Payment Market Trends

Trend In Real-time Payments & Fighting Financial Crime

SWIFT Compliance Services Roadmap

Suresh Rajalingam

Commercial Director, Oceania, SWIFT

Sep 12th, 2014

Global & Local

Messaging Platforms

Financial Market

Infrastructures

Community

2

22+ million messages per day 74 HV payment systems

26 LV payment systems

5 systems in Oceania

10,000+ live users

212 countries

10 offices in Asia

Pacific

Who is SWIFT?

Drivers of change in payments markets

Payments Markets

Technology

Faster, cheaper,

easier

New devices

Ubiquity

Economic

Shrinking

margins

Operational

efficiencies

Shared platforms

Social

Convenience, Speed,

information

Regulation

Efficiency, safety, reliability.

Rapid transformation in payment system development

• Fighting Financial Crime & SWIFT Compliance Services roadmap

• CPSS-IOSCO, Sanctions, FinInform, Intraday liquidity

• The trend to real-time payments

• RMB internationalisation

• ASEAN Economic Community (AEC) 2015

• ISO 20022 and market practice

• Reliability of systemically important payment systems

Regulatory

Developments

Resiliency

Renminbi

Regionalisation

Real-time innovation

Regionalisation, Real

Time & Standards

Connecting The Dots..

The Macro Context - Australia growth is high and

tightly coupled to China and ASEAN

0%

20%

40%

60%

80%

100%

120%

140%

2006 2007 2008 2009 2010 2011 2012 2013

ASEAN

CN

AU

Rest of APAC

SWIFT Total

CARG

ASEAN 9.5%China 10.2%Rest of APAC 7.3%SWIFT Total 6.65

Customer Payments: MT 103 sent in volumes (2006 – 2013)

Regionalization

Regionalization - Developments in the Financial

Infrastructure will facilitate economic activity

Common Standards

Interoperability

Common Platform

Single system and process

Central system and currency

Regionalization

Towards regionalization: the role of standards and a

common community

8

AU

Zengin,

JP

CNAPS2,

CNIN

Low-

value

High-

value

CIPS, CN

BOJNet,

JP

Live

NZ

TH

PG

BN

SG

MA

Live

ISO 20022 movers Payment systems

Oceania:

• Australia

• New Zealand

• Papua New Guinea

• Fiji

These systems use SWIFT today:

Asia Pacific:

• Taiwan

• Macao

• Hong Kong

• Sri Lanka

• Thailand

• Singapore

• Philippines

• Brunei (2014)

• Malaysia (2015)

• India (end 2014)

Live

Regionalization

Real Time – Oceania countries have opportunities to “Leap

Frog” their payment infrastructures and work across borders

Deferred Net

Settlement (DNS)

Real time Gross

Settlement

(RTGS)

ACH

(Automated

Clearing House)

Real time Low

Value

Batches Single Payments

High

Value

Low

Value

Time Criticality

Siz

e o

f p

aym

en

t

Hybrids

Mu

ltip

le b

atc

hes

Real-Time

RT LVP is expected to follow a similar adoption

curve as RTGS – standardisation opportunity?

Adoption of

RTGS

Potential

adoption of

RT LVP

# countries

InnovatorsEarly

adoptersEarly majority Late majority Laggards

0

20

40

60

80

100

120

19

81

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Cumul # of RTGSs

Cumul # of RTGSs onSWIFTSWIFT entry

0

50

100

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036

Cumul RT-LVP# countries

Source: Celent, SWIFT, BCG

Currently in early

adoption phase

Real-time

Source: APCA.com.au

Australia New Payments Platform – value & information exchange Real-time

FAST – Fast And Secure Transfers

Past

• Up to 3 working days to transfer

money across banks

FAST - Current

• Immediate SGD funds transfer

• Available anytime, 24*7, 365 days

• Launch by middle of 2014

• Up to S$10,000 per transaction

• 14 participating banks

• Access through electronic devices,

such as table, smart phone, or

personal computer

Participating Banks

ANZ CIMB Citibank

DBS/POSB DB Far Eastern

HSBC Maybank OCBC

RHB RBS SCB

SMBC UOB

Renminbi

Significant evolvement in RMB offshore clearing

Hong Kong

the leader ~74% share

(BOC)

Thailand

Announced interest to

establish clearing bank

London

4th Clearing bank

(CCB).

China (CIPS)

New international

RMB clearing

system by 2015

Singapore

3rd Clearing bank

(ICBC)

Luxembourg

RMB clearing

MOU signed

With Clearing Bank approved by PBOC

Potential, or in progress

Shanghai FTZ Piloting

liberalisation of RMB

financial services

RMB “centres”

14

• Political drive to reduce

dependency on USD

• RMB sitting in top 10

payment currencies

• Mushrooming offshore

clearing centre

environment

Taiwan

2nd Clearing bank

(BOC)Macao

RMB clearing

(BOC)

Frankfurt

5th Clearing bank

(BOC)

With Clearing Bank approved by local central bank

Laos

RMB clearing

(ICBC)

Malaysia

RMB clearing

(BOC)

Cambodia

RMB clearing

(BOC)

Philippines

RMB clearing (BOC)

Moscow

RMB clearing

(BOC)

Paris

RMB clearing

MOU signed

Seoul

RMB clearing service

to be set up

Renminbi

Australia

ASX

RMB Clearing

(BOC)

Competition among RMB “centres” is intensifying

Source: SWIFT Watch

Customer initiated and institutional payment, inbound & outbound, based on value

RMB

26% offshore (outside China and Hong Kong)

SWIFT support for financial institutions in RMB?

• STP & automation (e.g. market

practice guide)

• CIPS (China International

Payment System)

• RA for 20022

• Industry dialogue –

onshore/offshore RMB groups

• RMB Tracker

• RMB Market Insights

• Customised insight services

• Watch Value Analyser

• White Papers

Business

Intelligence

Standardisation

& Automation

• Clearing centres – RMB

RTGS on SWIFT (HK, TW,

SG)

• Bank reach

• ~10,000 globally

• ~3,000 in Asia-Pac

Connectivity

RMB

Resiliency

What do we mean by resiliency?Resiliency

2011 - RTGS outage of

4 hours

Software bug

2013 - RTGS

9 hours unavailable

Wrong parameterization

In 2011 both main sites

of an PMI were nearly

flooded

Natural events

Data Corruption

From which “golden

position” can I restart?

Staff unavailability

Diversity with peers

and/or 3rd party staff?

Loss of essential services

Service diversification &

geography

9/11

could be on an FMI?

Terrorist attack Cyber attack

Who accessed my

confidential data base?

Threats are everywhere

Resiliency

2011 - RTGS outage of

4 hours2013 - RTGS

9 hours unavailable

In 2011 both main sites

of an PMI were nearly

flooded

9/11

could be on an FMI?

Data Corruption

Cyber attack

Staff unavailabilitySoftware bug Wrong parameterization

Terrorist attackNatural events Loss of essential services

From which “golden

position” can I restart?Which staff will be really

available?

Service diversification &

geography

Who accessed my

confidential data base?

Geographic

diversity

Staff

diversity

Technical and

geographic

diversity

Technical

diversity

Technical

diversity

Technical

diversity

Technical

diversity

Geographic

diversity

Need for a different approachResiliency

Paymenttransactions

Paymenttransactions

Payment settlement

system

So , how do we do this?

Payment system resiliency only as strong as weakest link

MIRS:

Market

Infrastructure

Resiliency

Service

Alliance

Lifeline

Alliance

LifeLine

Resiliency

Regulation

Financial Crime Compliance Roadmap

FATF 16 Information quality

Compliance Analytics

Sanctions list

Mngt service

Sanctions KYC AML

Processing

services

Traffic analysis

Standards

Data

repositoriesKYC registry

AML testing & tuning

Sanctions Screening

Sanctions Testing & tuning

(transaction & client systems)

Traffic restriction (RMA)

Live

Development

Qualification

Exploration

Quality

Assurance

Client/Name screening

Regulation

KYC Registry

Payment Market Trends

“Know Your Customer is

the most obvious candidate

[for collaboration], we all

use the same data but

there is no

proprietary value in doing

KYC. We should look at

creating a KYC utility,

which will save costs.”Samir Assaf, CEO, HSBC

Your single source of correspondent banking KYC information

SWIFT KYC RegistryGlobal

CollaborativeGuaranteed quality

Increased Transparency

Industry-owned

SWIFT Profile

SWIFT KYC Registry @ a glance

Sanction Screening

“We value the ability to use a secure, automated system that

ensures we are compliant with the most up-to-date sanctions

lists.”

Mohamed Isa AL Mutaweh, Chief Executive Officer &

Member of the board of Directors, Al Baraka Islamic Bank

Sanction Screening Benefits

Sanction Testing

Sanction Testing

Compliance Analytics Leveraging SWIFT traffic data for risk monitoring

Compliance Analytics

The Future and Opportunities for the Oceania / APAC Financial

Infrastructures will Revolve Around These Themes

Regulatory

Developments

ResiliencyRenminbi

RegionalisationReal-time innovation

Common

challengesuniquesolutions

33