secure the line. That will not be a concern for us at However, it is clear that there is a if you are a single country bank and you be dealing with a large legal issue. So required budget,” said Brennan. “From a Deutsche Bank because we are ready but gap between the large banks on one have the vision to either take the plunge that is an area that banks can go back to Brennan agreed: “As an industry we bank perspective, if you haven’t started it may be an issue.” hand, and both the smaller banks and and build an XML capability and become customers and offer services,” he said. haven’t done as good a job of publicising then you should begin now. For banks, Schwabe said that the move to XML the corporate sector on the other. This a direct participant of the schemes – or to Part of the reason for this is that where we have switched traffic to SEPA the cost of parallel running on legacy and ISO20022 messaging is one of can clearly be seen in terms of their use another bank to access the scheme – the corporate world sees that they as maybe we could have,” he said. “At platforms is going to be prohibitive – the benefits for financial customers preparation, said Burkie: “Both your you then have the ability to provide non will have to be able to interconnect to Deutsche, 80 to 90% of traffic in Spain, that’s why the end date final migration and corporates that could be pushed fine institutionsaddressing [ JPM and urgent euro services across the SEPA governmental bodies, which are all at Italy and Belgium is pushed through the debate has been so intense.” by the industry: “For me it is all about Deutsche bank here] have spent millions map in a uniform manner. There are some stage going to enforce the use of SEPA instruments; and we’ve got France Arens said that for both financial the benefit, and I’m not that negative to do this, so you’re committed and what advantages for all,” said Brennan. SEPA instruments and standards. and The Netherlands ready to go. institutions and corporate customers, about the benefit. Of course customers you need now is the volumes to come Burkie believes that this ignores the “The next thing is going to be the There are also plenty of developments there should be no hesitation. “For one have made investments and have had to you so you’re justified. However, if I realities of the modern, interconnected government arena, and that is going to happening outside the traditional of our large financial services customers their interfaces built, so the question is look at the figures, of all the payments world. “You mention one-country be linked to the famous end date debate,” payments world, which is changing very we recently quoted them an old saying, the benefits – we may say it is making in Europe in 2009 just 5% were SEPA banks? There is no such bank,” he said. said Arens. “Politically, they are going rapidly. Towards the end of last year there ‘if you don’t know where you’re going, payments in 17 countries from one payments, this year it was 9% – so “Any bank will have customers that to say that it is the right moment to go were several announcements from local every road will lead to it’,” he said. “There account instead of having locally it’s growing, no question, but in my want to send payments to the US, or to it, just as they do for e-procurement authorities in the UK, and one central is still a lot of hesitation around. If you domiciled accounts, but the real benefit personal opinion there is a huge gap still Asia or Latin America, so a one-country services, and they will say ‘if you want government department in particular want to be a winner, you can’t wait. is having one format, one procedure to be bridged between investment and European bank can be SEPA-compliant, to do business with me as a government that is testing paying social security Now is when you should be setting your and one process flow internally. Some return. Their benefits have never been but it is still working in an environment it has to be SEPA-compliant’. You can benefits with pre-paid Visa cards, which strategy, updating your systems and banks tell their customers that if they quantified, and even today I think you’d – or its clients are – that is non-SEPA see that as a cost or you can see it as an short-circuits the whole thing and planning your services. If you wait for want to send French payments, here is be struggling to articulate what those compliant, so there is an overhead in opportunity: it’s up to you to choose your provides a mechanism that ignores the a year of lobbying or think an end date the format, here is the format for Spain: benefits are.” maintaining correspondents and links to business plan to make the best out of it.” arguments that banks have been having won’t be enforced, you will lose.” BT

34 I www.bankingtech.com www.bankingtech.com I 35 The SEPA end date debate Photos: David Bannister

Part of the issue is that a lot of the for the past 15 years. commentary around SEPA migration “It means that SEPA is not moving has been negative, focusing on costs fast enough, technology is continuing and the loss of revenue for banks. “We and people are progressing, and taking banks have not done well in educating initiatives that will make some of the our customers, but it’s not only the SEPA instruments no longer useful,” said banks, it’s governments and others, Arens. “An example is Finland where like the press, who should have joined e-invoicing has pushed direct debits into forces and been involved. If we’d told the a corner. Luxembourg and Belgium, for customers better, we wouldn’t only be instance, agreed earlier to work together at 10% uptake – we wouldn’t be at 100% – it’s not that they are doing it better; it is outside the SEPA environment.” either because customers don’t have all just that they have the structures to work As the non-banker in the room, their counterparty IBANs in their systems together.” Logica’s Arens has a different perspective. yet – but we would be further down the Brennan felt that this is something of “I’m sorry gentlemen, but you are talking road and the acceptance rate would have a red-herring: “On Payment Institutions, banking between bankers, and SEPA was been higher. I’m very supportive of SEPA as they are known in the PSD, we have not launched for bankers,” he said. “What but there has been proportionally more seen successes and we’ve seen an we see as a service company that works negative coverage of SEPA in the press”, explosion of new payment volumes 15% for banks and 85% for corporates said Schwabe. “Treasurers may not be in the market, rather than an attrition is that the corporates are coming back so aware of examples like Luxembourg of existing business from traditional to you to push you to be ready for SEPA with 100% SEPA usage or Belgium Payment Service Providers, but let’s whatever the end date will be. They will where it’s approaching 30% because the not overlook the fact that the additional not play around whether its 2012, 13 or 14 government has been more supportive volumes are not being processed over [as we know the EC has since advocated than others. In Germany one of the new instruments. They are still running 2012 and 2013]. Where we are helping government pensions departments over the card processing and ACH legacy some corporates, they are saying ‘we’re has already changed to 100% SEPA rails.” going to give some of our financial payments, which is one of the reasons Speaking before the end dates were processing to you for the next three that we are at 10% – imagine if all the rest finally set by the EC, all of our participants years’, and it has become standard in the moved …” agreed that whatever the deadline, the contract to say it has to do SEPA.” SEPA hare is running and sitting on the Arens said that, in the corporate fence is no longer an option. world, “there are now a lot of questions “I still firmly believe that there is the coming up around what you can do in “If you don’t know where political will to get this done, but I’d terms of value-added services around you’re going, every road caveat that by saying that if you don’t SEPA”, such as mandate management. have the timelines defined, it will be “At the moment it is not critical but will lead to it” more challenging to gain the attention of large corporates know they will soon your senior management and secure the be dealing with a large legal issue. So required budget,” said Brennan. “From a that is an area that banks can go back to Brennan agreed: “As an industry we bank perspective, if you haven’t started customers and offer services,” he said. haven’t done as good a job of publicising then you should begin now. For banks, Part of the reason for this is that where we have switched traffic to SEPA the cost of parallel running on legacy the corporate world sees that they as maybe we could have,” he said. “At platforms is going to be prohibitive – will have to be able to interconnect to Deutsche, 80 to 90% of traffic in Spain, that’s why the end date final migration governmental bodies, which are all at Italy and Belgium is pushed through the debate has been so intense.” some stage going to enforce the use of SEPA instruments; and we’ve got France Arens said that for both financial SEPA instruments and standards. and The Netherlands ready to go. institutions and corporate customers, “The next thing is going to be the There are also plenty of developments there should be no hesitation. “For one government arena, and that is going to happening outside the traditional of our large financial services customers be linked to the famous end date debate,” payments world, which is changing very we recently quoted them an old saying, said Arens. “Politically, they are going rapidly. Towards the end of last year there ‘if you don’t know where you’re going, to say that it is the right moment to go were several announcements from local every road will lead to it’,” he said. “There to it, just as they do for e-procurement authorities in the UK, and one central is still a lot of hesitation around. If you services, and they will say ‘if you want government department in particular want to be a winner, you can’t wait. to do business with me as a government that is testing paying social security Now is when you should be setting your it has to be SEPA-compliant’. You can benefits with pre-paid Visa cards, which strategy, updating your systems and see that as a cost or you can see it as an short-circuits the whole thing and planning your services. If you wait for opportunity: it’s up to you to choose your provides a mechanism that ignores the a year of lobbying or think an end date business plan to make the best out of it.” arguments that banks have been having won’t be enforced, you will lose.” BT

www.bankingtech.com I 35 IntervIew: AndreAs AndreAdes February 2011

How does a bank cut costs without cutting customer The third pillar, if you like, is the whole area of business service? It can only be through technology, it can’t intelligence. Core banking we’ve got, payments, work any other way. compliance, then business intelligence. That we see as a very significant area as well. Do you agree with the argument that the people that We can leverage our position in core banking and will survive will be the efficient and technologically provide more business from our existing customers as savvy banks with integrated systems, so we may see well as use the ancillary products to gain a foothold more consolidation. for our core banking systems … it works both ways. The bigger banks are going to be challenged. We see Increasingly we see that banks prefer to purchase the regional banks, – the top 50 to 200 – moving faster from fewer suppliers, because managing thousands than the bigger ones, so in many ways they are gaining of suppliers is costly, and within that context I think mathematically on them. Which shouldn’t be the case: we are very well placed to expand the market with our the bigger you are, the more likely you have scale, but customers. that’s the background against which we are operating. That wasn’t the primary reason for the acquisition of Is that mainly the retail market you’re talking about? Viveo, though? Also investment banking, the more traditional I have to admit that the objective out of the Viveo wholesale environment, but also private banking. In acquisition was not for payments as such, the many ways, private banking has been less affected by objective was to strengthen our core banking solution, the downturn. get a foothold in France, get access to a customer base that is quite large and payments were on top. You spoke briefly there about regional differences. Do Then, of course, you get all the mobile stuff: with our you see them as the big drivers of growth acquisition of FE-mobile we start making progress in Yes, though you can’t generalise. It’s more a country payments from a different angle from the business to situation and you get countries in Asia where we are user rather than within a bank. doing well, but probably Europe was the strongest market for us over the last 12 months, but we expect We hear mobile all the time and everyone wants to be Asia is going to plough ahead. in that game. I think potentially it’s a very disruptive medium and When people say Asia they mean India and China. I think we’ll see mobile payments overtake anything If you look at the Chinese core banking market, it’s you can imagine today. probably as big as Germany is today, which is a large core banking market. But it is still dominated by local vendors – not the traditional package vendors but China is a big market and one has to be there, the bespoke systems solutions and the big system but it’s still, in technology terms, very much a integrators. I’ve been saying for the past few years Chinese game and the market still has a long that China is a big market and one has to be in China, but it’s still, in technology terms, very much a Chinese way to go to adapt to Western technology game. practices. We’ve made inroads, we’ve got very successful Looking to references – Bank of Shanghai is the largest user of T24 – and it’s a good springboard for us to go forward Going back to the geography issue, what about the US but the market still has a long way to go to adapt to market, which you have made a couple of attempts to Western technology practices. break through in? the future Certainly Canada has been very successful and it has As a company you have moved away from core the benefit that it has had a very good downturn – they Core systems specialist Temenos has made a number of acquisitions over the past few years banking systems, into areas like payments and anti- continued to invest through that and, they are in very that have taken it into new areas. Company chief executive Andreas Andreades tells money laundering – you had a big presence at Sibos, good shape. We’ve been very successful. Now it does David Bannister that it doesn’t plan to stray too far from its roots, however. for instance. provide a route to the US and our intention is to go The last few years it was our opinion that we only to the mid-sized – say Tier 3 – upward and Canada How are you seeing the market at the moment? way things happen there and I think that it’s going to needed a presence at Sibos, so we went along on does provide a successful model. Also the Odyssey We continue to be very bullish in many ways. Last make the traditional banks change their way of doing the Microsoft stand, simply because it’s not a core acquisition strengthened our presence significantly year the market grew very well, the expectation is that things. banking event, it’s a payments event, but with the IT in the North American market through investment banks are keeping an eye on spending, but the market’s we acquired from Viveo we’ve established ourselves management so that’s a niche part of the market that recording 8 to 10% for the next 5 years. It makes sense: do you get the impression that, having almost frozen in part of the payments domain, so we had our own we intend to invest in. because of the downturn things were slower for sure, for a couple of years post-crisis, the banks had time to stand. We’ve got something like 40-50 customers in the US but as people come out of that and start to think about reflect positively and practically in the way they might Our payments product, SteP, is running in the with the Odyssey investment management product so what they are doing over the next 10 years, I think that want to move forward? largest transactional banks in the world – UBS is using it’s a great starting point. So we see us announcing an they will appreciate that they cannot just go back. yes and no. No, because they really had fires to fight it, and Barclays is using our AML solution. These are organic growth plan some time in 2011. Also because in those years, but I think they are back to the drawing large banks. In that part of the market in which these the market is recovering: how fast it is going to grow, Is this a general trend or are some areas more active board now and thinking seriously about the future, products compete, we’ve suddenly become very, very I’d say at this point is anybody’s guess, but it is a big than others? over the next 10 years. They’ve had about a year at strong. market and therefore I think it makes sense to get We see a lot of activity in people coming to europe – least to reflect and we see that thinking coming across This payments and AML part of the business is an going and from the niche position that we are in, I think Metrobank is a very good example – challenging the in the way banks are now behaving. important aspect of the growth story going forward. it is a great starting point. BT

36 I www.bankingtech.com www.bankingtech.com I 37 How does a bank cut costs without cutting customer The third pillar, if you like, is the whole area of business service? It can only be through technology, it can’t intelligence. Core banking we’ve got, payments, work any other way. compliance, then business intelligence. That we see as a very significant area as well. Do you agree with the argument that the people that We can leverage our position in core banking and will survive will be the efficient and technologically provide more business from our existing customers as savvy banks with integrated systems, so we may see well as use the ancillary products to gain a foothold more consolidation. for our core banking systems … it works both ways. The bigger banks are going to be challenged. We see Increasingly we see that banks prefer to purchase the regional banks, – the top 50 to 200 – moving faster from fewer suppliers, because managing thousands than the bigger ones, so in many ways they are gaining of suppliers is costly, and within that context I think mathematically on them. Which shouldn’t be the case: we are very well placed to expand the market with our the bigger you are, the more likely you have scale, but customers. that’s the background against which we are operating. That wasn’t the primary reason for the acquisition of Is that mainly the retail market you’re talking about? Viveo, though? Also investment banking, the more traditional I have to admit that the objective out of the Viveo wholesale environment, but also private banking. In acquisition was not for payments as such, the many ways, private banking has been less affected by objective was to strengthen our core banking solution, the downturn. get a foothold in France, get access to a customer base that is quite large and payments were on top. You spoke briefly there about regional differences. Do Then, of course, you get all the mobile stuff: with our you see them as the big drivers of growth acquisition of FE-mobile we start making progress in Yes, though you can’t generalise. It’s more a country payments from a different angle from the business to situation and you get countries in Asia where we are user rather than within a bank. doing well, but probably Europe was the strongest market for us over the last 12 months, but we expect We hear mobile all the time and everyone wants to be Asia is going to plough ahead. in that game. I think potentially it’s a very disruptive medium and When people say Asia they mean India and China. I think we’ll see mobile payments overtake anything If you look at the Chinese core banking market, it’s you can imagine today. probably as big as Germany is today, which is a large core banking market. But it is still dominated by local vendors – not the traditional package vendors but China is a big market and one has to be there, the bespoke systems solutions and the big system but it’s still, in technology terms, very much a integrators. I’ve been saying for the past few years Chinese game and the market still has a long that China is a big market and one has to be in China, but it’s still, in technology terms, very much a Chinese way to go to adapt to Western technology game. practices. We’ve made inroads, we’ve got very successful references – Bank of Shanghai is the largest user of T24 – and it’s a good springboard for us to go forward Going back to the geography issue, what about the US but the market still has a long way to go to adapt to market, which you have made a couple of attempts to Western technology practices. break through in? Certainly Canada has been very successful and it has As a company you have moved away from core the benefit that it has had a very good downturn – they banking systems, into areas like payments and anti- continued to invest through that and, they are in very money laundering – you had a big presence at Sibos, good shape. We’ve been very successful. Now it does for instance. provide a route to the US and our intention is to go The last few years it was our opinion that we only to the mid-sized – say Tier 3 – upward and Canada needed a presence at Sibos, so we went along on does provide a successful model. Also the Odyssey the Microsoft stand, simply because it’s not a core acquisition strengthened our presence significantly banking event, it’s a payments event, but with the IT in the North American market through investment we acquired from Viveo we’ve established ourselves management so that’s a niche part of the market that in part of the payments domain, so we had our own we intend to invest in. stand. We’ve got something like 40-50 customers in the US Our payments product, SteP, is running in the with the Odyssey investment management product so largest transactional banks in the world – UBS is using it’s a great starting point. So we see us announcing an it, and Barclays is using our AML solution. These are organic growth plan some time in 2011. Also because large banks. In that part of the market in which these the market is recovering: how fast it is going to grow, products compete, we’ve suddenly become very, very I’d say at this point is anybody’s guess, but it is a big strong. market and therefore I think it makes sense to get This payments and AML part of the business is an going and from the niche position that we are in, I think important aspect of the growth story going forward. it is a great starting point. BT

www.bankingtech.com I 37 PeoPle February 2011

her deputy, on release from his day job global market data that was later acquired events as registrar with NikOil. The Committee of by Interactive Data Corp. Post acquisition, Appointments Settlement and Depository activities and Connell served as the chief executive of 8 mArch 2011 Tariffs, with 15 members, will be headed IDC’s real-Time Services division and he tsAm, London New senior executive team at RBS GTS up by an existing NSD supervisory board has also been COO of Xinhua Finance The European buy-side operations and member, Tatiana Chepeleva, while her and worked at Spire Capital Partners technology event will take place in a new fellow board member, Yuri Dubin, has more recently as ‘executive in residence’ location, the Lancaster London. been elected chair of the Quality and in a largely advisory role. www.tsam.net The Royal Bank of Scotland has promoted Scott Sullivan, chief executive of the Corporate banking risks Committee, which has 17 members. Barton to chief executive of its Global Transaction division at the bank, but will obviously work closely Vadim Subbotin, vice president of the Monitise, a mobile money solutions 21-24 mArch Services business, replacing brian Stevenson who is with Stevenson on a day-to-day basis as part of the MICeX exchange, has been appointed to provider that provides white label services international payments summit 2011, moving upstairs to chair the unit where he will work revamped leadership team at GTS. chair the NSD budget Commission. to rbS, Lloyds banking Group and HSbC London with market infrastructure bodies, regulators, major In addition, richard Hemsley is joining GTS as among others, has appointed Tim Wade Once again the IPS organisers will be clients and technology providers to assess how GTS chief operating officer, reporting to barton, after Broadridge Financial Solutions is to its board as a non-executive director broadening the speaker beyond the can best meet its future payments objectives. barton departing rbS’ business Services division as COO. appointing Susan Certoma as president and chairman of the audit committee, payments world to include leading academics has 16 years of banking experience with rbS and His knowledge of the business support arena, of its brokerage Processing Services which oversees the business. Wade is also and “outside the box” thought leaders. was most recently head of rbS’ Large Corporate including technology and operations, will be a key business, covering equity, option and a non-exec at investment firmr esolution, www.icbi-events.com division. In his new role, barton will report to Chris ingredient in the new team. mutual fund securities processing, as access bank uK, and Macquarie bank well as its business process management International, where he also chairs the audit 12-14 APRil suite and distributed data products. committee. He is presently finance chief TradeTech europe, london Post-trade confirmation specialist omgeo Morgan Stanley has named Jim report to David Kelly, chief technology Certoma was formerly chief operating executive of Finance Pronto, a company Still at the Excel centre in Docklands, but has appointmented of Randy Guy as Rosenthal to take over as group-wide officer for enterprise, Thomson reuters. officer at broadridge bPS, having joined focused on loan processing technology. also still the big draw for investment managing director of technology. In his chief operating officer, replacing Tom He joins from the Depository Trust and the firm in 2009 after a spell at Wachovia, banking systems. new role, Guy will focus on developing Nides who has left to join the uS State Clearing Corporation where he was in where she served as chief information The Cloud Security Alliance, a non- www.tradetecheurope.com and executing Omgeo’s technology Department as deputy secretary for charge of the firm’s strategy, planning officer for the corporate and investment profit organisation that seeks to provide strategy, while driving product innovation, management and resources. rosenthal and marketing capabilities. Prior to bank. She has previously held technology education, security assurance and best 14-16 June promoting efficiencies, and improving arrived at Morgan Stanley in 2008 from DTCC, Hegarty was managing director and operations positions with Goldman practice guidelines for cloud computing, siFmA Financial services technology service reliability, but he won’t start until property firm Tishman Speyer, as head of Securities, Investments & Insurance Sachs, Merrill Lynch, Lehman brothers, has appointed Raj Samani as strategy expo 2011, new York July 2011, when Dave Cutright is due to of group-wide technology and operations at the TowerGroup consultancy and he ernst & young, First boston and royal advisor for europe, Middle-east and The programme will highlight key issues retire. Guy has spent the last six years as but lost some of those responsibilities has previously held senior positions bank of Canada. africa. Samani is presently the eMea critical in adapting to the industry’s new chief technology officer of Linedata, a key when Nides arrived the following year with Putnam Investments and Fidelity chief technology officer at Mcafee regulatory drivers that are occurring as a Omgeo business partner. While there, under the COO title in charge of the Investments in boston. The non-profit Mobey Forum – a trade and was previously vice president of result of the Dodd-Frank legislation and he managed a team of 350 employees firm’s IT and operations. rosenthal body consisting of FIs such as Deutsche communications with the Information other initiatives facing the industry. worldwide and was responsible for became head of corporate strategy and PricewaterhouseCoopers has announced bank, HSbC and ubS, mobile network Systems Security association uK chapter. www.sifma.org supporting 15 strategic products. Most a departmental COO at Smith barney, the internal appointment of Nigel Vooght operators, handset manufacturers, He will be unpaid in the CSa role and recently, he oversaw the establishment Morgan Stanley’s brokerage joint as global head of the consultancy firm’s payment processors and vendors, that provide support to existing and developing 15-16 June of an off-shore development and quality venture with Citi, specifically charged financial services business, succeeding seeks to define a sustainable mobile CSa Chapters in the eMea region. eBAday, madrid assurance team in Tunisia, standardising with overseeing its integration into the Jeremy Scott. He takes on the role financial services ecosystem by promoting EBAday 2011 will look beyond the practical technology throughout the organisation, business. Now that the integration is immediately and will lead PwC’s work open and secure technology standards – Citi is making Dario Frigerio, ex-chief compliance requirements of operating in a integrating and consolidating product largely complete, he will return to an in the banking and capital markets, has appointed Sirpa Nordlund as its new executive of Pioneer Global asset Single Euro Payments Area and deal with lines, and developing internal tools to expanded role. as group-wide COO he insurance and asset management executive director. Nordlund succeeds Management Services, its new senior the critical strategic questions that banks drive a metrics-based project tracking will have responsibility for operations and industries around the world. The firm Liisa Kannianen who stepped down at the advisor for investor services within the must address if they are to prosper in the approach for all products. technology across Morgan Stanley, while has many clients in the market reporting, end of last year. She has been selected for Global Transaction Services business. new business environment. retaining the corporate strategy role. operations, people, regulation, risk and her experience within the mobile services Frigerio will be based in Italy, and provide www.ebaday.com Saxo Bank has appointed lars olesen restructuring areas and is targeting and Near Field Communications sector, strategic counsel and work to deepen the as head of front office in London. With Thomson Reuters has appointed Robert growth as the sector recovers. having spent more than 10 years with firm’s client base across europe, Middle 19-23 septemBer more than 20 years’ experience working Hegarty as global head of market Nokia working on NFC r&D following the east and africa. He was previously head sibos 2011, toronto in foreign exchange and fixed income structure for the enterprise business, The National Settlement Depository of handset manufacturer’s decision to invest of wealth management at uniCredit After a recovering some of its pizzazz at markets and managing global teams, where he will oversee the expansion of Russia, which services on-exchange and resources in this area. Group, and has served at separate times Amsterdam in 2010, the mother of all he will be responsible for business elektron, the firm’s financial markets data OTC transactions with all types of debt as chief investment officer at europlus financial sector conferences and exhibitions management and sales development services and hosting business, which is and equity securities for russian issuers Correlix, the operator of the raceTeam and Creditrolo Gestioni (both are now moves further away from established within Saxo bank’s uK operations. Olesen delivered via the cloud from a number and provides settlement services to latency measurement service and analyst Pioneer Investments). traditions with a move outside the US for will report to albert Maasland, senior of data centres around the world – new participants in country’s financial markets, of real-time order and market data flows, the North America leg of its perpetual vice president and chief executive of facilities are due to open in Hong Kong, is forming a number of committees to drive has named Daniel Connell as its new Andy lees is the new head of Capgemini world tour. Saxo bank uK and joins from Thomson India and brazil in 2011. Hegarty’s primary forward a new development strategy and chief executive. He will be responsible for Financial Services UK. The consultancy www.swift.com & associates where he was responsible role will be to cultivate partnerships introduce more transparency. Natalya leading the firm’s global growth plans as and outsourcer recruited him from atos for consultancy services for international with market participants and attract new Sidorova, head of securities services at it seeks to expand beyond its uS base and Consulting where Lees was previously 11-13 oCToBeR banks. Prior to that he was at Citi where customers to the service. He will also be ING bank (eurasia) ZaO, will be chair of benefit from the need for objective latency head of the uK private sector unit. He BAi Retail Delivery 2011, Chicago he started the group’s FX e-commerce responsible for examining the market the NSD Committee of Interactions with information. Connell served as executive will lead a team focused on the banking, In 2010 baI retail Delivery was business and was global head of FX changes brought about by the changing registrars and Depositories, providing managing director at Standard & Poor’s insurance and regulatory compliance revamped, reorganised and revitalised, sales, as well as global head of client regulatory environment and subsequently a liaison channel for market participants Information Services division for over sectors, with the latter expected to bring and is now on its way back to being the management & marketing for Citi’s fixed designing new products and services with sixteen other committee members, ten years and also headed up the firm’s in new business after what the firm calls retail banking event of the year. income division. to take advantage of them. Hegarty will including Alexei Zhinkin, who will act as ComStock unit, the real-time provider of ‘a period of exceptional turbulence’. BT www.bai.org

38 I www.bankingtech.com www.bankingtech.com I 39 her deputy, on release from his day job global market data that was later acquired events as registrar with NikOil. The Committee of by Interactive Data Corp. Post acquisition, Settlement and Depository activities and Connell served as the chief executive of 8 mArch 2011 Tariffs, with 15 members, will be headed IDC’s real-Time Services division and he tsAm, London up by an existing NSD supervisory board has also been COO of Xinhua Finance The European buy-side operations and member, Tatiana Chepeleva, while her and worked at Spire Capital Partners technology event will take place in a new fellow board member, Yuri Dubin, has more recently as ‘executive in residence’ location, the Lancaster London. been elected chair of the Quality and in a largely advisory role. www.tsam.net risks Committee, which has 17 members. Vadim Subbotin, vice president of the Monitise, a mobile money solutions 21-24 mArch MICeX exchange, has been appointed to provider that provides white label services international payments summit 2011, chair the NSD budget Commission. to rbS, Lloyds banking Group and HSbC London among others, has appointed Tim Wade Once again the IPS organisers will be Broadridge Financial Solutions is to its board as a non-executive director broadening the speaker beyond the appointing Susan Certoma as president and chairman of the audit committee, payments world to include leading academics of its brokerage Processing Services which oversees the business. Wade is also and “outside the box” thought leaders. business, covering equity, option and a non-exec at investment firmr esolution, www.icbi-events.com mutual fund securities processing, as access bank uK, and Macquarie bank well as its business process management International, where he also chairs the audit 12-14 APRil suite and distributed data products. committee. He is presently finance chief TradeTech europe, london Certoma was formerly chief operating executive of Finance Pronto, a company Still at the Excel centre in Docklands, but officer at broadridge bPS, having joined focused on loan processing technology. also still the big draw for investment the firm in 2009 after a spell at Wachovia, banking systems. where she served as chief information The Cloud Security Alliance, a non- www.tradetecheurope.com officer for the corporate and investment profit organisation that seeks to provide bank. She has previously held technology education, security assurance and best 14-16 June and operations positions with Goldman practice guidelines for cloud computing, siFmA Financial services technology Sachs, Merrill Lynch, Lehman brothers, has appointed Raj Samani as strategy expo 2011, new York ernst & young, First boston and royal advisor for europe, Middle-east and The programme will highlight key issues bank of Canada. africa. Samani is presently the eMea critical in adapting to the industry’s new chief technology officer at Mcafee regulatory drivers that are occurring as a The non-profit Mobey Forum – a trade and was previously vice president of result of the Dodd-Frank legislation and body consisting of FIs such as Deutsche communications with the Information other initiatives facing the industry. bank, HSbC and ubS, mobile network Systems Security association uK chapter. www.sifma.org operators, handset manufacturers, He will be unpaid in the CSa role and payment processors and vendors, that provide support to existing and developing 15-16 June seeks to define a sustainable mobile CSa Chapters in the eMea region. eBAday, madrid financial services ecosystem by promoting EBAday 2011 will look beyond the practical open and secure technology standards – Citi is making Dario Frigerio, ex-chief compliance requirements of operating in a has appointed Sirpa Nordlund as its new executive of Pioneer Global asset Single Euro Payments Area and deal with executive director. Nordlund succeeds Management Services, its new senior the critical strategic questions that banks Liisa Kannianen who stepped down at the advisor for investor services within the must address if they are to prosper in the end of last year. She has been selected for Global Transaction Services business. new business environment. her experience within the mobile services Frigerio will be based in Italy, and provide www.ebaday.com and Near Field Communications sector, strategic counsel and work to deepen the having spent more than 10 years with firm’s client base across europe, Middle 19-23 septemBer Nokia working on NFC r&D following the east and africa. He was previously head sibos 2011, toronto handset manufacturer’s decision to invest of wealth management at uniCredit After a recovering some of its pizzazz at resources in this area. Group, and has served at separate times Amsterdam in 2010, the mother of all as chief investment officer at europlus financial sector conferences and exhibitions Correlix, the operator of the raceTeam and Creditrolo Gestioni (both are now moves further away from established latency measurement service and analyst Pioneer Investments). traditions with a move outside the US for of real-time order and market data flows, the North America leg of its perpetual has named Daniel Connell as its new Andy lees is the new head of Capgemini world tour. chief executive. He will be responsible for Financial Services UK. The consultancy www.swift.com leading the firm’s global growth plans as and outsourcer recruited him from atos it seeks to expand beyond its uS base and Consulting where Lees was previously 11-13 oCToBeR benefit from the need for objective latency head of the uK private sector unit. He BAi Retail Delivery 2011, Chicago information. Connell served as executive will lead a team focused on the banking, In 2010 baI retail Delivery was managing director at Standard & Poor’s insurance and regulatory compliance revamped, reorganised and revitalised, Information Services division for over sectors, with the latter expected to bring and is now on its way back to being the ten years and also headed up the firm’s in new business after what the firm calls retail banking event of the year. ComStock unit, the real-time provider of ‘a period of exceptional turbulence’. BT www.bai.org

www.bankingtech.com I 39 February 2011 Go to www.bankingtech.com for the latest news and comment

ProductS and ServiceS M&A Roundup: Markit, BAE and ITG earthport offers n what is perhaps indicative of an for customers and present an opportunity Vendor announcements, enhancements and innovations improvement in the cash reserves for accelerated growth for bae in the fast online payments Iof companies and expected future growing cyber and business intelligence growth areas a new round of merger services sector.” service for SMes and acquisitions has begun with Markit The purchase of Quic by Markit will allow arthport has launched a New LSE proximity ccMS unveiled at Wincor World buying risk analytics firm Quic Financial the firm to cater for the growing demand for new service intended as an utomated Cash Cycle Management Solution base 1.0 is a software offering Technologies, while ITG has bought the risk analytics, profiling and enterprise risk Ealternative to credit card hosting by Colt from Wincor-Nixdorf unveiled at its Wincor World exhibition in Paderborn, Clearvoyance settlement aggregation management services combining as it does collections and cash remittances for olt is to provide a proximity AGermany late last month. software from eSP Technologies Corp. its own strengths in data and valuations with small to medium-sized enterprises. hosting service for financial It is intended to optimise cash processes at banks and shops, managing the entire It intends to combine its Single Ticket Quic’s solutions, which are designed to test Initially available in the uK, the service Cinstitutions wanting to connect cash provisioning chain from branch locations all the way up to central banks. The Clearing offering with Clearvoyance to market and credit risk tolerance in financial will be rolled out to other users around to the London Stock exchange Group main components in the suite are trackable note storage units and order monitoring create a trade aggregation solution. portfolios and simulate risk at the enterprise the world later in the year. data centre, strategically located in the systems, allied to cash brokerage and inventory monitoring software. CCMS base 1.0 The financial details of those deals level. The integrated platform from the two earthport Direct is an online heart of the City of London. Developed consolidates information from aTMs, cash recycling systems at banks, Point-of-Sale have not been disclosed. bae Systems, firms should be well-positioned to offer international payments and in partnership with the exchange, the systems at retailers and data from cash centres, in readiness for centralised processing, however, has offered €217 million in cash a comprehensive solution for risk-related collections service that can process new low latency service will extend the cutting turnaround times and improving treasury operations. on the open market to acquire financial services spanning independent pricing, 26 different currencies from one portfolio of hosting solutions available The software is one of the first practical solutions resulting froma the TM firm’s crime specialist Norkom. The board is valuations and analytics across asset account and handle local payments to the exchange’s customers and previously announced CCMS strategy. One other instance of the push was a project recommending that shareholders accept classes. Quic’s 105 employees will join in 40 countries around the world, with provide a sub 100 microsecond round- in the Netherlands involving a cash-in-transit company, bank and a retailer who’ve co- the offer, under which they will receive Markit. a further 160 countries accessible via trip latency to the LSe Group markets. operated to network their cash cycles. using ‘intelligent’ cash cassettes from Wincor €2.10 in cash for each Norkom share they The ITG acquisition of the Clearvoyance the Swift network. The Colt service will complement the that automatically compile checkout takings, which are then transported directly to the own – a premium of 36% on Norkom’s settlement aggregation software from eSP according to Matt O’Donnell, LSe’s established co-location service, bank’s aTMs to replenish their supply of cash, manual counting and expense is cut. closing price of €1.54 at the time of the Technologies is intended to create a new director of business development, which allows clients to locate their The cash loop can be further closed if the new Cineoa TM is deployed alongside, as the offer in January. global offering that consolidates allocation the new service uses the underlying trading equipment physically within the software’s cash monitoring capabilities extend to the units. Two years ago, bae Systems bought and settlements for institutional investors banking infrastructures around the exchange’s primary data centre facility The Wincor World event show-cased some 600 technology exhibits and attracted Detica for £531 million. Ian King, that execute trades across multiple brokers world but not in the slow and expensive – as close as possible to the matching 7,000 international visitors to hear 60 presentations. BT chief executive of bae, said: “There and venues onto a single aggregated manner associated with traditional engines and market data system. The is a compelling logic to combining allocation and delivery system. This should correspondent banking. “Ours is an new proximity service provides further Detica’s Netreveal product and the provide significant savings in custodial online, on-demand model,” he says, choice for customers looking to connect new partnerships unveiled by complementary capabilities and customer ticket charges and back-office costs and be “which can be delivered as a white to the Group’s data centre and will help reach of Norkom. The standalone unit will attractive to ITG’s institutional clients in the labelled service or direct to smaller meet continued market demand for high Monitise to support mobile FS result in a significantly enhanced offering financial marketplace.BT firms.” Two key markets are being frequency trading connectivity options. onitise is partnering with substantial in terms of new technology targeted, with small corporate users a range of proactive monitoring and Vivotech, a developer of Near and means that customers of any encouraged to go direct and do more measuring options are also available MField Communication software, participating uS banks that decide to elektron feed Voice Commerce business abroad and the possibility of with the Colt service, which can be to deliver mobile phone payments take up the partners’ technology offering small tier three banks or less using the specified on a managed service basis. services to banks across the uS and will be able to turn their handset into reaches Japan badged service to extend functionality The LSe proximity hosting service is also working with best buy europe a mobile wallet (linked to registered authentication to their customers. will be delivered via Colt’s existing and Charles Dunstone of the Carphone bank accounts, credit and debit cards), homson reuters has expanded oice Commerce has launched Cross-border payments can be FastNet ultra portfolio, a range of low Warehouse to form the Mobile Money allowing them to manage their finances its elektron fibre optic aggregated KyC Secure, a new federated sent and received within one to three latency services specifically designed Network in the uK. The latter will seek to on the mobile device and purchase items Tdata distribution network and Vvoice biometric database that can days via the 24x7 self-service online to meet the needs of financial trading establish a unified structure to support using contactless payment functionality hosting environment to cover Japanese authenticate a consumer’s identity over interface without exposing users’ algorithmic customers. mobile marketing and payments across at merchants that support NFC readers. equities and derivatives. The new service their mobile phone. bank account details to counterparties. The LSe choose Colt as its proximity britain, combining the retail experience Monitise’s mobile money technology offers market participants ultra low The vendor, which is authorised by Typical users might include SMe hosting partner facility provider after a of Dunstone and best buy with Monitise’s can transfer money from registered latency access to all the major Japanese the Financial Services authority under importers, exporters, remittance competitive tender process, primarily bank-grade white labelled mobile accounts to other bank accounts, perhaps liquidity pools, including the Tokyo Stock the Payment Services regulations companies providing services, a because it already connects a broad technology, which is used by half of the in response to an overdraft alert or to exchange, SbI Japannext, Chi-X Japan, and provides a range of payment, payroll company, e-wallet or pre- range of european trading firms via its uK High Street banks, including Lloyds friends and family, and allows constant Kabu.com, Osaka Securities exchange/ e-commerce and mobile money services paid debit or credit card operators pan-european fibre network and a fast banking Group and rbS. account checking and mini-statements, JaSDaQ and TDeX+ Options. to banks, retailers and others, is claiming or simply a local firm wanting to do information delivery platform. The Mobile Money Network launches although not yet P2P payments to those The market data feed is accessible via that KyC Secure is the first regulated more business abroad. Commenting on the arrangement, in Q1 2011, providing a one stop shop outside of a customer’s own bank. a single, resilient connection and users mobile identity database of its kind for a survey carried out by the antoine Shagoury, chief information for mobile products and services, The Near Field Communication aspect can specify Thomson reuters’ elektron e-money and identity transactions. company found that far too many officer at e LS G, said: “Our new including the bank functionality from of the new joint service is delivered via proximity and co-location hosting The vendor hopes to establish KyC companies at the moment are put off partnership with Colt marks another Monitise. The aim is obviously to try and Vivotech’s over-the-air (OTa) software. solutions as well, supported by a dedicated Secure as a global standard for e-money by the expensive and complicated step forward in our efforts to enhance disseminate the increasingly important This allows data, such as credit, debit or Japanese data centre. according to the and mobile payment account opening nature of cross-border trading and access options to the Group’s markets. mobile banking channel as far and wide prepaid card credentials, to be remotely vendor, the combination of low latency procedures and is confident it can attract treasury operations. This new proximity hosting service as possible. Monitise has a 40% stake loaded onto a secure chip. This chip can real-time feeds and strategically located financial institutions to use it to verify a Of the 100 companies they talked will complement our established co- in the partnership. Other well known be in an NFC-enabled phone, a SIM card hosting centres creates an optimal customer’s identity based upon their pre- to at the turn of the year, 25% said location offering, providing additional High Street shops and financial service or a chip contained within a microSD card, price discovery and execution support stored unique biometric voice signature, they chose not to do business in some choice for customers looking to access providers will join throughout the year. which can be inserted into the majority of environment, which will help firms lower reducing exposure to online, credit and countries because of the risk of not our central London data centre.” BT The separate Vivotech deal is more existing smartphones. BT trading costs and generate alpha. BT identity fraud risks. BT being paid. BT

40 I www.bankingtech.com www.bankingtech.com I 41 Go to www.bankingtech.com for the latest news and comment

M&A Roundup: Markit, BAE and ITG earthport offers n what is perhaps indicative of an for customers and present an opportunity improvement in the cash reserves for accelerated growth for bae in the fast online payments Iof companies and expected future growing cyber and business intelligence growth areas a new round of merger services sector.” service for SMes and acquisitions has begun with Markit The purchase of Quic by Markit will allow arthport has launched a buying risk analytics firm Quic Financial the firm to cater for the growing demand for new service intended as an Technologies, while ITG has bought the risk analytics, profiling and enterprise risk Ealternative to credit card Clearvoyance settlement aggregation management services combining as it does collections and cash remittances for software from eSP Technologies Corp. its own strengths in data and valuations with small to medium-sized enterprises. It intends to combine its Single Ticket Quic’s solutions, which are designed to test Initially available in the uK, the service Clearing offering with Clearvoyance to market and credit risk tolerance in financial will be rolled out to other users around create a trade aggregation solution. portfolios and simulate risk at the enterprise the world later in the year. The financial details of those deals level. The integrated platform from the two earthport Direct is an online have not been disclosed. bae Systems, firms should be well-positioned to offer international payments and however, has offered €217 million in cash a comprehensive solution for risk-related collections service that can process on the open market to acquire financial services spanning independent pricing, 26 different currencies from one crime specialist Norkom. The board is valuations and analytics across asset account and handle local payments recommending that shareholders accept classes. Quic’s 105 employees will join in 40 countries around the world, with the offer, under which they will receive Markit. a further 160 countries accessible via €2.10 in cash for each Norkom share they The ITG acquisition of the Clearvoyance the Swift network. own – a premium of 36% on Norkom’s settlement aggregation software from eSP according to Matt O’Donnell, closing price of €1.54 at the time of the Technologies is intended to create a new director of business development, offer in January. global offering that consolidates allocation the new service uses the underlying Two years ago, bae Systems bought and settlements for institutional investors banking infrastructures around the Detica for £531 million. Ian King, that execute trades across multiple brokers world but not in the slow and expensive chief executive of bae, said: “There and venues onto a single aggregated manner associated with traditional is a compelling logic to combining allocation and delivery system. This should correspondent banking. “Ours is an Detica’s Netreveal product and the provide significant savings in custodial online, on-demand model,” he says, complementary capabilities and customer ticket charges and back-office costs and be “which can be delivered as a white reach of Norkom. The standalone unit will attractive to ITG’s institutional clients in the labelled service or direct to smaller result in a significantly enhanced offering financial marketplace.BT firms.” Two key markets are being targeted, with small corporate users encouraged to go direct and do more elektron feed business abroad and the possibility of Voice Commerce small tier three banks or less using the reaches Japan badged service to extend functionality authentication to their customers. homson reuters has expanded oice Commerce has launched Cross-border payments can be its elektron fibre optic aggregated KyC Secure, a new federated sent and received within one to three Tdata distribution network and Vvoice biometric database that can days via the 24x7 self-service online hosting environment to cover Japanese authenticate a consumer’s identity over interface without exposing users’ equities and derivatives. The new service their mobile phone. bank account details to counterparties. offers market participants ultra low The vendor, which is authorised by Typical users might include SMe latency access to all the major Japanese the Financial Services authority under importers, exporters, remittance liquidity pools, including the Tokyo Stock the Payment Services regulations companies providing services, a exchange, SbI Japannext, Chi-X Japan, and provides a range of payment, payroll company, e-wallet or pre- Kabu.com, Osaka Securities exchange/ e-commerce and mobile money services paid debit or credit card operators JaSDaQ and TDeX+ Options. to banks, retailers and others, is claiming or simply a local firm wanting to do The market data feed is accessible via that KyC Secure is the first regulated more business abroad. a single, resilient connection and users mobile identity database of its kind for a survey carried out by the can specify Thomson reuters’ elektron e-money and identity transactions. company found that far too many proximity and co-location hosting The vendor hopes to establish KyC companies at the moment are put off solutions as well, supported by a dedicated Secure as a global standard for e-money by the expensive and complicated Japanese data centre. according to the and mobile payment account opening nature of cross-border trading and vendor, the combination of low latency procedures and is confident it can attract treasury operations. real-time feeds and strategically located financial institutions to use it to verify a Of the 100 companies they talked hosting centres creates an optimal customer’s identity based upon their pre- to at the turn of the year, 25% said price discovery and execution support stored unique biometric voice signature, they chose not to do business in some environment, which will help firms lower reducing exposure to online, credit and countries because of the risk of not trading costs and generate alpha. BT identity fraud risks. BT being paid. BT

www.bankingtech.com I 41 ProduCT And sEVICEs Comment February 2011 Go to www.bankingtech.com for the latest news and comment February 2011

HId Global is adding a mobile sticker format to its family of eunetworks Group has added a new low latency route from contactless payment and identification cards and is aiming at the London to stockholm to its dedicated fibre finance network. Daniel Gorton, mobile phone market as well and NFC payment services, which can The bandwidth infrastructure provider can deliver direct Poison Chalice to Holy Grail KPMG be accessed by affixing the sticker to a handset. The stickers are only exchange-to exchange connectivity with a reduced latency of likely to act as a bridge to contactless mobile payments and Near 22.4 milliseconds for the round trip from England to sweden, there are some Investment in compliance technology n Firstly, and most obviously, is their Field Communication services because gradually in-built secure which the vendor claims is 12% faster than competitor offerings. who may consider can pay off – not only in the eyes of the ability to meet the rigorous demand chips will corner the market as more and more customers take up The new route joins the euTrade service portfolio, which offers regulatory compliance regulator, but also most importantly for compliance – both in time for the secure SIM-enabled smartphones. The adhesive-backed sticker is a market participants solutions across Europe with on-demand as a poisoned chalice on the bottom line. Compliance compliance start date and in delivering useful bridge in the meantime, however, and HID Global’s contains connectivity between all the major stock exchanges and – material cost that programmes offer the opportunity manageable processes into business as an internal ferrite layer that shields electronics from interference clearing houses. provides no value to to remove legacy and redundant usual. even when attached to items containing metal. the business – and the technologies, streamline processes and n The second tier will be populated by FlexTrade systems, a provider of algorithmic trading systems and sheer volume of current and upcoming architectures and provide new insights those programmes which avoid a silo northland solutions is upgrading its compliance alert trade Direct Market Access solutions, is setting up a direct link from its regulation means that cup is overflowing. to the business. and we shouldn’t approach to compliance. surveillance module by adding the Fidessa market datafeed, FlexTrader execution management system to Brazil’s BM&FBovespa KPMG’s recent survey on the CIO overlook one benefit of compliance: n Thirdly, the real winners will be those enabling the system to work across multiple venues and asset exchange, specifically its new multi-asset trading platform. The agenda found that four out of five the money saved in fines, reputational that can turn compliance demands classes. The on-premises based solution can now monitor more partnership will bring liquidity to the exchange and increase financial sector CIOs predicted that the damage and loss of business that can to business advantage, by using a trades and venues and raise alerts concerning potential market connectivity for FlexTrader’s users. The deal also includes a new cost of compliance will increase by at follow compliance failure. ‘compliance-plus’ model incorporating abuse, a key concern of regulators post-crash. The module can FlexTrade data centre co-located at the BM&FBovespa to provide least 20% in the next few years and that It is surprising, then, to note that only innovative business requirements into also examine best execution and deliver other monitoring reports traders with a high capacity, low latency order routing and execution over 70% of CIOs are also seeing a sharp 60% of CIOs surveyed consider data regulatory programmes and thereby and analysis, alongside the more usual fraud detection, Know path for equities and futures listed on the exchange. increase in focus on risk and compliance. compliance as a core focus. provides new business intelligence. Your Customer and anti money laundering activities. Additional The technology challenges presented Some organisations used technology It is important, too, to understand the rule packs can be added to deal with changes in regulations. FXall, the electronic foreign exchange platform is unveiling its by individual regulations can be effectively to calculate basel II capital future benefits of this. Data that needs Trading release 4.0 product aimed at every client segment across significant and, when considered requirements while others adopted a to be generated for regulatory purposes Gemalto has released Protiva One4all, an authentication solution traders, asset managers, banks and corporate treasurers. FXall collectively, can appear overwhelming. more manual spreadsheet approach will inevitably complement and enable designed for trading floors containing workstations with multiple purchased Citi’s old Active platform last year and has integrated Many areas of change – governance, – and it is these organisations that are the use of new technologies. To leverage trading terminals. Users log on at their primary (‘master’) terminal it with its own Aggregator offering to make FXall 4.0. According supervision, market structure of now struggling with basel III. mobile technology and social media using a PKI smart card and the exact same authentication is to the vendor, the liquidity pool on Citi’s old solution has been derivatives and customer treatment a consistent message from the sector to reach new customers, effective data automatically replicated across each of their other (‘slave’) terminals. replicated and access is now available to new algo order types, to name a few – combine to create is that compliance programmes should analytics will be the most valuable of All events, such as log-off, log-on, and screen lock and unlock can including TWAP, pegging, market and stop loss orders, to give a fundamental restructuring of the not exceed pure regulatory needs. assets. be replicated across the slave terminals, which increases efficiency clients better control over their trading strategies. For corporates approach to risk and compliance that However, a ‘compliance-only’ approach Perhaps even a Holy Grail. in the workplace and provides banks and brokers with consistent using FXall’s relationship trading capabilities, multiple new will continue to require significant can result in missed opportunities. The transaction security and tracking capabilities. Protiva One4all is a workflow features have been added to 4.0, including enhanced investment in technology. That was success of these regulatory programmes Daniel Gorton is director of Financial standalone software system designed to work with any PKI smart role and entity-level controls to strengthen clients’ risk billions of pounds for basel II. may be measured on three levels: Services technology Risk at KPmG card and middleware, so should be simple to install without adversely management and compliance. new GuI enhancements, such affecting a bank’s existing IT system. as pre-trade analytics and expanded order netting capabilities Graham Underwood, should improve overall system usability, while in response to Is Finance IT prepared? GFT uK FFastFill is adding an LME smart trade registration and banks’ shift towards internalisation fractional pricing has been matching functionality to its seals Global Clearing platform, introduced to improve risk management and provide tighter Regulation is becoming increased shift in focus from the front office (over having the latest technology) and a which is offered as a software-as-a-service solution to prices. a key business driver to cost centres, as banks on both sides need to be more agile. To this end, 29% market participants. The addition allows users to manage all in 2011, but our recent of the atlantic work to attract and divert of respondents are already working on electronic select trades and oTC business on the London Metal IdC’s PrimeTerminal Mobile is a BlackBerry application that links research suggests that talent to reorganising the back office.b ut, improving deployment processes and Exchange smart system via a single interface, with the added into the vendor’s proprietary desktop solution, enabling investors, Finance It sections staffing levels are down 10% from 2008 25% on refining development processes. benefit of being able to process trade entries and submissions advisors and wealth managers to follow developments in the of investment banks highs, back to 2000 levels, which could well It seems that “everyone’s scratching automatically and to cater for cancellations if need be. real- financial markets in real time and monitor their own portfolios at any are not matching leave IT teams struggling to implement their head and figuring out the impact of time updates of all trade statuses and alleged trades and is time, from anywhere. It replicates users’ personal portfolio settings levels of ambition to funding and staffing the regulatory changes. Staffing levels regulatory change”, as one respondent from accompanied by a simplified confirmation and registration of from their IDC PrimeTerminal desktop solution, offering quotes, requirements. and having the right people, for the right a top tier bank commented. We believe half trade functionality, prior to processing. historical and reference data, charts, business news and market Having spoken to some investment project, at the right time, is increasingly that, as regulation becomes a stronger overviews on the move. Watchlists can also be accessed to check banks in New york and London, it seems important for IT departments and business driver, a strategic approach will The latest version of sAs’ Enterprise Case Management software, the performance of individual positions or an entire portfolio, and that banks are at risk of underfunding the particularly in Finance IT, which touches be needed to ensure that spending on part of the Financial Crimes Framework, aims to assist fraud relevant news, events and other information on a specific security implementation of regulatory changes in the whole business. One respondent from resources and technology is bank-wide investigators and efficiency by automating more processes. The BI can be retrieved to aid investment decisions. The BlackBerry mobile Finance IT and that staffing levels have a top tier bank commented “Finding the and meaningful. re-engineering business software now includes enhancements such as historical versioning, interface allows for individual customisation of the data displayed. fallen back, leaving the sector exposed. right people within the budget. That’s the processes needs well put together and which shows up-to-the-minute case histories and reference material Our findings expect Finance IT sell-side biggest thicket”. managed teams to intelligently resolve the while also providing an audit trial, alongside social network analysis Asset Control has improved its corporate actions financial data spending to increase to nearly $1 billion In addition, the ambitions of the problem. Financial institutions will have tools, web service search and event notification capabilities. The coverage by integrating its AC Plus data management platform ($999.22) by 2012, up just 5% after a 13% banks, beyond the need to meet to be more adept at efficiently managing social networking element means the connections of individuals with Fidelity’s ActionsXchange information package, which drop since 2007. Nevertheless, there is a regulatory requirements, involve external, project-specific resources, rather related to a fraud case can be examined for richer information and validates and enriches corporation action announcements on considerable gap in Finance IT budgets measures to save significant costs by than just throwing bodies at the problem. possible links to organised crime, giving a more comprehensive more than 2.5 million global securities, such as stock splits and between top and second tier banks as a rationalising IT systems and processes. banks which understand this will thrive overview. Web service search tools can automatically ensure the restructurings. By combining the two platforms customers get proportion of revenues; with some second The research also identified that a key by investing in the back office to improve correct target is under review, avoiding identical names by cross- better data quality on the AC Plus management screen which is tier banks planning to spend less than half part of meeting regulatory requirements systems and processes to manage the referencing and improving accuracy. The event notification feature crucial in mitigating risk as well as in implementing intelligent a million dollars per annum, whilst one top will be to reengineer processes, impact of 2011’s expected regulation. should help investigators in the field get email or text messages on investment strategies. According to the vendors, the enriched tier institution is budgeting $100 million technology and resource deployment. case changes, keeping them abreast of progress and focused on corporate actions event information can be combined with over a multi-year programme. 87% of respondents mentioned process Graham Underwood is managing relevant information. other security and pricing data to further enhance quality. One impact that is already visible is an improvement as a priority for Finance IT director of GFt UK.

42 I www.bankingtech.com www.bankingtech.com I 43 Comment February 2011

Daniel Gorton, Poison Chalice to Holy Grail KPMG

there are some Investment in compliance technology n Firstly, and most obviously, is their who may consider can pay off – not only in the eyes of the ability to meet the rigorous demand regulatory compliance regulator, but also most importantly for compliance – both in time for the as a poisoned chalice on the bottom line. Compliance compliance start date and in delivering – material cost that programmes offer the opportunity manageable processes into business as provides no value to to remove legacy and redundant usual. the business – and the technologies, streamline processes and n The second tier will be populated by sheer volume of current and upcoming architectures and provide new insights those programmes which avoid a silo regulation means that cup is overflowing. to the business. and we shouldn’t approach to compliance. KPMG’s recent survey on the CIO overlook one benefit of compliance: n Thirdly, the real winners will be those agenda found that four out of five the money saved in fines, reputational that can turn compliance demands financial sector CIOs predicted that the damage and loss of business that can to business advantage, by using a cost of compliance will increase by at follow compliance failure. ‘compliance-plus’ model incorporating least 20% in the next few years and that It is surprising, then, to note that only innovative business requirements into over 70% of CIOs are also seeing a sharp 60% of CIOs surveyed consider data regulatory programmes and thereby increase in focus on risk and compliance. compliance as a core focus. provides new business intelligence. The technology challenges presented Some organisations used technology It is important, too, to understand the by individual regulations can be effectively to calculate basel II capital future benefits of this. Data that needs significant and, when considered requirements while others adopted a to be generated for regulatory purposes collectively, can appear overwhelming. more manual spreadsheet approach will inevitably complement and enable Many areas of change – governance, – and it is these organisations that are the use of new technologies. To leverage supervision, market structure of now struggling with basel III. mobile technology and social media derivatives and customer treatment a consistent message from the sector to reach new customers, effective data to name a few – combine to create is that compliance programmes should analytics will be the most valuable of a fundamental restructuring of the not exceed pure regulatory needs. assets. approach to risk and compliance that However, a ‘compliance-only’ approach Perhaps even a Holy Grail. will continue to require significant can result in missed opportunities. The investment in technology. That was success of these regulatory programmes Daniel Gorton is director of Financial billions of pounds for basel II. may be measured on three levels: Services technology Risk at KPmG

Graham Underwood, Is Finance IT prepared? GFT uK

Regulation is becoming increased shift in focus from the front office (over having the latest technology) and a a key business driver to cost centres, as banks on both sides need to be more agile. To this end, 29% in 2011, but our recent of the atlantic work to attract and divert of respondents are already working on research suggests that talent to reorganising the back office.b ut, improving deployment processes and Finance It sections staffing levels are down 10% from 2008 25% on refining development processes. of investment banks highs, back to 2000 levels, which could well It seems that “everyone’s scratching are not matching leave IT teams struggling to implement their head and figuring out the impact of levels of ambition to funding and staffing the regulatory changes. Staffing levels regulatory change”, as one respondent from requirements. and having the right people, for the right a top tier bank commented. We believe Having spoken to some investment project, at the right time, is increasingly that, as regulation becomes a stronger banks in New york and London, it seems important for IT departments and business driver, a strategic approach will that banks are at risk of underfunding the particularly in Finance IT, which touches be needed to ensure that spending on implementation of regulatory changes in the whole business. One respondent from resources and technology is bank-wide Finance IT and that staffing levels have a top tier bank commented “Finding the and meaningful. re-engineering business fallen back, leaving the sector exposed. right people within the budget. That’s the processes needs well put together and Our findings expect Finance IT sell-side biggest thicket”. managed teams to intelligently resolve the spending to increase to nearly $1 billion In addition, the ambitions of the problem. Financial institutions will have ($999.22) by 2012, up just 5% after a 13% banks, beyond the need to meet to be more adept at efficiently managing drop since 2007. Nevertheless, there is a regulatory requirements, involve external, project-specific resources, rather considerable gap in Finance IT budgets measures to save significant costs by than just throwing bodies at the problem. between top and second tier banks as a rationalising IT systems and processes. banks which understand this will thrive proportion of revenues; with some second The research also identified that a key by investing in the back office to improve tier banks planning to spend less than half part of meeting regulatory requirements systems and processes to manage the a million dollars per annum, whilst one top will be to reengineer processes, impact of 2011’s expected regulation. tier institution is budgeting $100 million technology and resource deployment. over a multi-year programme. 87% of respondents mentioned process Graham Underwood is managing One impact that is already visible is an improvement as a priority for Finance IT director of GFt UK.

www.bankingtech.com I 43 InDUStRy ColUmn Industry column February 2011 February 2011

MiFID Review: Implications Bonuses – facts timothy Baker, Angela Knight, for fixed income markets International Capital Market association and assumptions british bankers’ association

the european existing MTF category. ICMa will need to it may be appropriate to require better We are still some way We are (very nearly) on our own. level will result in smaller returns, as Commission’s Internal study carefully the possible effect of this disclosure about instruments and the off establishing the Similar rules on remuneration are being the taxed activity either stops or moves market and Services greater formalisation, and the associated risk attached to them, ICMa members are facts on this year’s applied in other eu member states, elsewhere. We need to be mindful of Directorate General rules, on OTC trading mechanisms. concerned that widespread restriction of bank bonuses. one but the world’s other major financial that curve. (DG markt) launched Pre-trade transparency: Whereas CeSr the assumption that professionals have thing we do know centres, which London competes with – The industry generates a huge amount its consultation recommended no pre-trade transparency expertise, and widespread imposition is that the period of principally in the uSa and asia – have as of tax for the uK. The uK’s financial on 8 December on requirements for OTC fixed income of retail protections, could significantly speculation which yet taken no action, if indeed they intend services industry paid £54billion in tax the review of the markets in Financial markets, leaving them to the market or impair eu fixed income markets. precedes the annual round is growing to take any at all. to the exchequer last year, even before Instruments Directive, allowing only 6 national discretion, DG Markt proposes eU intervention in markets: In an area ever longer and more drawn out. the one-off bank payroll tax is accounted weeks for responses. the deadline for to impose requirements on OTFs similar not covered by CeSr, DG Markt suggests This year it started in the first week for. This year banks will also pay a levy industry feedback has therefore just to those for regulated Markets and MTFs, certain mechanisms for eu-level oversight of January, just as the reporting year on their balance sheets which will raise passed as I write this and ICmA has given and also to impose an obligation, whose and intervention in markets, including ended and probably before most banks “Increases in tax beyond an estimated £2.5billion. There won’t be its views on behalf of its members. intended scope is not made clear, for limitation of derivative positions and the had been able to calculate even roughly a certain level will result another bonus tax but the highest-paid The consultation is important, OTC dealers to make their quotes public: ability to ban certain products or activities what would be available. Certainly it was employees will be subject to tax at the particularly as DG Markt is proposing these quotes (replicating the existing that imperil market or systemic stability before any remuneration committee in smaller returns, as the new top rate of 50%. new requirements that go beyond the “systematic internaliser” regime for or investor protection. ICMa members had made any decisions, since it was taxed activity either stops In the uK we have two financial Committee of european Securities equities) are proposed to be binding up are likely to be concerned to ensure a full month before the first of the uK services industries: one is our domestic regulators (CeSr’s) advice and that to a specified size. that any such powers are controlled by banks was to disclose its latest results or moves elsewhere” industry, serving uK customers; the could have significant consequences for DG Markt does follows CeSr in stringent due process and do not impair in mid-February. rather than speculate, other is the global industry that is the conduct of european markets, the proposing harmonised requirements market confidence and freedoms to act I believe it’s better to look at the facts. centred in the City, and which competes investors and issuers who use them, on advertising fixed income trading and innovate. It is important to state right at the No public announcement on globally for business and talent. The and the competitive position of europe interest on regulated Markets and Changes to equity trading outset that the banking industry in the bonuses is expected from any of the financial services industry trades globally. MTFs, taking account of differences transparency: as noted above, DG Markt, uK absolutely understands concern over uK’s major banks until they issue their globally but pays tax locally – more tax In this column I’d like to particularly between markets, and with waivers going beyond CeSr’s advice, proposes pay. We get it. We know it’s important but annual results, starting in mid-February than any other business sector. until focus on the comparison between DG where appropriate. additionally, DG to copy across to non-equity markets, there is some frustration and concern onwards. So most of the figures bandied there is a genuinely global consensus on Markt’s proposals and CeSr’s advice Markt suggests that all regulated perhaps unthinkingly, several aspects in our industry that the other massive about in regard to pay at the moment pay in financial services, the challenge in regard to the fixed income markets, Markets, MTFs, and OTFs publish pre- of the regulation of trading and market reforms which we have been undertaking are just speculation. The only publicly- for policy makers will be to ensure the looking at post-trade reporting, regulatory trade information in a “continuous transparency for equities. Sometimes, since the global financial crisis struck are accepted and respected estimate in uK continues to attract this valuable classification of Over The Counter manner”, however the requirement to for example in the suggested completely overshadowed in the public regard to the expected size of this year’s business. markets, pre-trade reporting and also quote continuously would not apply to requirement to publish dealer quotes, eye by the amounts paid out to a very ‘bonus pot’ is £7 billion, the figure Our industry employs one million changes to equity trading transparency. investment firms. accordingly, thought the regime for non-equities appears to small proportion of top staff in a small given by the Centre for economic and people directly and accounts for Post-trade reporting: DG Markt’s will need to be given to how this be even more stringent than for equities. number of internationally-active banks. business research last November (to more than 10% of uK GDP. That is one proposal to extend MiFID requirements would affect the “request for Quote” It will be important to consider the We do not want to feed further quote: “Cebr has estimated that City of the reasons why the banks meet to a broad range of fixed income model. The main concern of ICMa suitability for fixed income markets of speculation, but we feel we need to set out a bonus payments this year will be £7 regularly with government, including instruments is in line with CeSr’s advice. members is to ensure that any pre-trade some of the equity-based proposals, for few facts. uK regulation on pay in financial billion, down from £11.6 billion in 2007. cabinet ministers, to discuss these and but it includes none of the detailed transparency requirements take account example on automated trading and on services went through a comprehensive To the best of our knowledge no other many other issues. We agree that it is market-by-market assessment of CeSr, of the tailoring and adaptation of current trade data consolidation. review after the banking crisis that resulted sector in the uK has faced such a decline essential then that there is a sustainable, which DG Markt plans to cover in later arrangements to users’ needs. Underwriting and placing: DG Markt in the Walker report and the issue has in its income over this period. Take home cooperative relationship between Level 2 legislation. Client classification and conduct of follows CeSr in suggesting MiFID rules certainly not been ignored. Indeed, uK pay bonuses will have declined by far more lenders and government to support The main concern of ICMa members business: CeSr advised the Commission, on conflicts of interest where a firm acts regulations are now the toughest in the as a result of the imposition of the 50 per economic recovery in 2011 and beyond. is to calibrate, in line with users’ needs, in line with ICMa’s views, that the on behalf of both issuer and investor. world. The Financial Services authority’s cent tax rate and other tax increases on We repeat: the banking industry in the proposed short delays before large existing threefold client categorisation The closing date for the consultation new remuneration Code came into full higher income groups”). the uK absolutely understands concern trades in illiquid instruments must be (retail, professional, counterparty) was 2 February. The european force on 1 January, and now imposes tight There is a tipping point beyond which over pay. but we believe that until there published to the market, and to ensure works well. CeSr proposed only small Commission is expected to produce an restrictions on what can be paid – and the tax burden will result in diminishing is a genuinely global consensus on proper differentiation for different adjustments to the regime. DG Markt impact assessment shortly, taking its in what form – to employees in financial tax returns. The government and pay in financial services, the challenge markets. Notably, DG Markt adopts suggests a more radical revision, the recent consultations into account, and services. The old code covered banking only opposition have both stated that they for policy makers will be to ensure the CeSr’s (possibly erroneous) assumption overall thrust of which is to limit firms’ has said that it aims to make a formal and therefore affected the pay of around want to extract the maximum tax uK continues to attract this valuable that bonds with a prospectus or which are ability to treat clients as professionals proposal for amendments to MiFID in 2,000 people; the new code is far wider. revenue from the banking sector. The business. admitted to trading on a regulated Market or counterparties, and to impose late spring. We await the results with For all the key people, bonus targets have Chancellor of the exchequer, George or Multilateral Trading Facility are the more on business with professionals and interest. to be agreed with the regulator, most of the Osborne, said this in his Spending liquid and more frequently traded market counterparties more stringent conduct bonus has to be locked away for several review statement last October; and segment within the asset class. of business rules similar to those for years in shares, and it can be clawed back Labour’s recently departed Shadow Regulatory classification of otC retail clients. New more stringent rules at a later date to discourage short-termism. Chancellor, alan Johnson, confirmed markets: DG Markt goes beyond CeSr’s on assessing the expertise of clients, The smaller part of any bonus package may his party was committed to doing the advice with a proposal to establish providing information to them, and be paid straight away if the FSa agrees, same, as has his successor. The balance a new class of regulated “Organised restricting the ability to trade with or timothy Baker is a senior consultant but as the rest is in shares that have to be between tax and returns is referred to as Trading Facility” (OTF) to cover trading for them, could apply particularly for with the International Capital market retained for some time any cash element the Laffer curve – a chart which shows Angela Knight is the chief executive of mechanisms that do not fall into the so-called complex instruments. While Association will go straight to the taxman. that increases in tax beyond a certain the British Bankers’ Association

44 I www.bankingtech.com www.bankingtech.com I 45 Industry column February 2011

Bonuses – facts Angela Knight, and assumptions british bankers’ association

We are still some way We are (very nearly) on our own. level will result in smaller returns, as off establishing the Similar rules on remuneration are being the taxed activity either stops or moves facts on this year’s applied in other eu member states, elsewhere. We need to be mindful of bank bonuses. one but the world’s other major financial that curve. thing we do know centres, which London competes with – The industry generates a huge amount is that the period of principally in the uSa and asia – have as of tax for the uK. The uK’s financial speculation which yet taken no action, if indeed they intend services industry paid £54billion in tax precedes the annual round is growing to take any at all. to the exchequer last year, even before ever longer and more drawn out. the one-off bank payroll tax is accounted This year it started in the first week for. This year banks will also pay a levy of January, just as the reporting year on their balance sheets which will raise ended and probably before most banks “Increases in tax beyond an estimated £2.5billion. There won’t be had been able to calculate even roughly a certain level will result another bonus tax but the highest-paid what would be available. Certainly it was employees will be subject to tax at the before any remuneration committee in smaller returns, as the new top rate of 50%. had made any decisions, since it was taxed activity either stops In the uK we have two financial a full month before the first of the uK services industries: one is our domestic banks was to disclose its latest results or moves elsewhere” industry, serving uK customers; the in mid-February. rather than speculate, other is the global industry that is I believe it’s better to look at the facts. centred in the City, and which competes It is important to state right at the No public announcement on globally for business and talent. The outset that the banking industry in the bonuses is expected from any of the financial services industry trades uK absolutely understands concern over uK’s major banks until they issue their globally but pays tax locally – more tax pay. We get it. We know it’s important but annual results, starting in mid-February than any other business sector. until there is some frustration and concern onwards. So most of the figures bandied there is a genuinely global consensus on in our industry that the other massive about in regard to pay at the moment pay in financial services, the challenge reforms which we have been undertaking are just speculation. The only publicly- for policy makers will be to ensure the since the global financial crisis struck are accepted and respected estimate in uK continues to attract this valuable completely overshadowed in the public regard to the expected size of this year’s business. eye by the amounts paid out to a very ‘bonus pot’ is £7 billion, the figure Our industry employs one million small proportion of top staff in a small given by the Centre for economic and people directly and accounts for number of internationally-active banks. business research last November (to more than 10% of uK GDP. That is one We do not want to feed further quote: “Cebr has estimated that City of the reasons why the banks meet speculation, but we feel we need to set out a bonus payments this year will be £7 regularly with government, including few facts. uK regulation on pay in financial billion, down from £11.6 billion in 2007. cabinet ministers, to discuss these and services went through a comprehensive To the best of our knowledge no other many other issues. We agree that it is review after the banking crisis that resulted sector in the uK has faced such a decline essential then that there is a sustainable, in the Walker report and the issue has in its income over this period. Take home cooperative relationship between certainly not been ignored. Indeed, uK pay bonuses will have declined by far more lenders and government to support regulations are now the toughest in the as a result of the imposition of the 50 per economic recovery in 2011 and beyond. world. The Financial Services authority’s cent tax rate and other tax increases on We repeat: the banking industry in new remuneration Code came into full higher income groups”). the uK absolutely understands concern force on 1 January, and now imposes tight There is a tipping point beyond which over pay. but we believe that until there restrictions on what can be paid – and the tax burden will result in diminishing is a genuinely global consensus on in what form – to employees in financial tax returns. The government and pay in financial services, the challenge services. The old code covered banking only opposition have both stated that they for policy makers will be to ensure the and therefore affected the pay of around want to extract the maximum tax uK continues to attract this valuable 2,000 people; the new code is far wider. revenue from the banking sector. The business. For all the key people, bonus targets have Chancellor of the exchequer, George to be agreed with the regulator, most of the Osborne, said this in his Spending bonus has to be locked away for several review statement last October; and years in shares, and it can be clawed back Labour’s recently departed Shadow at a later date to discourage short-termism. Chancellor, alan Johnson, confirmed The smaller part of any bonus package may his party was committed to doing the be paid straight away if the FSa agrees, same, as has his successor. The balance but as the rest is in shares that have to be between tax and returns is referred to as retained for some time any cash element the Laffer curve – a chart which shows Angela Knight is the chief executive of will go straight to the taxman. that increases in tax beyond a certain the British Bankers’ Association

www.bankingtech.com I 45 contactS: leon thomson on +44 (0) 203 377 3493 or Directory of service email: [email protected]

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www.bankingtech.com FEBRUARY 2011 From the Archive OUT OF OFFICE 10 Years ago Online payment providers target teen market … credit card fraud up 50% … multi-application smart card trials start … Basel Committee readies new operational risk guidelines … open source code making inroads in ﬁ nancial services … report ﬁ nds gulf between banks and customers …

Wake up and smell the coffee … It may only be the beginning of the year, Not any more: over on the stand of but already there are parts of the fi nancial Italian payment systems specialist SIA- technology community that are starting SSB, there is strong competition brewing to make plans for Swift’s Sibos event in up. The Italians take this sort of thing Toronto during September. seriously – as is only right and proper 15 The Banking Technology team are all with important things like coffee. When Years seasoned Sibos veterans, largely because told of the prowess of HSBC’s barista, an they’re all conscripted to work on our SIA-SSB furrowed his brow and asked, ago sister publication, Daily News at Sibos. “Do they use the right kind of water? The Doubt cast on photo-ID cards … Inevitably, that also means that they key is using the right kind of water.” skills shortage hits single currency can get a little tetchy about small things. In the interests of fairness, we’ll be implementation plans … BAI says banks Most mornings around the news desk conducting tests every morning during must get online or be disintermediated this revolves around coffee, and for most Sibos in Toronto, which will be one way … centralised cash management reaps of the team this means a little trip to the of recovering from the extensive tests benefi ts for banks … EU member states HSBC stand, which has long been held to usually conducted on other kinds of commit to real-time gross settlement, but have the best espresso. hospitality the previous evening. BT build netting systems on the side … Calm down, it’s only a corn-based food-like substance Still on the subject of foodstuff, one of our colleagues reports being in a London pub recently and learning of the dire real-world consequences of the alarming fl uctuations in commodity prices. A smartly-dressed City type asked the barman for some Mini Cheddars, a popular 25 snack in such places, only to be told that they were no longer stocked because the wholesaler had increased the price by 41% as a result of the fl ooding in Queensland, Years Australia, which that very day was destroying Brisbane. This had forced the price of the essential raw materials through the roof, the barman ago reported, whereupon our man produced an iPad, connected it up to the bar’s Wi-Fi and Swift II project postponed … boom times began downloading data. for online fi nancial information providers After a few moments, he showed the barman, and other interested parties who had … recruitment fi rms cash in on Big Bang by now gathered around, calculations that showed that the time taken for the fl oods preparations … US corporate treasurers to affect the price of corn in the snack would be some months, so the wholesaler was force banks to provide electronic data clearly a chancer of the fi rst order. exchange … Diebold launches interactive The barman was unimpressed, but several onlookers asked for the name of the app video ATM … Midland Bank forex trading he was using. BT fl oor goes live with Reuters/Rich system …

48 I www.bankingtech.com