From Basel to 'Business As Usual'

Sibos

Issue 1, 2015 Issue Issues The official daily newspaper of Sibos 2015 Singapore I 12-15 October

The return of Asia: following in Solutions emerge relationship banking giants’ footsteps to collateral troubles page 6 page 10 page 14

From Basel to REGULATION No end in ‘business as usual’ sight As business models evolve and costs As Sibos 2015 in Singapore continue to rise approaches, turn to the under the shadow centre spread of this edition of Sibos Issues for of Basel III, the all the information you need for flexibility need to book your place is increasing and plan your trip. After the appeal of all, October is closer than outsourcing. you think! Look beyond the “I see no reason to pull the Best wishes brake on regulatory reforms,” requirements said Basel Committee chair- Sven Bossu, man Stefan Ingves in a speech head of Sibos and think in Chicago last November. “We must not lose sight of the long- about how term benefits of limiting the costs to society that financial they can crises cause.” help you do Such rhetoric is perhaps in- IN BRIEF tended to remind banks that the business. commitment to regulatory reform remains as strong today as Market Infrastructures Marion Leslie it ever has been; changes are un- managing director avoidable. With the Basel III pack- Bridging the gap to real-time pricing and reference payments age of capital and liquidity rules services, now well into the implementation page 7 Thomson Reuters phase, other major reforms are still looming, at both domestic Get ready for Sibos and international levels. Helping you prepare for The challenge for banks is to this year’s main event assess the cumulative impact page 8 of multiple sets of regulation that affect different regions and markets, and to make changes Corporates to their business models accord- Sending out a global ingly. But making that assess- message ment on anything more than a page 12 short-term basis is difficult. “There is still so much regula- New reporting requirements are forcing banks to tion to be implemented, and so Standards little understanding of how all Community challenge take a more holistic view of data management. of the reforms fit together, that page 13 no one can really foresee what banks will actually look like in Overhaul needed to help banks provide aggregated five years’ time,” says Kevin Nix- Innotribe on, risk and regulatory leader at Opening the door to risk data to regulators. Deloitte in Sydney and former glittering prizes managing director of regulatory page 15 affairs at the Institute of Inter- On 11 March, around 30 major Comprehensive Capital Analysis kets. Earlier in March, the Basel national Finance. banks let out a collective sigh of and Review (CCAR) conducted Committee announced that all relief. The Federal Reserve had by the US central bank is just 224 large internationally active Moving the goalposts released the results of its lat- one of several reporting hoops banks currently meet Basel III’s est stress tests, confirming that through which international risk-based capital minimum re- That lack of clarity has its roots most had passed, albeit some by banks must jump to maintain quirements, based on data as of in what could be described as the skin of their teeth. But the their presence in major mar- continued on page 2 continued on page 4

Sibos, powered by SWIFT. www.sibos.com www.swift.com TECHNOLOGY From Basel to ‘business as usual’ continued from page 1

June 2014. This is a positive indi- exposures across risk types and cator of the financial stability of be able to drill down,” he says. Banks must the global banking system, but it Historically, banks have taken respond more is part of an ongoing semi-annu- a bottom-up approach to report- al review process which identi- ing to derive an aggregated view quickly to fied a €2 billion capital shortfall of risk, presented as a standard among 126 ‘Group 2’ banks, and set of metrics to senior manage- requests from noted that only 80% of such ment. This involves a degree of banks have so far achieved the reconciliation, checking and con- regulators for 100% liquidity coverage ratio firmation, and then potential ad- target they are required to meet justment at an overall level, ex- different types by 2019. plains Hall. “This approach does With the European Banking not lend itself to ad hoc queries of stress test. Authority conducting similar from managers or regulators for Steven Hall, director, UK head of tests for European banks – and a slightly different cut of the data banking risk and Basel III, KPMG central banks and prudential or drilling down for further detail. regulatory authorities across Increasingly, banks must respond the world examining banks in more quickly to requests from their jurisdictions – the message regulators for different types of is clear: regular and increasingly stress test, for example, so that rigorous reporting requirements they can provide the requisite are here to stay. This is placing reporting at that disaggregated strains on the data manage- level,” he explains. ment infrastructures of international banks that they were not Resource-intensive issues,” he wrote. Today, O’Con- The challenge, it seems, is to to become embedded across dif- designed to withstand. Banks reporting nell is no less concerned. create a data governance and ferent functions, including the have been throwing bodies at “I’d love to say best practice management structure that can front office. the problem, but experts believe David O’Connell, senior analyst is beginning to emerge, but regularly and rapidly churn out Aite’s O’Connell agrees, not- a more structured approach is for wholesale banking at Aite I’m just not seeing it,” he says. holistic and granular reports ing that “business requirements well overdue. Group, a consulting firm, flagged “Banks are discovering holes from across disparate business for applications used at the edg- According to Steven Hall, di- his concerns in a blog in March in the data that prevent them lines and data sets in a more au- es of the organisation need to rector, UK head of banking risk 2014 in response to the Federal from reporting risks accurately, tomated, resource-efficient fash- be broadened to encompass the and Basel III, KPMG, policy-mak- Reserve’s first round of CCAR or they are finding data sets to ion than banks are using today. data requirements at the cen- ers want banks to be in a position tests, which raised objections be unstable. Overall, the effect It’s a big ask, but there are a num- tre” and that banks continue to to provide good-quality data at to four banks’ submissions. “Al- of complying with stress tests is ber of paths forward. The core be dissatisfied with their invest- both an aggregated and disag- though the Fed used the term taking vital resources away from task of establishing and main- ments in data warehousing. A gregated level. “Banks must be ‘qualitative’ nebulously to de- the core business.” taining a robust data architecture greater responsibility for data able to aggregate risks within scribe its objections, I’d bet the Banks’ efforts to monitor that can deliver aggregated risk quality in the front office is at and across business units within farm that data management and and report their risks are com- data requires both clear leader- the heart of a new concept – the the group, aggregate risks and risk analysis were two primary plicated by a number of recent ship and wide stakeholder buy-in, ‘digital back office’ – developed trends, such as the wider range suggests Marion Leslie, manag- by Gavin Slater, co-founder of of activities and transactions ing director pricing and reference technology solutions provider of for which they must collate and services, Thomson Reuters. Stream Financial, in response to retrieve data, a rapid expan- “The chief data officer doesn’t the reporting and controls chal- sion in the volume and veloci- necessarily manage all the data lenges faced by banking clients ty of static data they produce assets, but has responsibility for in the post-crisis era. and consume, and the broader knowing what they are and who In short, Slater argues that variety of communication and owns them and the life cycle of the traditional operating mod- data types they use in the price the content, as well as under- el, whereby data is sent from or decision discovery phase. standing the data needs for re- the front to the back office for “Voice and chat room interac- porting, etc.,” she says. centralisation, compliance and tions are being recorded and a control purposes, meets neither variety of contextual data inter- Sharing responsibility the needs of internal clients or actions must be retained. Banks external regulators, without need to consider how best to Leslie argues that business units costly manual workarounds. In store and manage a disparate and central functions can work particular, the process of data range of data sets, and analyse together more closely to ensure adjustment and aggregation un- them, increasingly in real time,” data management requirements der the prevailing model weak- says Michael Cooper, chief tech- become an integral part of the ens the effectiveness of control nology officer, BT Global Bank- IT strategy, while responsibili- monitoring and the accuracy ing & Financial Markets. ties for data management need and timeliness of reporting. In

Banks need to consider how best to store and manage a disparate range of data sets, and analyse them, increasingly in real time.

Michael Cooper, chief technology officer, BT Global Banking & Financial Markets

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

Sibos, powered by SWIFT. Sibos Issues 2 www.sibos.com www.swift.com TECHNOLOGY From Basel to ‘business as usual’ continued from page 2

A federated approach gives banks the flexibility at the local level to adapt to new regulatory requirements.

Gavin Slater, co-founder, Stream Financial

Centralised Back Office

Front Office (Customer)

Business Business Business Business Unit 1 Unit 2 Unit 3 Unit 4

Data Provision

Functionality Implementation, Control Calculation & Monitoring Back Office (Service Provider)

Back Office (Service Provider) the digital back office, recent now provides the functionality Mindset shift Risk advances in computing power to calculate metrics required for are leveraged in a structure that internal and external reporting. While more intense reporting Finance implements the functionality re- “Under a federated approach, requirements are certain to be Compliance quired to support data manage- data can remain at the business a permanent part of the bank- ment and calculations within unit or subsidiary level, fulfilling ing landscape – and as such the systems of each business local requirements, but it must demand a long-term and stra- unit, in accordance with stan- also be available to be queried tegic response from individual dards and rules set centrally. and interpreted centrally under a firms – they must also be set Digital Back Office Under this approach, the back set of common rules. This feder- alongside banks’ responsibil- office is still responsible for ated approach also gives banks ities to their clients and their Front Office (Service Provider) monitoring essential controls the flexibility at the local level to shareholders. As Aite’s O’Con- and on-demand aggregation of adapt to new requirements from nell implies, it is unsustainable Business Business Business Business near-real-time data across busi- a regulator in a particular juris- and ultimately unprofitable for Unit 1 Unit 2 Unit 3 Unit 4 ness units. But the front office diction,” explains Slater. banks to continue to ‘throw

Functionality Implementation, Control Calculation & Monitoring Overall, the effect of Aggregation, complying Control, Exception with stress Management tests is taking vital resources away from the Back Office (Customer) core business. Risk Finance David O’Connell, senior analyst, wholesale banking, Aite Group Compliance

bodies at the problem’. For Les- making. Having the ability to lie at Thomson Reuters, banks aggregate data across the firm need a mindset shift, regarding can generate insights about regulatory requirements as not the internal performance of the necessarily a cost but a growth firm, both overall and of individ- enabler. uals, while external views of the “Look beyond the require- customer can ‘become 360-de- ments and think about how gree’, enabling the organisation they can help you do business to both understand and better – forward-looking risk manage- serve the needs of the custom- ment can be an aide to decision er,” she says. n

Sibos, powered by SWIFT. Sibos Issues 3 www.sibos.com www.swift.com REGULATION No end in sight continued from page 1

No one can really foresee what banks will actually look like in five years’ time.

Kevin Nixon, risk and regulatory leader, Deloitte

the layering effect of regulation, resulting from the fact that problems highlighted by the financial crisis have been tackled on a case-by-case basis, with less consid- eration of the overall impact than might have been expected. A clear example is the Basel Commit- tee’s efforts to strengthen the resilience of banks. While Basel III comprises oner- ous capital, liquidity and leverage ratios, the Basel Committee has pressed forward by the Group of 20 in 2009 to monitor Nixon compares this complex reg- certainty over exactly how the regula- in recent months with further initiatives, and make recommendations about the ulatory landscape to a set of powerful tions will evolve, the need for flexibility including revisions to the capital frame- global financial system, has consulted on levers that have been lined up to tack- is paramount. work for securitisation exposures and a proposals for minimum total loss-absorb- le individual problems, but it is only “Over the past two years, firms have fundamental review of trading book cap- ing capacity, an additional tier of capital now, several years into the reform pro- been trying to understand the direction ital standards. to be held by global systemically import- gramme, that bodies such as the FSB of travel of regulation and formulate Meanwhile the Financial Stability Board ant banks to ensure they can be resolved and the Basel Committee are turning their business strategies accordingly, (FSB), the international body established without recourse to taxpayer funds. their attention to the consequences of but I don’t think anyone is really com- pulling those levers simultaneously. fortable that they know where this will One consequence, Nixon believes, will be a tendency for large banks to oper- ate abroad as subsidiaries rather than branches. “Regulators want to ensure that all banks in their jurisdiction are sufficiently liquid and well capitalised, which is seen to be better achieved through a subsidiary than a branch. But The average age while a subsidiary might be safer and easier to resolve, it does make it hard- of securities er for banks to move money across borders,” Nixon explains. processing Flexible models systems in Europe

Meanwhile as local regulators implement is in excess of 18 globally-agreed standards in national ju- years and the cost risdictions, the risks of concentration and fragmentation stalk the markets hand-in- of upgrading them hand. Concentration of business among a smaller number of banks is a natural con- is just prohibitive. sequence of heightened barriers to entry. But for global markets such as OTC deriv- Rob Scott, head of custody and collateral atives and foreign exchange, national in- solutions, Commerzbank terpretations of global principles lead to fragmentation of markets, with business often migrating to the most favourable all end. There has to be an element of regulatory regime. flexibility built into business models Faced with such a complex web of so that they can address changing re- regulations and consequences, most quirements,” says John Lehner, chief banks cannot escape the need to make executive of BNY Mellon Technology fairly fundamental changes to their Solutions. business models, while still having to The increased costs and uncertainty satisfy shareholders and achieve reve- facing banks could play to the strengths nue growth. But with the continuing un- of firms such as BNY Mellon that offer

We must not lose sight of the long-term benefits of limiting the costs to society that financial crises cause.

Stefan Ingves, chairman, Basel Committee

Sibos, powered by SWIFT. Sibos Issues 4 www.sibos.com www.swift.com REGULATION No end in sight continued from page 4

Variable cost models are now becoming attractive for a broader swathe of banks.

Alan Cameron, head of relationship management for international banks and brokers, BNP Paribas Securities Services

outsourced services. Most outsourcing providers might historically have targeted smaller banks that struggled to do everything in-house, but some larger banks are now considering strategic partnerships with outsourcing providers and technology vendors as a means of tackling the cost pressures they face. “The cost of regulation is making it much more difficult for banks to reach their target return-on-equity, which has led to huge belt-tightening across the industry and a drive to outsource post- trade processes. Outsourcing allows Tip of the iceberg? do that without any outside help,” says Leh- “For the next three to four years, we them to move from a fixed cost model to ner of BNY Mellon Technology Solutions. will see two major trends,” says Scott. a variable cost model, which tends to be SocGen and Deutsche Bank may be just Whether or not banks opt for out- “Banks will be redefining their strategies, particularly popular for smaller firms, but the first of many large banks to look to sourcing as a means of modernising their which may include pulling out of some it is now becoming attractive for a broad- outsourcing as a way of modernising and technology and gaining efficiencies in a business, and then looking at better ways er swathe of banks,” says Alan Cameron, streamlining their technology to facili- cash-strapped environment, there will be of managing service provision, whether head of relationship management for tate business growth. no escape from the impact of regulation through outsourcing or other strategic international banks and brokers at BNP “Everyone is struggling with cost as a this year. partnerships.” n Paribas Securities Services, also an out- result of regulation, and some of the big sourcing provider. universal banks have been very proactive One example of a large bank that has in offshoring headcount to low-cost loca- outsourced its back-office securities pro- tions. But the average age of securities cessing is Societe Generale Corporate processing systems in Europe is in excess & Investment Banking, which in 2013 of 18 years and the cost of upgrading became the first client of Accenture them is just prohibitive, so there is a ma- Post-Trade Processing, a joint venture jor focus on outsourcing,” says Rob Scott, between Accenture and Broadridge Fi- head of custody and collateral solutions nancial Solutions to help banks reduce at Commerzbank. their processing costs and adapt to new While the increase in costs might be regulations and technology. a significant driver of any move towards More recently, Deutsche Bank an- outsourcing, the complexity of meeting nounced in February that it had entered jurisdictional or market-specific require- into a 10-year multi-billion dollar agree- ments using in-house technology also ment with Hewlett-Packard to mod- plays its part. ernise the bank’s IT environment and “Outsourcing used to be all about cost, reduce related infrastructure costs. HP and that is still a large part of the equation, will provide dedicated data centre ser- but banks are also considering how they can vices to Deutsche, and the bank plans to access the people, expertise and technolo- upgrade and reduce the number of its IT gy to comply with complex requirements applications, migrating them onto the if they want to move into new products or HP platform. markets. It can be a risk to the business to

There has to be an element of flexibility built into business models so that they can address changing requirements.

John Lehner, chief executive, BNY Mellon Technology Solutions

Sibos, powered by SWIFT. Sibos Issues 5 www.sibos.com www.swift.com COMPLIANCE The return of relationship banking Knowing your customer is much more than a regulatory requirement; it’s a business imperative.

Rigorous due-diligence re- their monitoring, their staffing, standing of local laws and local quirements can be a “significant their governance. It becomes compliance, having a local legal impediment” to the bank-to- a matter of: do we know their team involved, is really import- bank relationships that under- customers’ customers and their ant. The rules vary country by pin global trade, says the Asian transactions and what risks country, so you have to adjust Development Bank’s ‘ADB Trade their products go through?” country by country.” We have fewer customers than Finance Gap, Growth, and Jobs Survey’ (ADB Brief no. 25) of De- Taking a deep dive A burden on growth? we used to have, but we go cember 2014. Compliance with much deeper with them. today’s anti-money laundering Mark Gem, chief compliance of- For the ADB’s Beck, a key issue (AML) and know-your-customer ficer at international central se- is the impact of financial crime Michael Cho, head of global financial institutions compliance, Wells Fargo (KYC) rules can be “the driver curities depository Clearstream, compliance efforts on economic behind cancelled relationships,” agrees that the need to under- growth, particularly in emerg- the survey continues. stand one’s own business and ing markets where informa- strategy is to engage – with cor- are entertaining a relationship “I don’t think anyone’s say- that of clients at a deeper level tion – and significant deal flow respondent banks, and with mar- with a business partner as an ing that financial institutions gives a different perspective: – may not be readily available. kets, and with the discussion it- equal, you find yourself natu- shouldn’t improve their AML/ “Compliance forces you to ask “A financial institution operat- self. Commenting further on the rally asking curious questions KYC processes, but there are very basic questions about the ing in multiple jurisdictions and stimulation/regulation balance, about their business,” he adds. unintended consequences,” business model that in other having to spend a lot of money Beck says: “It’s a difficult ques- says Steven Beck, head of trade roles, you just take for granted.” on due diligence, with a num- tion as to where the line needs Good for business finance, Asian Development But this can be a valuable experi- ber of relationships in smaller to be drawn. We’re having the Bank. So how should banks most ence suggests James Freis, chief markets that don’t necessarily discussion to some extent, but it The safe approach to due dili- effectively conduct their corre- compliance officer for Deutsche justify that cost, might be in- needs to come to the fore.” gence is to know your custom- spondent and other key banking Börse Group (Clearstream’s par- clined to pull out of markets And in the meantime, what er – but the safest approach relationships, given the in-depth ent). “More so than ever before, entirely. In a disproportionate is the safe approach to due to doing that is by nurturing a and ongoing due diligence that banks need to understand about way, this is damaging emerging diligence? “deep and mutually beneficial” they must apply? the source of a payment, who markets,” says Beck. On the one “We should not lose sight of relationship. Happily, that also In the current regulatory the customers are that are in- hand, central banks are working what KYC actually means – that turns out to be the cost-effec- and geo-political climate, per- volved in the payment, and what to stimulate economic growth you know your customer,” says tive approach because both haps the answer is this simple: is the type of activity that is be- a customer worth knowing will hind the payment,” he says. quickly recognise the potential There is scope for much and actual benefits to such a deeper understanding between deep investigative dialogue. counterparties here. Cho con- Michael Cho, head of global fi- tinues, “Knowledge share is nancial institutions compliance, much better. One thing we’ve Wells Fargo, says, “The need for tried to focus on is doing busi- enhanced due diligence is not ness with people who believe A financial institution with just a regulatory expectation what we believe, in terms of any more, but something that who they will and won’t bank, relationships in smaller the banks have truly come to and the controls they use.” But markets that don’t necessarily appreciate.” this is not a matter of scale. “It For the larger US banks, as doesn’t mean that we will only justify that cost might be Cho goes on to explain, the on- do business with large banks, or going tightening of rules on fi- banks that are the same size as inclined to pull out entirely. nancial crime compliance has us, but from a risk-appetite per- been a key regulatory theme spective, does a bank share our Steven Beck, head of trade finance, Asian Development Bank for more than a decade. For the beliefs? If they don’t, that may smaller firms with which those be okay, but it’s going to take a via various forms of quantita- Clearstream’s Gem. “If the re- sides will tend to have an incen- major banks have relationships, lot more effort and cost on our tive easing initiatives delivered lationship is deep and mutually tive to share information. Gem or those in less regulated juris- part,” Cho explains. through banks, he notes, while beneficial, then the challenge suggests a positive change in dictions, awareness levels are Does this imply that there on the other, the same central will be simply evidencing how tone. “Relationships are defi- lower. “At first, the need to go might be regional differences in banks and governments are un- well you know your customer. nitely more selective, there’s out and ask a lot more questions banks’ approaches to KYC/AML? intentionally “impeding” banks’ If it’s shallow and unilateral, no question about that, and I was met with some resistance,” How do extra-territoriality con- ability to deliver more liquidity you’re going to have to invest in would like to think that they are says Cho. “Going out and truly cerns alter the responsibility of into the market by adding to acquiring that knowledge from deeper and richer,” he says. On knowing your customer means banks? “You do have to adapt their regulatory burdens. people who have no real incen- this point, Freis concurs: “Banks knowing a lot more today than regionally,” says Cho. “Making But if economic growth implies tive to give you what you need.” are being much more careful just asking about their tools, sure that you have good under- opportunity, just as an emerging Key word: relationship. Gems about choosing the relation- market offers the prospect of notes that senior relationship ships in which they want to be greater deal flow in future, per- managers tend to find KYC eas- involved.” Perhaps summing haps the appropriate long-term ier than do their juniors. “If you up the post-crisis zeitgeist, Cho says, “We have fewer customers than we used to have, but we go much deeper with them.” Knowing our clients is more than a regulatory requirement – a business model built on doing If the relationship is deep business with complete strang- ers contains greater, possibly and mutually beneficial, then unacceptable risks. But if it is the challenge will be simply to be meaningful, the KYC obli- gation needs to go beyond com- evidencing how well you know pliance. “Conduct needs to be seen, if not from an ethical then your customer. at least from a behavioural standard, rather than simply a legal Mark Gem, chief compliance officer, Clearstream standard,” Gem observes. n

Sibos, powered by SWIFT. Sibos Issues 6 www.sibos.com www.swift.com MARKET INFRASTRUCTURES Bridging the gap to real-time payments Australia’s New Payments Platform could provide the blueprint for retail payment transformation.

In a world where instant mes- puts pressure on many of the saging, streaming movies and underlying processes, such as same-day delivery are common- identifying suspicious transac- place, it seems almost archaic tions or systems maintenance.” NPP will be good for the Australian economy that most countries’ retail payment systems can take hours A complex and good for Australian consumers and or even days to finalise money undertaking transfers. In most places around businesses. the world this remains the case The complexity and costs in- though increasingly banks are volved in redesigning bank pay- Paul Lahiff, chair, New Payments Platform under pressure from regula- ment systems and operations tors, customers, merchants and from the ground up, while also infrastructure provider. “We are phone number or, e-mail ad- customers and the wider econ- tech-savvy competitors to up being mindful of regulatory embracing electronic payment dress; and omy? “The NPP is the payments their game and move towards and legal obligations placed on methods – cards (particularly ■■a fast settlement service equivalent of a new highway or real-time payments. banks, explain why even today, contactless or ‘wave and pay’ (FSS) developed and operat- a new bridge,” says Lahiff. “Such While the average consumer only a handful of countries have technology), BPAY, direct entry ed by the RBA, which settles things are more than nice-to- might be forgiven for thinking completed the transition to re- – and new technologies such as payments individually with haves – they’re about supporting payments are already a real-time al-time payments. smartphones. Our world has be- finality and guarantees the economic development. The NPP activity (you can swipe your cred- Currently just 18 countries come faster and the payments payment irrevocability, on a will deliver a new national infra- it or debit card and receive goods offer real-time retail payments, industry is responding. We need 24/7 basis. structure equipped to meet the instantly), the reality is that bene- though they include some very to upgrade the basic infrastruc- In addition to these technol- evolving payments needs of Aus- ficiaries are often left waiting for large markets such as China, ture so this evolution can contin- ogies, the NPP uses message tralians. This will be good for the their money, something which is India and the UK, while 12 more ue. It is a long-term investment standards based on ISO 20022 Australian economy – accelerating increasingly viewed as unaccept- are currently planning or devel- in supporting the Australia’s to transfer richer purchase infor- the circulation of money through able in the digital age. A grow- oping their real-time payment economic future.” mation, giving banks opportuni- the economy – and good for Aus- ing number of regulators are systems, including the United ties to develop value added ser- tralian consumers and businesses demanding banks upgrade their States and the euro-zone. Linking the past, vices beyond the payment itself. – enabling new safe options for payments technology or agree- SWIFT has entered the fray present and future Using ISO 20022 will mean the them to make payments faster.” ments in order to support imme- hoping to leverage banks’ exist- implementation is simpler and Immediate payments should diate fund transfers, anywhere ing SWIFT messaging infrastruc- The project consists of four cheaper as most existing finan- be particularly beneficial for and anytime. Simultaneously, ture and capabilities to help na- major technology components cial infrastructure and software small businesses, many of which banks are looking rather out of tional banking systems support – provided by SWIFT and the today is based on or interoper- have minimal credit facilities. date compared to many new en- real-time retail payments, and is RBA to NPPCo, the new Austra- able with this global message Getting payments just in time trants to the payments space, currently working with Austra- lian company that will own the standard framework. Significant- means they can put that mon- with the likes of PayPal, Google lian banks. NPP. The components will come ly, this should overcome any po- ey to work again more quickly and Amazon all offering instant The Reserve Bank of Austra- together to enable all banks in tential difficulties in communica- to expand their business, hon- transfers around the clock. lia (RBA) has acted as the main Australia to clear and settle re- tion and data transfer between our their liabilities and limit Marie-Christine Diaz, senior catalyst for the change, by pub- tail payments in real time: parts of the Australian banking their stocks. With many coun- solution manager at SWIFT, lishing a report which identified ■■the private SWIFT network, system built on modern technol- tries around the world keen to sums up the main problems fac- gaps in the country’s retail pay- which includes a domestic ogies and standards and those strengthen their small and me- ing banks: “Existing payments ment system, including timeli- messaging channel enabling still using legacy systems. dium-sized enterprises, it seems systems have been in place for a ness, availability and data capac- the exchange of a high vol- SWIFT hopes the Australian inevitable that they will seek long time and aren’t really com- ity for electronic payments. But ume of messages at low la- model will provide an example of to remove obstacles such as patible with the rapid payments there are also long-term strate- tency with data integrity; how domestic banking systems out-dated payments infrastruc- needed to support real-time or gic reasons for Australian banks ■■the SWIFT workflow engine can move to real-time retail pay- ture through regulation. a 24/7 availability. When you to upgrade their payments infra- which acts as a payment ments relatively painlessly. SWIFT expects the demand speed up the transfer and ex- structures. gateway, handling clearing “While the rules and guide- for real-time payments systems tend the service availability it “Australian payments have and settlement flows in a lean lines can vary from country to to increase and hopes its experi- become increasingly electronic way, message by message; country, many of the solutions ence gained working in Australia and market-driven, and our ex- ■■an in-country addressing will be similar. We want our com- and its global role in handling isting payment methods have database, which allows pay- ponents to NPP to provide a ba- payments messaging and set- served us well,” says Paul Lahiff, ments to be routed to the sis for extending similar systems ting industry standards will en- chair of New Payments Platform beneficiary based on person- to other parts of the world,” able it to bring similar projects (NPP), Australia’s new payment al identifiers such as a mobile explains Carlo Palmers, senior to other parts of the world. market manager, SWIFT. “While For Australia’s NPP, the design banks differentiate with each phase is entering its final stages, other in terms of end-user ser- with full details due in July 2015. vices, they do not want to have However, the scale of the project to start from square one each means other aspects of the NPP time for their underlying pay- have already begun, including in- While the rules and guidelines ment infrastructure,” adds Diaz. dustry test plans, connectivity and the development of new rules and can vary from country to Business benefits operating procedures. The NPP is due to go live in the second half country, many of the solutions Given the high costs and ma- of 2017, still some two years away, jor infrastructure development highlighting an ambitious time-to- will be similar. required to support real-time market never previously achiev- payments, how will projects like ing when making the generational Carlo Palmers, senior market manager, SWIFT NPP deliver real benefits to bank shift to real-time payments. n

Sibos, powered by SWIFT. Sibos Issues 7 www.sibos.com www.swift.com Get ready for Sibos 2015 Singapore

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Communications debates and sessions. NS23 CE1 BAYFRONT We look forward to welcoming COLLYER QUAY you in Singapore. Kim Bratanata NS23 NS26/ EW14 [email protected] RAFFLES PLACE M A R IN A B O U L E V A R D Sven Bossu M A R IN A G A R D E N S D R IV E BAYFRONT AVE

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Sibos, powered by SWIFT. Sibos Issues 8 www.sibos.com www.swift.com Get ready for Sibos 2015 Singapore

Venue Sibos Join the Stay Travelling to contacts conversation connected Singapore

ROBINSON ROAD

Head of Sibos SHEARES AVE

M A R IN A B O U L E V A R D

MARINA GARDENS DRIVE

MARINA PARK

MARINA MALL

Sibos, powered by SWIFT. Sibos Issues 9 www.sibos.com www.swift.com ASIA Following in the footsteps of giants Can Asia’s major financial centres profit from second mover advantage when implementing G-20 derivatives market reforms?

When the political leaders and central bankers of the Group of 20 identified the OTC derivatives markets as a major source of systemic risk in 2009, they gave the industry until the end Reporting of 2012 to implement key structural reforms. In the event, they requirements were disappointed. Even the US, by far the world’s biggest OTC have increased derivatives market, struggled to the need to introduce trade reporting, central clearing and electronic trad- improve and ing platforms in time. Other major markets – such as Japan and automate Europe – came next but experienced troubles along the way. matching and Europe’s ‘big bang’ approach to the introduction of central re- confirmation porting in February 2014 caught market participants unprepared, capabilities. resulting in many incomplete Simona Catanescu, director of and unmatched trades in the post-trade markets, Asia-Pacific, months that followed. Japan im- SWIFT plemented reporting before the global framework for legal entity identifiers – codes that identify individual counterparts to transactions – had been finalised and latterly had to re-jig its reporting framework to accommodate them. Ex-Japan, Asia’s other affect- ed derivatives markets large- Fast-growing economies, typi- of which Japan accounts for finance hubs, reforming their tary Authority of Singapore, for ly fall into two very different cally with capital controls and around half. This means regula- OTC derivatives markets in the example, introduced reporting categories. First, mature inter- less outward-looking financial tors in Asian markets have felt shadow of Europe and the US requirements for OTC deriva- national finance hubs such as markets, notably China and In- less pressure to rush into re- has required a balancing act. On tives starting with interest rate Australia, Hong Kong and Sin- dia, have also started reporting, forms – because the risks they the one hand, Australia, Hong swaps and credit default swaps gapore are closely bound by but have already pushed ahead present to the global financial Kong and Singapore have fol- (relatively low-volume instru- European and US precedent and with central clearing of major system are lower than Europe lowed in the footsteps of their ments in Singapore), before have largely implemented trade asset classes. and the US. “But it’s also worth western counterparts – learning mandating centralised report- reporting, but they are still en- Asia conducts a relatively remembering that many Asian from their mistakes and building ing in the much bigger non-de- gaged in market consultation small share of global OTC de- jurisdictions were not starting on their successes. On the oth- liverable forward market. exercises on central clearing. rivatives trading, roughly 8%, from the same point as Europe er, market participants and in- Simona Catanescu, director of and US in terms of underlying frastructure operators in these post-trade markets, Asia-Pacific legislation. Much more ‘spade- hubs have had to comply very at SWIFT, says the staggered in- work’ was required to pass leg- precisely with European and US troduction of reporting require- islation to allow for trade re- rules to continue trading on a ments has led to growing levels porting and the creation of a global scale. of interest among market partic- trade repository, for example,” In terms of reporting, Aus- ipants in post-trade automation. observes Rebecca Terner Len- tralia, Hong Kong and Singa- “Firms have been evaluating the tchner, head of policy and regu- pore have eschewed a ‘big solutions and vendors over the latory affairs for the Asia Securi- bang’ approach and have intro- last 18 months. Reporting re- ties Industry & Financial Markets duced requirements gradually quirements have increased the Association (ASIFMA). by asset class and by type and need to improve and automate size of firm. But they have coor- matching and confirmation ca- Balancing act dinated to ensure their report- pabilities.” ing requirements are as similar Automation at the confirma- As such, implementing G-20 as possible to the rules with tion and matching stage helps reforms has been a slow and which global market partici- the reporting process because it painstaking business. Partic- pants have already complied in can provide market participants ularly for Asia’s international Europe and the US. The Mone- with greater certainty that they are sending clean transaction data to trade repositories that meets the regulator’s requirements. “There is a long tail of small firms that still confirm trades by fax or voice. For many larger counterparties, it is more Many Asian jurisdictions were cost-effective to pay for the in- not starting from the same stallation of a terminal at such firms than to allow them to point as Europe and US in maintain manual confirmation. These terminals allow smaller terms of underlying legislation. firms to generate a SWIFT confirmation message at the touch Rebecca Terner Lentchner, head of policy and regulatory affairs, ASIFMA of a button, which its larger

Sibos, powered by SWIFT. Sibos Issues 10 www.sibos.com www.swift.com ASIA Following in the footsteps of giants continued from page 10

Costs will come back down again over time, if firms are permitted to offer cross- margining across different instruments.

John Warren, head of business development and post-trade processing, APAC, SunGard

counterparty can then process,” this as part of their competi- In respect of central clearing, as a QCCP results in higher capi- will increase costs. The increase says Catanescu. “From an in- tive service offerings, but others the relationship between east tal charges for users under Capi- in the number of CCPs clearing ternal perspective, those larg- worry about the liability aspect and west is more complex. While tal Requirements Directive IV. derivatives in Asia could have a er firms will also be looking to of reporting on behalf of cli- Asia’s international finance hubs “Ceding national law to oth- negative impact from a liquidity streamline and consolidate their ents,” says Keith Noyes, regional continue consulting on their er overseas authorities never and collateral perspective. But matching capabilities, perhaps director, Asia Pacific at the In- frameworks for introducing cen- sits well with any regulator. But costs will come back down again reducing multiple legacy sys- ternational Swaps and Deriva- tral clearing, entities regulated financial markets regulators over time, if firms are permitted tems involved in the process to tives Association. in those jurisdictions have had in the Asia-Pacific region are to offer cross-margining across just one or two.” In Singapore, SWIFT’s Cata- to seek additional regulatory ap- co-operative and are not in the different instruments.” nescu observes that buy-side provals in Europe and the US to business of regulatory arbi- Singapore in particular could Taking control firms are increasingly keen to do business with counterparts trage,” says Terner Lentchner. be a centre for competition and exert greater control over their registered in those markets. fragmentation, with the Inter- While a number of asset manag- efforts to meet regulatory re- The central counterparties Costs and continental Exchange planning ers in Europe responded to the quirements, rather than dele- (CCPs) of the incumbent ex- opportunities to launch ICE Clear Singapore introduction of OTC derivatives gate them to brokers, which may change groups of Australia, in the first half of the year, and reporting requirements by del- in any case only have a partial Hong Kong and Singapore have Both ESMA and the US Commod- Frankfurt-based derivatives ex- egating responsibility to their view of their derivatives activi- invested to gain qualified CCP ity Futures Trading Commission change Eurex hoping to estab- broking counterparts, a number ties. “Asset managers are work- (QCCP) status under the prin- have taken further steps to rec- lish a clearing house in the Lion of factors have resulted in a dif- ing with vendors and IT bou- ciples for financial market in- ognise the jurisdictions of major City in 2016. Increasing competi- ferent outcome in Asia. “Some tiques to ensure compliance,” frastructures laid out by the Asia financial hubs as equivalent tion could lead to an aggressive brokers are happy to provide she says. Committee on Payment and Set- in recent months, thereby eas- approach among CCPs to offer- tlement Systems and the Inter- ing the course of international ing cross-margining opportuni- national Organization of Securi- derivatives trading relationships ties to win market share, subject ties, but that doesn’t guarantee in the post-G20 environment. to regulatory approval. the right to compete globally. But the emerging OTC de- Large or small, east or west, To be recognised in Europe rivatives trading environment one of the major challenges as a QCCP, foreign CCPs must is still far from complete, as for entities implementing the apply for recognition to the Australia, Hong Kong, Singa- G-20’s derivatives reforms pro- European Securities and Mar- pore and others look to finalise grammes has been the require- kets Authority (ESMA), which their rules and timetable for ment to comply with other planks involves determining country central clearing. According to of the post-crisis settlement in equivalence by the European John Warren, head of business parallel, specifically Basel III. Commission, an assessment of development and post-trade But for SunGard’s Warren, the compliance with regulations and processing, APAC, SunGard, the increased demand for collater- law that are ‘equivalent’ to the reforms mean both costs and al, driven in part by tougher risk European Market Infrastructure opportunities for brokers op- capital requirements for banks Regulation, and the signing of erating in the region. “Bilateral under Basel, is creating oppor- a MoU between ESMA and the derivatives users understood tunities too. “Banks must devel- local competent regulatory au- the prevailing pricing structure, op a cross-asset view of clients, thority. Failure to be recognised but mandated central clearing providing a more cost-effective use of client assets across the full range of transactions. But firms in this region are different stages: those that have a more accurate view of their collateral due to projects conducted over the last 12-18 months are now focusing on optimisation. Brokers worry about the The opportunities differ across liability aspect of reporting on Asia, with the vanilla collateral eligible in Singapore offering behalf of clients. less opportunity for optimisation than Japan, where there is Keith Noyes, regional director, Asia Pacific, ISDA a greater mix,” he says. n

Sibos, powered by SWIFT. Sibos Issues 11 www.sibos.com www.swift.com CORPORATES Sending out a global message Banks, corporates and vendors are working together to override local payment difficulties.

A common global implemen- quickly to ISO 20022,” says remit is to broker agreement tation of anything sounds like Hamilton. Elsewhere, Brazil and between banks, end-users and a proposition fraught with diffi- China have announced support vendors through consultation culty from the outset. We may for ISO 20022 XML, and it is also and collaboration on common live in an increasingly global- the basis for Russia’s new debit implementation templates for ised world where business flows card scheme. ISO 20022 financial messages in freely across national borders, Yet, like any standard, ISO the payments domain. “We want yet most countries still seem to 20022 is open to interpretation to maintain the integrity of the pride themselves on doing cer- and has the potential to sup- standard and avoid fragmen- tain things differently. Voltage port many different processes tation,” says Harri Rantanen, requirements and railway gaug- and practices. That is where the manager, formats and standards es still vary between countries, Common Global Implementation at SEB Merchant Banking, and and domestic payment infra- Market Practice group (CGI-MP) co-convenor of the CGI-MP. Companies need to move to a structures continue to support comes in. The group was initial- CGI-MP’s current scope is di- a wide range of messaging for- ly established in 2009 by large vided into five working groups: more flexible infrastructure. mats. For large, multinational multi-banked corporates which credit transfer & payment sta- companies trying to do business boasted highly centralised trea- tus; cash management report- Fiona Hamilton, vice president, EMEA and Asia, Volante Technologies with multiple banks and coun- sury operations but wanted to ing; direct debit and mandates; terparts across the world, the rationalise the number of mes- electronic bank account man- lack of a globally standardised saging formats they had to deal agement; and bank services dates,” says David Blair, who has ment of the banks’ and ERP messaging format for payments with on a global basis. “Now billing. The working groups de- 25 years of management and vendors’ ability to support the remains a major pain point. within CGI-MP you see a much velop harmonisation guidelines treasury experience in global globally harmonised use of ISO “It’s a massive headache,” broader footprint of corporates for each message incorporating companies such as Nokia and 20022 in corporate-to-bank in- explains Fiona Hamilton, vice feedback from members. Four Huawei, and has followed the tegration. It also forms the basis president, EMEA and Asia for times a year, CGI-MP plenaries CGI-MP closely since its incep- of many countries’ efforts to de- financial messaging and data in- vote whether to accept these tion. “That is not a CGI-MP prob- fine and document national and tegration solutions provider Vo- guidelines. “It is a democratic lem, but it will require changes regional guidelines for the same lante Technologies, referring to approach,” says Rantanen. “We to market infrastructure.” purposes. “These guidelines the host-to-host links and inter- have dedicated people working Bank services billing could also should not be in conflict with faces that large multinationals on the specific aspects of the be an area where CGI-MP finds those of the CGI-MP, otherwise have had to maintain to commu- message and then we have the it difficult to build consensus. the global use is jeopardised nicate with their payment banks. from the corporate point-of- “Companies need to move to view,” he explains. a more flexible infrastructure Blair believes that the CGI-MP, so every time they choose to under the auspices of SWIFT, is change payment banks they corporates’ best hope of achiev- know it’s not going to be a huge We want to maintain the ing standardisation. “Corpo- multi-year project.” rates benefit from using the Help may be at hand with the integrity of the standard and same messaging across differ- ISO 20022 messaging frame- ent banks and vendors have less work starting to enjoy wide- avoid fragmentation. complexity to handle,” he says. spread adoption by banks, cor- But more corporates should porates and payment market Harri Rantanen, manager, formats and standards, SEB Merchant Banking, get involved, he adds, to ensure infrastructures as the common and co-convenor, CGI-MP their voice is heard. “There’s XML standard. In the euro-zone, clearly a need in the corporate the European Commission’s that have grown in size and common approach at the plena- “CGI-MP will create the expecta- market place for more educa- end-date regulation for the Sin- global reach, and really need to ry level.” tion that all banks will be able to tion and we want to leverage gle Euro Payments Area (SEPA) standardise their banking inter- One of CGI-MP’s success do bank services billing because greater acceptance both on the stipulated that corporates send- faces,” says Tom Durkin, global stories, says Rantanen, is the there is a standard,” he explains. bank and the vendor side,” says ing payments in the region must head of integrated channels at significant progress made on But there is often little transpar- Durkin of BofAML. adopt the ISO 20022 XML stan- Bank of America Merrill Lynch, a messaging guidelines for cred- ency around how banks bill their With so many varied and com- dard. “SEPA changed the goal founding member of CGI-MP. it transfers, with tens of differ- customers, he adds, and some peting interests, reaching con- posts as a lot of the world’s ent country-specific definitions may prefer to keep it that way. sensus between all parties in largest corporates had to move Democracy in action included as an appendix to the CGI-MP can be difficult at times. base document. Whilst credit Local nuances However, Rantanen says it still CGI-MP is facilitated by SWIFT transfers are relatively straight- manages to get things done. and comprises approximately forward, agreeing base har- Although CGI-MP is focused on “In the 25 years I’ve worked in 130 members, including more monisation guidelines for more harmonising the way the ISO the area of standards, I haven’t than 40 financial institutions other payment messages, such 20022 messaging format is used experienced this kind of collab- and around 80 non-banks in- as direct debits, could prove in payments, Hamilton says do- oration. Banks and vendors can cluding corporates like Nike, more challenging. “When you mestic nuances are unlikely to still compete on service but not IKEA, General Electric, Merck start talking about direct deb- disappear altogether. “It is the on ISO 20022 implementation.” and vendors such as SAP, Volan- it mandate management many role of the market practice group Participation in CGI-MP is vol- te and SunGard. CGI-MP’s main countries still use paper man- to help corporates and banks untary and its shared benefits understand these nuances,” she are sometimes hard to quan- says. “As long as they know what tify for individual participants, they need to do in terms of the making its work vulnerable at a formatting and content of the time when banks and corporates message, then they can build a must contend with heightened more flexible infrastructure that regulatory demands. “How do allows them to send a payment you continue to justify the im- There’s clearly a need in the to a country without having to portance of this [CGI-MP] when corporate market place for hard code these nuances into you’re competing for investment back-end processes.” dollars with regulatory-driven more education. Rantanen says CGI-MP docu- initiatives?” asks Durkin. “There mentation is referred to in many needs to be a more cohesive Tom Durkin, global head of integrated channels, Bank of America Merrill corporate request for proposals message as to the importance Lynch as a requirement and measure- of initiatives like this.” n

Sibos, powered by SWIFT. Sibos Issues 12 www.sibos.com www.swift.com STANDARDS Community challenge ISO 20022 has caused a paradigm shift in how standards structure-driven with the pos- are adopted in securities and payments but the challenge of sible exception of investment funds. These means it is up to balancing flexibility with consistency remains. each market infrastructure and its community of users to de- cide on issues of version and As a standard, ISO 20022 has market practice. made its strongest impact on “XML messages bring a big interactions between market advantage in that we don’t need infrastructures and their com- to go through the yearly release munities. “There is increasing process to introduce new meta- evidence that ISO 20022 is be- We’ve now data and new data fields. That ing adopted for transformation- benefit certainly needs to be al projects,” says Stephen Lind- shown that preserved,” says De Pauw. “How- say, head of standards, SWIFT. ever, the drawback is that the He identifies the Single Europe you can same business objective can be Payments Areas as the most eliminate reflected in multiple variants of successful and far-reaching ISO XML messages.” The challenge 20022 project to date, where legacy – across both payments and 28 domestic legacy formats, securities – is therefore in the some of which were getting a standards once trade-off between the benefits little creaky, were replaced with of flexibility and the benefits of a single format for the whole of and for all. a standard remaining universal. Europe for credit transfers. “Of- “What we are seeing now is ten,” says Lindsay, “when intro- Stephen Lindsay, head of that global banks who have to ducing new standards, you don’t standards, SWIFT engage with an increasing num- necessarily solve the problem ber of market infrastructures, of legacy standards; you just all of them implementing ISO introduce one more. We’ve now 20022, may find each infrastruc- shown in the payments world ture operator doing things their that you can actually eliminate achieving measurable improve- own way with their own release legacy standards once and for ment in straight-through pro- cycle and their own version all by the use of ISO 20022, rep- cessing (STP) rates in the pro- management,” says Lindsay. resenting a real simplification of cess. In addition, says Edwin De He notes that the SWIFT’s the system.” Pauw, director and head of prod- standards team is actively en- On the payments side, Lind- uct management for Europe at gaging with market infrastruc- say also points to a move to- international central securities tures and other potential us- wards real-time retail payments. depository Euroclear, the secu- ers of ISO 20022 to establish a There are numerous schemes, rities industry is confronting a rities industry as a whole. “The infrastructure projects, where consensus on how to balance either live or in preparation, regulatory pipeline that is likely idea of a standard that would the standard can be deployed flexibility with consistency. “We moving domestic markets to- to keep systems development apply across industries and ser- from the outset. started last year with a meet- wards real time and the vast ma- resources within individual firms vices to provide end-to-end con- Euroclear itself sees a simi- ing at Sibos for about 20 mar- jority of those are adopting ISO occupied for the near future. sistency in the messages and in lar business case in the funds ket infrastructures, where we 20022 as their standard. “ISO 15022 allowed the core how different business data are market, which, De Pauw notes, is discussed this question,” says back-office processes to achieve defined and formatted is clearly still significantly fax-based. “Ad- Lindsay. “There was enthusiasm Regulatory pipeline industry-specific objectives. Fur- appealing,” he says. vancing STP in the funds indus- around the room for SWIFT to thermore, the business case for He sees the biggest opportu- try now demands a move direct take a coordinating role in ad- For the securities industry, the moving to ISO 20022 was less nities for ISO 20022 in the secu- to ISO 20022,” says De Pauw. dressing the issue.” attractions of ISO 20022 are, obvious than in the payment in- rities industry as enabling major “What we have done with funds perhaps, less immediate. Many dustry where they were working infrastructure projects such as is to focus initially on the big Exploiting securities market participants on an older standard.” TARGET2-Securities – the Euro- players. Once we have a com- MyStandards and infrastructure operators Nevertheless, says De Pauw, pean Central Bank’s cross-bor- munity of big players who repre- went through a major upgrade the promise of ISO 20022 re- der securities settlement sys- sent large volumes, then take-up De Pauw sees the starting point to ISO 15022 relatively recently, mains compelling for the secu- tem – and in domestic market from the rest of the industry can of the exercise as exploiting actually be quite quick,” he says. the benefits of MyStandards, SWIFT’s collaborative web-based Keeping everyone platform. “We could document onside the different message content used from each infrastructure Both Lindsay and De Pauw ac- deployment to compare the dif- knowledge that the flexibility of ferent usages of ISO 20022 in XML-based messaging – a key the same message field. In doing element of ISO 20022 – is both so, we highlight where different The idea of a strength and a challenge. “In routes have been taken for the a standard the MT world, it was a bit bru- same business objective,” he tal, but fairly easy to maintain a comments. that would common discipline,” says Lind- Lindsay agrees. “The first say. “Because the MT standard thing we would want to do is to apply across originated in the many-to-many make sure that every market space, it really wouldn’t work as infrastructure had a presence industries a standard if you had different on MyStandards, where they people on different versions at would publish both the versions and services the same time. “ of the messages that they use to provide Traditionally, the annual now and in the future,” he says. SWIFT standards release in No- “Ultimately, the notion that you end-to-end vember more or less dictated have a completely harmonised the pace of adoption. This had standards landscape with data consistency in the drawback of obliging users flowing seamlessly from one to invest in upgrades, regardless business process to another is the messages of the strength of the business a really desirable outcome.” By case. It did, however, have the Sibos 2015 in Singapore, Lind- is clearly massive advantage of ensuring say hopes to be able to point to compatibility between any users significant progress in achiev- appealing. on the network. ing buy-in for this approach, as Edwin De Pauw, director and head By contrast, says Lindsay, a basis for further engagement of product management, Europe, nearly all ISO 20022 implemen- with market infrastructures Euroclear tations have been market-infra- and their users. n

Sibos, powered by SWIFT. Sibos Issues 13 www.sibos.com www.swift.com SECURITIES Solutions emerge to There has collateral troubles been more Standardisation and automation are at the heart of the collaboration industry’s response to the collateral challenge. between industry participants There are two views on the securities industry’s progress on over the past collateral management: ‘we’ve come a long way’; and ‘there is year than I still a lot of work to be done’. Despite the contradiction, both have ever seen statements ring true. Looking at how the market before. has evolved to make more efficient use of scarce collateral in Ted Leveroni, executive director of strategy and buy-side relations, the evolving post-crisis regula- DTCC tory and macro-economic environment, there are causes for optimism. Market participants have a much better understanding of the same as they have been for a importance of real-time collater- while in regards to data manage- al management. The industry is ment and the standardisation of rife with collaboration (notably messaging, and the location of among market infrastructure collateral,” said Andrea More, operators), and technology pro- managing director, collateral viders are scrambling to provide management, BNY Mellon Mar- solutions to equip clients with kets Group. “The collateral busi- the necessary tools to navigate ness is very old to some market through the collateral maze, more players: investment banks and quickly and more efficiently. broker-dealers have over 20 “Firms, solution providers and years of collateral processes. outsourcers have been doing a For them it is a scale and auto- lot over the last couple of years mation game now.” to strengthen their capabilities to For firms with high volumes be able to support efficient use reasons, and is affecting market between market participants handle this urgency, collater- of trades, automation is essen- of collateral and efficient opera- participants in different ways. and infrastructure providers al management has made the tial to enable collateral to be tions to support more frequent Basel III’s new capital and liquid- and widespread innovation from transition from back-office ad- moved quicker and more fre- calls,” says Ted Leveroni, exec- ity requirements oblige banks to service providers and technol- ministrative function to an es- quently. Monitoring, managing utive director of strategy and hold more high-quality assets. A ogy vendors. At the same time, sential part of trading, liquidity and moving collateral via faxes, buy-side relations at the Deposi- wider range of transaction types challenges persist. There are, management, credit risk, and phones and excel spreadsheets tory Trust & Clearing Corporation must be collateralised than for example, no universal indus- market risk processes. is still commonplace among (DTCC), a US post-trade utility. pre-crisis, to minimise systemic try standards or best practice smaller institutions, but will be “That work is certainly on-going, risk. And central clearing obliga- guidelines across all the organ- The need for speed insufficient to enable regular but they have come a long way.” tions for OTC derivatives trades isations now looking to manage users of centrally cleared swaps are forcing many investment collateral more effectively. More- As collateral becomes an inte- to meet intra-day margin calls Call and response managers to stump up collateral over, many legacy processes and gral part of these multiple op- from central counterparties to meet regular margin calls for systems are still in place. Many erations, technological develop- (CCPs), some of which must be Collateral management has be- the first time. large firms have not migrated ments are coming to the fore to answered within hours. Low-vol- come a central issue in the se- The industry has responded from a sub-optimal, silo-based enable market participants to ume users, however, may adapt curities markets for a number of via a rising number of alliances approach to collateral manage- equip themselves with the most at a slower pace. ment, while many smaller ones efficient real-time collateral “There are still firms using rely on manual or semi-manual management solutions possible. spread sheets and manual pro- processes. Standardisation and auto- cess to manage their collateral Concerns also continue to mation are being touted as and there will always be firms circulate about the scarcity of pre-requisites to the industry’s that do that, which is fine if their high-quality collateral, such as ability to adapt to the new envi- volumes are low,” said Leveroni. cash or AAA-rated government ronment, helping firms to move bonds, required to meet regu- more quickly than was neces- Piling on the pressure latory reforms which are wid- sary when collateral demands ening the use of collateral. This were fewer and less time-sensi- The pressure on securities mar- supply and demand mismatch tive. Even the most sophisticat- kets participants will intensify has made real-time collateral ed firms cannot carry on as they this year. A number of Basel III management more crucial to were. deadlines must be met by banks businesses than ever before. To “The main challenges are the during 2015, and a new margin regime for non-cleared derivatives transactions is scheduled for introduction in December. Margin requirements for centrally cleared swaps have already been adopted in the US under the Dodd-Frank Act, and similar rules come into force in Europe this year, under the European Market Infrastructure Regula- If we can’t agree on standards tion. Other jurisdictions are fol- to automate collateral lowing close behind. The cumulative effect will be to increase communication, we will be the frequency with which firms have to move collateral around. stuck with manual processes. Regardless of the solutions and tools on offer, firms must Guillaume Boland, senior marketing manager for securities, SWIFT first review their internal pro-

Sibos, powered by SWIFT. Sibos Issues 14 www.sibos.com www.swift.com SECURITIES Solutions emerge to collateral troubles continued from page 14 cesses and workflows. “There users to track and monitor their to extend to the buy-side, poten- are a number of different as- margin and collateral positions, It is a scale and automation tially helping them keep tabs on pects to collateral automation,” while the CMU will support the game now. their clients’ assets in the new says More. “With the automa- mobilisation and allocation of cleared era. tion of collateral calls, you are high-grade assets for use as Andrea More, managing director, collateral management, BNY Mellon aiming to reduce headcount and collateral, building on the Euro- Markets Group ‘Dramatic’ operational capacity, but auto- clear’s existing Collateral High- improvements mating the allocation of collat- way service. eral involves a different group Clearstream, also an ICSD, is The squeeze on collateral has of individuals working toward working with securities depos- different parts of the collateral then use FpML to forward the as- come in stages as new regula- a different requirement, i.e. de- itories in Australia, Brazil, Can- management transaction chain. sets to a CCP, which then sends tory requirements are put in creasing liquidity windows and ada, South Africa, and Spain “It’s very hard to track collat- a FIXML message to a custodi- place. This has made it hard for understanding when disputes on a project called Liquidity eral end-to-end when there are an, leading to a SWIFT message firms to time their response ac- arise relating to collateral post- Alliance, which aims to support so many different message stan- being sent to the CSD. At higher curately, but it also means that ed with counterparties.” the movement of collateral by dards involved across the trans- volumes, these potential bumps the need to act has been known While securities market par- common clients through a more action chain. If we can’t agree in the road could slow collateral for some time. DTCC’s Leveroni ticipants must make their own efficient exchange of informa- on standards to automate collat- traffic to a standstill. suggests the industry as a whole decisions on automating inter- tion between members rather eral communication, we will be Increasing adoption of ISO is well prepared. nal processes, help is also at than centralising collateral by stuck with manual processes,” 20022, a messaging framework “There has been more collab- hand from industry-level allianc- account transfer. says Guillaume Boland, senior that integrates with existing for- oration between industry partic- es and initiatives. The DTCC, for Banks are also working close- marketing manager for securi- mats, can make a big difference ipants over the past year than example, has collaborated with ly to accelerate collateral mobili- ties at SWIFT. to the speed of collateral move- I have ever seen before,” says international central securities ty. Goldman Sachs is reported to The ability to track collateral ments, says Boland, by facilitat- Leveroni. depository (ICSD) Euroclear be leading a group of banks on a across the transaction chain will ing the automation and stan- “The level of sophistication to establish a joint venture, project aiming to create a mech- make it easier, for example, for an dardisation of communication and automation has increased DTCC-Euroclear Global Collater- anism to standardise the opera- asset manager to quickly identify between market participants on dramatically. There is a say- al, through which the firms will tional and logistical process of and recall suitable collateral and such tasks as collateral propos- ing ‘don’t let a good crisis go deliver a Margin Transit Utility exchanging collateral. post it to a CCP in support of a al, margin calls, dispute resolu- to waste’ and service provid- (MTU) and a Collateral Manage- cleared trade; without it, the as- tion and collateral reporting. ers certainly haven’t. They ment Utility (CMU). Structural barriers set manager’s derivatives clear- Boland reports a strong take- have realised that if they have The MTU, slated for launch ing costs could be steep. up in recent months by clearing a skillset that can be put to before the end of this year, is One of the structural barriers to At present, a buy-side firm brokers and CCPs of ISO 20022, go use they aren’t letting that intended to provide straight- the rapid movement of collat- might find and send collateral and expects the standardisation go to waste, rather they have through processing of agreed eral is the variety of protocols via CSV file -based communica- work being conducted by clear- invested and nurtured those re- margin calls, which will enable and message standards used in tion with a broker, which could ing houses and their members sources.” n

INNOTRIBE Opening the door egory in 2013. An independent, New Zealand-based company, KlickEx provides web-based for- to glittering prizes eign exchange services. The firm brings together buyers and sell- ers of currencies in a low-cost, Former winners explain the role of the Innotribe fast system aimed at individuals and small- and medium-sized Startup Challenge in their firms’ development. businesses. Bell says the entire Startup Challenge process, from the day Technology startups face sev- the company started compiling eral significant challenges if its application right up until the they want to break into the fi- Banks were final at Sibos 2013 in Dubai, was nancial world. Securing the op- willing to talk “one of the most valuable guid- portunity to pitch to financial ance programmes we’ve ever institutions is an achievement to us because undertaken. The quality and di- for small companies with limited versity of advisers and mentors resources. Even if the compa- the SWIFT involved in the Innotribe Startup ny does get a foot in the door, Challenge is unparalleled in the banks and investment houses community world of start-up guidance in are conservative organisations financial technology. These are in the main, which rely on rig- had given us people who really understand orous procurement processes an award. banking and high-growth bank- to weed out small fry suppliers ing products.” that may pose risks to opera- Brian Maccaba, chief executive, Within three months of winning tions or reputation. Waratek the Startup Challenge, KlickEx But for those with the ideas, increased its revenues fivefold, skills and business models to largely based on word of mouth go the distance, SWIFT is reach- between central banks, says ing out a helping hand with its Singapore and New York City of more than 500 judges from nance companies to the winners Bell. “I think our growth might Innotribe Startup Challenge. – where companies can pitch across the financial, technology and finalists. have been even more amazing Launched in 2011 by Innotribe – to potential investors and take and investment communities, in- if SWIFT was more aggressive in the SWIFT initiative established part in discussions on emerging cluding a number of SWIFT repre- Valuable guidance backing the Challenge.” to encourage collaborative inno- trends and innovation opportu- sentatives. The winners from the At present KlickEx is “throt- vation in financial services – the nities in the financial services regional challenge then compete “We grew so fast immediately tling back” on its growth as it Startup Challenge introduces market. Participants are also for the Startup Challenge final after winning the Startup Chal- seeks out staff to help roll out the products and ideas of start- helped to refine the way they during Sibos 2015 in Singapore. lenge that we became cash flow its clearing system in new coun- up and early-stage companies present their products and com- The benefit of the challenge positive and no longer needed tries, particularly in the Pacific to financial services executives. panies to investor groups and lies not only in the entrée to the need external funding,” says region. Finding people with the It is a year-round programme financial institutions. banking world, but also in draw- Robert Bell, executive chairman right level of expertise is diffi- featuring regional showcases – The semi-finalists at the region- ing the attention of venture cap- of KlickEx, which came out as cult, says Bell. this year in London, Cape Town, al showcases are chosen by a pool italists and other early stage fi- winner of the best startup cat- continued on page 16

Sibos, powered by SWIFT. Sibos Issues 15 www.sibos.com www.swift.com INNOTRIBE Opening the door to glittering prizes continued from page 15 Innotribe is a high profile, Seal of approval credible discovery platform for

For Brian Maccaba, chief ex- global innovators. ecutive of Waratek, which won the Innovator category for ear- Shailesh Naik, CEO, MatchMove ly-stage firms in 2013: “Being a winner gives us tremendous credibility, which is significant in business model that increases high profile, credible discovery major financial institutions, par- growth prospects means we were platform for global innovators, ticularly in the US and Europe. very fortunate to be oversub- and the access to other start- The Challenge was a fantastic scribed three times during our ups, great coaching and global experience for us, particularly last round,” he says. Winning the visibility are extremely valuable: as the prize is linked to a specif- ments. The company is backed ployed to offer full featured so- Challenge helped in part because just do it.” ic industry sector; it meant that by 50 international investors, cial networking, monetisation banks are very aware of Sibos and His thoughts are echoed by banks were willing to talk to us the largest being Mangrove Cap- and e-commerce options, often the Innotribe brand. “Winning the other winners. Says Maccaba: because the SWIFT community ital Partners, a leading venture in less than two weeks. Challenge created comfort and “Winning the Challenge was had given us an award.” In the capital firm. CEO Shailesh Naik first heard credibility when we were meeting one of the endorsing factors same year, Waratek was named In 2014, Singapore-based about the Innotribe Startup Chal- investors and banks for the first for us when we were raising a ‘Cool Vendor’ by Gartner. MatchMove won the Innova- lenge in online discussion plat- time,” he says. funds. Mainstream financial Based in Dublin, Waratek tor category. The company’s forms and magazines. While he institutions are a conserva- makes Java enterprise applica- games, social networking and says the company faces “the usu- “Just do it” tive group and our product is tions more secure and easier ‘gamification’ cloud-based plat- al difficulties in finding the right generic and not specifically to manage. The Waratek Cloud form is designed to help online strategic partner” for funding, the Naik says firms looking to break targeted at the financial in- Virtual Machine enables organi- businesses to increase reve- financial technology area is “hot” into the financial services mar- dustry. Winning this award re- sations to deploy multiple Java nues and user engagement. and the company has a prov- ket should not think twice about ally helped to demonstrate to apps on a single server within The secure and customisable en team. “Located in a growth applying to be part of the Start- financial institutions just how cloud or data centre environ- platform can be rapidly de- region like Asia and also with a up Challenge. “Innotribe is a innovative our solution is.” For KlickEx’s Bell, the Chal- lenge is a must for start-up companies with good ideas. “The way the world is moving at the moment means that financial services is an amazing and interesting area of innovation. The quality and diversity of If you have a viable minimum product I would say give it a advisers and mentors involved go and enter the Startup Chal- lenge. SWIFT will help you to in the Innotribe Startup connect to financial institutions Challenge is unparalleled. and give you a platform to explain how your product can be Robert Bell, executive chairman, KlickEx used in their community.” n

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Sibos, powered by SWIFT. Sibos Issues 16 www.sibos.com www.swift.com