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10Corporate actions

22Operational risk

27 Global custody

Momentum is building

behind the European

Central Banks (ECBs)

Target2-Securities (T2S) settlementplatform. With the ECB confirming

the platform will be delivered

on time, further proof of the

industrys confidence in the

initiative has come via a series

of announcements regarding

connectivity to T2S.

Yesterday, international central

securities depository (ICSD)

Clearstream announced that it

would be connecting to T2S via

Swifts Value Added Network (VAN)solution. The ICSD plans to migrate

fully to T2S in September 2016.

Rival ICSD, Euroclear, also

announced its intention to opt

for Swift connectivity. Speaking

exclusively to Daily News at Sibos,

Philippe Verriest, director, head of

business analysis communication

and information services at

Euroclear, said the depository is

in discussions with Swift about

implementation of the T2S link.

The moves are something of

a surprise as until recently many

industry observers believed the

large ICSDs and CSDs, along with

the biggest global custodians,

would take the direct connectivityroute into T2S. But as reported

in yesterdays Daily News at Sibos

(page 10), enthusiasm for the direct

approach seems to be waning as

institutions consider the total cost

of such a move.

Clearstream selected Swift to

connect to T2S because, having

utilised Swift network services for

years already, we knew this would

offer us and in turn our customers

the right level of resilience andreliability for connectivity in the

future T2S world, said Mark Gem.

We trust Swift as the proven

connectivity specialist to do the

part of the T2S work it is best at,

namely messaging and financial

telecommunication. This will enable

Clearstream to focus on its core

business and add further services

such as standards management and

testing to augment its T2S offering,

he added.

Earlier this week another ICSD,

SIX Securities Services, announced

that it would take the Swift route

to T2S. As the only current provider

of ICSD services joining in wave

one of T2S, we are demonstratingour commitment to offering our

community the highest levels of

service in the T2S environment,

said Thomas Zeeb, chief executive

of SIX Securities Services. Swifts

connectivity solution for T2S is the

right foundation for our offering,

bringing the resilience, reliability

and competitive pricing we need.

And this morning, Portugals

CSD, Iberclear, announced its

decision to connect to T2S viaSwift VAN. It will go live on T2S in

February 2017. Jess Benito, chief

executive of the CSD said: We

are focused on offering post-

trade solutions that provide our

community with the highest levels

of security, stability and scalability.

We are confident that Swift is the

right T2S connectivity solution for

us, bringing unmatched benefits

in terms of resilience, price, proven

infrastructure and re-use of

expertise.

Migration to T2S will take place

THE INDEPENDENT NEWSPAPER WEDNESDAY 18 SEPTEMBER 2013

DAY 3

IN THISISSUE

FLURRY OF INITIATIVES SHOWCONFIDENCE IN ON TIME T2SBy Heather McKenzie

Inceasingly we are

seeing innovation

in areas that directly

touch customersTERESA CONNORS, RBS

15Innovation

www.bankingtech.com/sibos/

THE ORIGINAL SIBOS DAILY 21 YEARS AND COUNTING

Continued on page 2


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DAILY NEWS AT SIBOS

Wednesday18 September 2013

NEWS

2

in four waves 1 June 2015, 2 March 2016, 3 September 2016 and

4 February 2017. Direct connectivity participants must declare their

intentions to use this route by October 2013.

Direct connectivity would have been a very good alternative forEuroclear, but the implementation risks of such a move were bigger for

both us and for the eurosystem, said Verriest. That tipped the balance

and we decided to opt for Swift.

Swift is one of two approved connectivity options for T2S, the other

being a partnership between SIA and Colt. SIA and Colt are ready for

T2S, said Daniele Ravelli, marketing manager at SIA.

We are proposing a solution to the banks. No direct connectionis needed and we are cheaper than Swift. We are the bridge between

the corporate and the bank. He would not divulge, however, who had

signed up as users.

Continued from page 1

MyBank E-Mandate pilot ready to go liveBy Elliott Holley

EBA Clearing has signed five financial

institutions, 11 European service providers

and two corporates for its MyBank

E-Mandate pilot, which will begin in October and

will test the firms solution for Sepa core direct

debits for reliability, security and usability.

MyBank is an e-authorisation service

designed to make it easier and safer to

buy and sell goods and services over the

internet in Europe. The service is available to

all payment service providers in the single

euro payments area (Sepa), including credit

institutions and payment firms.

The pilot will run until February 2014, withthe aim to enable MyBank users to create,

modify and cancel e-mandates for Sepa from

the beginning of next year. MyBank has 51

participants in France, Italy and Luxembourg,

meaning the solution is available to 10 million

retail customers for the initiation of Sepa

credit transfers. Participants in the pilot come

from Belgium, Finland, France, the UK, Italy

and the Netherlands.

The simplicity and safety of the MyBank

E-Mandate solution will assist us in moving

from paper mandates to e-mandates and

streamline key processes around SDD

mandate handling, said Giovanni Vattani,

head of payment systems at Italian electricity

provider Enel Market Division Italy. It will

also support us in reducing costs in the

management of SDD mandates.

Sepa is intended to simplify and harmonise

bank transfers in the European Union and as one

of the pillars of European integration, is meant to

help underpin the use of the single currency.

Launched in 1998, EBA Clearing manages

the large-value payment system Euro1 as well

as Step1, a payment system for commercialtransactions. Since 2003, the company also

has been managing the Step2 platform, a pan-

European payment infrastructure for mass

payments, processing Sepa credit transfers

and Sepa direct debits. The firm is owned by

63 of the major banks operating in Europe.

Together with Swift, EBA Clearing has also

set a release date for the revamped version

of the Euro1/Step1 directory, which allows

originator banks to identify Euro1 or Step1

banks through which beneficiary banks

can be reached. Due to be launched on 21

October, the revamped directory has been

improved with input from the SwiftRef team

and a working group comprised of Euro1 and

Step1 participants.

The directory lists 18,000 banks and 8000

participant BICs. Access and use is free for

participating banks.

The close collaboration between EBA

Clearing and the SwiftRef team has made this

project a true success, said Patrik Neutjens,

head of reference data, SwiftRef at Swift. The

valuable enhancements to the Euro1/Step1

directory will benefit the payments industry as

a whole and, in particular, our mutual clients

which was the real driver behind the project.

The initiative confirms also SwiftRef as a global

utility for payments reference data.At Sibos 2013, Emirates NBD announced

it had applied for connection to the Step1

service. The bank is one of the larger banking

groups in the Middle East in terms of assets,

and plans to start sending and receiving

payments through its London subsidiary in

the final quarter of 2013. The new participant

will bring the number of Step1 banks to 84.

At present, 220 banks in Europe can send and

receive single payments via the Euro1/Step1

platform.

EBA Clearing also predicts that its Step2

pan-European automated clearing house will

move from an average of 4.5 million payments

processed per day to at least 30 million per

day by the Sepa migration end date, which is

expected for 2015/16. The platform has reported

growth of 20 per cent in Sepa credit transfers

and 80 per cent in Sepa direct debits, as well

as 2 billion successful Sepa transactions, since

the launch of the SCT and SDD schemes. Banks

in Belgium, Estonia and Germany are moving

national Sepa traffic to Step2. The Belgian banks

are migrating their Sepa direct debits to the

platform. The eight largest banks in Germany will

use Step2 to exchange their domestic and cross-

border Sepa traffic.

Step2 is ready for the massive transaction

volumes that will migrate to its Sepa servicesover the next four months, said John Broxis,

director of Step2 services. Given the strategic

importance of the platform for banks and

banking communities across Europe, we

are working very closely with our service

participants to ensure a smooth ramp-up.


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DAILY NEWS AT SIBO S

Wednesday18 September 2013 3

NEWS

Globally, around 50 per cent of the

population do not have a bank

account. Whether that is perceived as

a surprisingly large or surprisingly small ratio is

questionable; what is certain is that there is a

potentially significant opportunity to provide

those financial services. This financial inclusion

is also, of course, much more than a means to

market. According to Rodger Voorhies, director

of financial services for the poor at the Bill andMelinda Gates Foundation, financial inclusion is

a very real prospect for alleviating poverty.

Financial services act as a great buffer,

he said during the financial inclusion session

at Sibos yesterday. When there is a drain on

finances, whether in good times such as a

wedding or in bad times such as an accident,

the poor can pay a huge price if they are not

prepared. We have to roll out new innovations

and initiatives, we need new models and new

partners. It is just like administering health and

formal education, the paradigm shifts are criticalfor the poor.

While there is certainly the option to widen

the geographical reach of financial services,

Ann Cairns, president of international markets

at MasterCard, sees spreading the word as more

of a mission.

Financial inclusion is a basic human right,

she told Sibos delegates. Two and a half

billion adults do not have access to financial

services. To create the infrastructure where this

can be done in its simplest terms is the first

rung on the ladder. To introduce some sort of

payment structure can lead to credit histories,for example, and service technology becomes a

part of financial life.

Eighty five per cent of the United Arab

Emirates working population are expatriates

made up of 200 nationalities, which posed a

major problem for employers and employees,

many of whom do not have a bank account in

their home countries.

In 2009, the UAEs Ministry of Labour

introduced the Wage Protection System, which

guarantees the electronic delivery of salaries to

all registered workers.The technology is extremely advanced and

it is an excellent example of e-payment and

receipt, said Osama Al Rahma, chief executive,

Al Fardan Exchange, UAE. The change in

thinking is that traditionally, products have

been taken to market to sell and now we have

to think of engineering products towards the

end-users needs.

The principle of including more of the global

population into a financial services environment

may seem commendable but the viability and

sustainability is a different matter.

The steps we have taken towards financialinclusion in many of the poorer African countries

have been extremely positive, but this isnt an act

of charity, said MasterCards Cairns. It has to be

a sustainable commercial activity. And as far as

the infrastructure costs are concerned, we have

to ask ourselves what the costs are if you dont

make these changes. Payment without financial

services is an expensive business.

KR Kamath, chairman and managing director

of Punjab National Bank agreed and said initial

costs were the biggest single barrier to financial

inclusion. You have to pay up front and then itpays for itself. But we need to always make sure

we produce what the customer prefers and not

what the bank prefers.

If Sibos delegates measure

their years between the

annual events, then Swift chief

executive Gottfried Leibbrandt has

just completed his first full year in

office.

Its been a busy year, and as he

commented in his opening plenary,

hes not going to get home early

next year either.

Front and centre of the agenda

that Swift set out at the beginning

of this weeks event is the concept

of collaboration and cooperation a perennial theme for Swift, but

Leibbrandt told Daily News at Sibos

there was a change in the air.

The big difference between

now and lets say two years ago

is where the big banks are in this,

he said. Two years ago they were

telling us to do something for

the small banks, and maybe they

would like some testing services.

If you now look at where the big

banks are, the challenge has grown

exponentially. And they really

are now looking at co-operative

solutions. That, I think, is a seismic

shift: it is time for co-operative

solutions, and I will not claim that

they are only looking to us there

was an announcement this week

from HSBC, Morgan Stanley and

Markit. DTCC has also announced

an initiative, so I cant claim that we

are the only game in town. There

is a real willingness to look for jointsolutions, and we think that we are

well positioned in terms of skills and

governance to address that.

Apart from this focus on

enabling compliance, Liebbrandt

said the organisation had two

other important items on its

agenda. Were busy: the second

big thing is technology in general,

investing in our infrastructure.

Weve just finished our new data

centre in Switzerland, which was

a big investment and is now

fully operational, and we are

completely redoing our core FIN

application which processes 5

billion transactions a year. We have

finished the first phase of that.

Given how central that is to what

we do it is quite a feat that Mike

Fish, our CIO, is pulling off.

The third area is geographical

expansion, which is where Asia

and Africa come in. There too weare making significant investments,

both at the governance level with

new board members, and in the

infrastructure, he said. We have

new centres in Hong Kong and

Kuala Lumpur for operations, and

we have a joint venture in India

connecting local markets in that

part of the world. That will likely

have local processing, which

will let us be closer to the banks

and build a community there.

We can also connect to local

infrastructures such as the RTGS

systems and ACHs and provide a

degree of resilience.

It also addresses the issue of

where data is stored and accessed,

which he sees as one of the

limitations of cloud technology. It

also raises the issue of the story that

surfaced at the start of this weeks

Sibos, suggesting financial services

systems including Swift and Visahad been hacked by US intelligence

agencies. Leibbrandt is circumspect:

We take these things very seriously

and we constantly have to up our

game. In this particular case there

is no evidence of any unauthorised

access, but we constantly do risk

analyses and we take any risk

mitigation steps that we deem

appropriate.

Connecting the unbanked key to easing povertyBy Kurt Parry

More collaboration ahead, says Swifts LeibbrandtBy David Bannister


4/40

Afghanistan hails its own bright banking futureBy Kurt Parry

www.bankingtech.com/sibos/ Wednesday18 September 20134

DAILY NEWS AT SIBOS

NEWS

Despite making headlines

for all the wrong

reasons for decades,

Afghanistan is now trying to

persuade the international

banking community that there

is a brighter future ahead for the

country.

It is the first time that the

Afghanistan Banks Association

(ABA) has exhibited at Sibos, and

its director, Ahmad Javed Wafa

(pictured), says it is time to seize

the day.The timing for us is

absolutely perfect, he said. Banks in

Afghanistan are now progressive, transparent

and ready for business. We are here to meet

new banks and build new relationships, and to

show western and GCC financial institutions

that there are enormous opportunities.

There are plenty of misconceptions about

the banking industry in Afghanistan and the

ABA aims to put that right. The meetings weve

had have been extremely constructive and

many of the curious visitors that come in are

potential investors when they go out, he said.

Afghanistan has huge investment

potential, with construction, housing and

industry playing major roles. It has one of

the regions lowest corporate tax rates and,

thanks to external investment, it now has a

responsible, trustworthy banking industry.

However, Wafa concedes that while

there may have been improvements, foreign

scepticism is still one of the biggest barr iers to

greater investment.

Were not pretending its perfect, what

we are saying is come and look how far weve

come. Its understandable that there is a sense

of uncertainty about investing in Afghanistan

banking if you dont know what has changed.

The rate of change and the scale of change

are phenomenal.

Again, while the industry itself may have

made great strides, many external factors

still pose a significant risk to investment

sentiment.

The politics in Afghanistan areobviously

critical to our success. Its the same with all

businesses, but with banking investments, the

stakes can be higher and in the past they have

often been among the first economic casualties

when things go wrong. The recent history of

Afghanistan, the lack of understanding and the

perceived political instability make it extremely

difficult sometimes to convert the interest into

commitment. That is one of the reasons we are

here to help investors understand the reality.

Those factors which are within

Afghanistans banks control have progressed

tremendously. The transparency is

unprecedented and it isnt just the fact that

it has improved, it is the banks desire for it to

improve. All our banks have the

most sophisticated anti-fraud

security software, they all belong

to the ABA and are all subject to

independent annual audit reports.

We have had enormous help in

terms of expertise and business

models from the International

Monetary Fund and some of the

major US banks. As Wafa is keen

to emphasise: We are a very

capitalist country.

Another problem for

Afghanistans banking sector is a lackof confidence not from its foreign

investors, but from its domestic customers.

The banking hierarchy has a very conservative

outlook with regards to loans and extending

credit. There are some extremely strict criteria to

meet and tough conditions to satisfy. Personal

account holders dont want to keep their money

in a bank for long periods, they simply deposit

and then withdraw.

What we need to do is to persuade

these customers that they cantrust their

banks and we are trying to offer incentives

including excellent interest rates to make

longer term savings more attractive. The more

confidence banks can instil in their customers,

the more confidence foreign banks and

foreign investors will have. We have the right

infrastructure, we have the legislation and we

are building the right relationships.

The unbridled enthusiasm of the ABA is

obvious and many of the delegates at Sibos

may well be stirred into action by Wafas

insistence that Afghanistan banks have

become much more of an opportunity than

a risk.

SunTec lets Visa put its foot down and XelerateBy Elliott Holley

Visa Europe is to introduce a new

services suite called Xelerate Card

Services from revenue management

and business assurance firm SunTec, which it

will use to track a peak volume of 100 million

transactions a day.

Xelerate is designed to help bill memberbanks and approved non-members of

Visa Europe in 36 countries. Visa Europe

plans to deploy Xelerate on IBMs DB2

database software. The firm will then be

able to support real-time billing. Xelerate

has been designed in modules, and is built

to support complex negotiated pricing,

risk management strategies, regulatory

compliance and greater transparency.After a very thorough evaluation process,

we chose SunTecs Xelerate suite because it

is a highly flexible solution that is well suited

to trading the rapidly growing number of

transactions generated by the 470 million Visa

cards in use in Europe, said Steve Chambers,

executive vice-president and chief information

officer of Visa Europe. Moving forward,

SunTecs product roadmap will give Visa Europeconsiderable scope to evolve and innovate in

this pivotal area of our business.


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DAILY NEWS AT SIBOS

NEWS

The methods and practices

of transactions have to

change and there has to

be a common understanding of

how to make banking a better

experience for service providers

and service receivers, Mircea

Mihaescu, director of IT strategy

and technology innovation at

Russias Sperbank, said yesterday.

Speaking during the

Innotribe session, Financial Tribes

of the Future, he added: Weneed to reinvent banking and

we need to re-adjust the way

transactions are made. There

will come a time when cash will

disappear and technology will

be the true currency in banking.

To be perfectly honest, at the

moment its a mess and I dont

expect it to happen before I

retire, but it has to happen.

Matteo Rizzi, partner and

Innotribe co-founder, Swift,agreed that the fundamental

banking channels need to be

changed and updated but said

collaboration can be as difficult

in one organisation as it is across

the industry.

The vast majority of

organisations are not connected

companies. Very few employees

will know which of their

colleagues has a particular skill.

Their expertise may be on some

spreadsheet in human resources

if you are lucky, but with somany bank conglomerates, there

is certainly not the platform for

knowledge to be shared.

As director of business

analysis at Allevo, Corina

Mihalache is a standard bearer

for standard practices across

the financial sector. Allevo is an

open-source software provider

which aims to bring more

banking services into a digital

arena and has a staff whose

average age is just 22. Mihalache

said there is a new generation of

bankers, which will expect a new

generation of banking.We wanted to share

our product and provide

free software as a basis for

cooperation. We are not just

talking about banking payments

and whether you can pay for

certain services digitally, it is

about whether you can transact

effectively and collaborate

towards a common goal. Banks

need to communicate more

than they do and more quicklythan they do.

For Radu Gratian Ghetea,

president of CEC Bank, the

prospects of common ground

and mutual benefits is an

essential starting block. The

profitability of banks now is very

low and many are running at

a loss. With this in mind, I think

the Allevo model is excellent.

In the past, classic transactions

have been very slow and very

expensive for both the banks

and for the consumer. Of course

changes are needed in its

infrastructure, but as an industry,

banking will never die. It is vital

for national, regional and global

economies.

While the banking industry

may have recently undergone

some of its most turbulenttimes, for Mihaescu it could be

a sign of out with the old and in

with the new and herald a new

technological dawn.

When I was about 14, I was

a big fan of reading science

fiction. In 2002, I was working

with people to try to get them

to understand that with the

technology available, they didnt

need so many old processes

and practices. I realised that thefuture is already here, it just isnt

deployed widely enough, he

said.

Solution providers come together to develop ideasBy Elliott Holley

Anew independent project called the

Solution Providers Community has

launched at Sibos, aimed at creating

an interactive Web-based platform for Swift

community members to communicate

among themselves and with customers. The

group hopes to promote discussion about

new business opportunities and potential for

collaboration.

The project is enormous in scope, covering

disparate areas such as financial technology

providers, applications, consultancy and

connectivity, payment services, securities, card

issuing and others. The idea is to have a forumwhere different firms can find each other and

develop ideas, as well as a common repository

of Swift-compatible solutions that can be

accessed by Swift customers and provided by

the Solution Providers Community.

Our ideal is to form a voice that represents

the interests of the financial industry, said

Aydin Erol, managing director at Value

Solutions and director at Solution Providers

Community. Today the regulators dont know

who to speak to. They ask a few big players,

but its only a small part of the industry. We

want to have a platform where they can come

together and have one voice that speaks to

anyone affecting our industry.

The database of solutions will be

searchable, so that users can find each otherswork and ideas.

The new initiative plans to target some

of the largest financial institutions. These

include central banks, clearing houses and

major investment banks. At time of writing,

participants already signed up include

Decillion Group Asia Pacific, Fundtech US

and Europe and Axeltree Solutions in the

US. Others, such as NCS China, are also

understood to be joining. There will be 12

founding members in total, though there will

be no limit on members.

The plan is to set up an active forum and

discussion community within the next two

weeks, with further content and abilities to

be rolled out over the remainder of this year

and into 2014. There also will be live eventsand face to face discussions. Membership will

cost 850 per year. There are still some seats

available on the founding members panel.

Banking channels need to bechanged and updatedBy Kurt Parry

We need to reinventbanking and weneed to re-adjustthe way transactionsare made. Therewill come a time

when cash willdisappear and techwill become the truecurrency in banking


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DAILY NEWS AT SIBOS

NEWS

TOR

ther McKenzie

SIGN, PRODUCTION

D PHOTOGRAPHY

h Naran

BEDITOR AND

PORTER

Skeldon

PORTERS

d Bannister

tt Holley

Parry

BLISHER

Banham

LES MANAGER

e Jones

LES MANAGER

en Griffin

RKETING MANAGER

Waite

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The Bank Payment Obligation (BPO) offers an opportunity

for banks to earn new business while making life easier

for their corporate clients but only if banks make the

effort to explain the benefits to their corporate customers,

according to James Bidwell, head of product development and

documentary trade product management at Barclays.

We can help clients finance their supply chain in a much

more effective way than they do at the moment, he told Sibos

delegates at a briefing on the BPO yesterday morning. Right

now, 85 per cent of global trade is done by open account

trading where there is no chance for banks to intermediate.

BPO speeds up the payment process.

A BPO is an undertaking by one bank to pay another

when matching data about a payment order is presented.SMEs sometimes use BPOs as a way to provide finance at a

reasonable cost, since the payment processing is effectively

outsourced to the banks.

The process is as follows: the buyer provides a purchase

order to the bank. The bank uploads the order to a matching

application, such as Swift. It is then sent to a recipient bank

for the seller, who confirms the purchase order is correct. The

order then flows back through the matching application to the

buyer, establishing a base order. The seller ships the goods and

puts the purchase order through the bank, which checks for

a match. If there is a match, that triggers a BPO to pay. If there

is a discrepancy it is forwarded to the buyer, who is asked if it

wishes to accept. The final stage is payment.

The advantage of a BPO for corporates is that it is typically

faster than alternatives such as letters of credit, which are

usually processed manually by the banks. It also provides a pre-

set template that helps deliver certainty about risk mitigation.

That enables exporters to accelerate payment and eliminate

slower, paper-based matching methods.

Letters of credit are not the most attractive instrument

because of the time it takes banks to handle documents, said

Andr Casterman, global head of corporate and supply chain

markets at Swift. As long as information flow is based on

paper, it will be slow. The BPO is like the GSM in mobiles, which

enables people to talk even if they are on a different network.

The corporate seller using one bank will have the same

payment obligation as a corporate buyer using another.

Casterman added that to use the BPO is a corporate

decision, requiring both corporates to decide to use it as the

payment method. He also emphasised that there was no need

for firms to make large up-front investments to prepare for BPO

instead, it would be better to start small and scale up later.

He also suggested that bank margins would be attractive on

high-value transactions.

According to Barclays, many banks in Asia and especially

China are already supporting the BPO. There are 12 banks that

are ready to handle the BPO, with 53 more looking to take

the BPO live. Six are expected to come online in the next sixmonths, most of which are located in Europe. Barclays itself is

ready for BPO and is now seeking clients.

The challenge is how to get live with BPO transactions

while minimising the cost of big technology platforms, said

Bidwell. Ideally, we would all have ISO 20022 messaging

and be looking to automate it all. In practice, thats a big

investment spend and bank programmes are launching

on quite a manual basis, manually uploading data into the

application. Thats the Barclays approach and most other banks

as we move into pilot.

Bidwells point was that banks should enter the business

first, build up a strong business case and gather demand from

clients, and then make the jump to invest and automate the

service. While historically, many banks have been reluctant to

enter the BPO space because of the perceived lack of a clear

regulatory framework, the role of the International Chamber

of Commerce in developing and adopting an industry-wide

standard is likely to spur significant further interest.

Banks can see there are uniform rules; that will give banks

confidence to enter the market, he said. Before that, you had

to look at complex legal documents. That said, its still critical

for banks to talk to corporate clients about BPO. Corporate

demand has got to be there. The success of BPO will be driven

by demand from corporates to use it.

BPO key to better supply chain financingBy Elliott Holley

Permanent tsb ready for Sepa migrationBy Heather McKenzie

Irelands permanent tsb has announced its intention

to start the migration of its domestic clearing volumes

from the Irish legacy scheme to the Sepa credit transfer

and direct debit schemes, using Citis Sepa platform and

indirect participant offering. This migration will provide

permanent tsbs clients with full access to the Sepa

schemes ahead of the February 2014 end date. Under

the agreement, Citi expects to process around 45 milliontransactions annually on behalf of the Irish bank.

Toby Clements, chief operating officer, permanent

tsb said: We are very pleased to be able to provide our

account holders with the full range of Sepa services,

providing our clients access to low cost payments and

receivables across the single euro payments area. Citi is our

correspondent banking partner of choice. We have been

able to use their extensive investment in Sepa capabilities

to quickly and easily offer this landmark service to our

clients.

Rajesh Mehta, head of Citis treasury and trade solutionsin Europe, Middle East and Africa added: Permanent tsb is

reaching an important milestone in being able to provide

the full suite of Sepa services to its clients.


9/40


10/40


DAILY NEWS AT SIBOS


STANDARDS

he automation of

corporate actions

continues at a glacial

pace; large differences

still exist between

the progress made by sell side firms

compared to buy side firms. Considerable

effort, particularly in Europe, has been

made to introduce market standards for

corporate actions. But 12 years since the

Giovannini Group identified differences

in national rules relating to corporate

actions as a barrier to efficient cross-

border clearing and settlement, a lack of

standardisation continues to hold back

progress.

Without standardisation, automation

cannot proceed, even though the

technology exists, says Alan Jones, head

of corporate actions management at

financial technology firm SmartStream.

Until theres enforcement, well never

achieve full automation.

Ostensibly, the main benefits ofautomation for the customer are greater

efficiency, reduced cost and improved

reliability. A reduction in human errors

associated with manual processes can

help to improve risk mitigation and

shorten delays, freeing up resources for

better client support. Eric de Nexon, head

of strategy for market infrastructures

at Socit Gnrale Securities Services

says corporate actions suffer from short

deadlines, high volumes and the risk of

significant financial losses in the event ofan error. Increasing the processing speed

of corporate actions will therefore be of

substantial benefit for all parties.

When things go wrong, the

manual process generates delays

which inherently increase stress, he

says. Even when human risk is limited

with the manual process being achieved

correctly, it can still be an expensive

process simply by essence of requiring

qualified staff capable of handling the

complexity involved in an operational

environment. It goes without saying that

automation limits these aspects and

contributes to mitigating operational

risk.

According to Jones, there are 152

different events in a corporate action

and each of these has unique workflows,

making it complex to automate the

complete set. Then there are different

workflows for different asset classes.

Manual processes are inherently

unreliable; volatility is removed when

processes are automated, he says.

However, part of the problem for

corporate actions automation is that manyfirms, especially on the buy side, are taking

a cautious approach to automating the

complete corporate actions lifecycle. Many

of them have built internal systems and are

reluctant to change. For others, corporate

actions processing is not a priority and

scarce resources are often pulled away

elsewhere to concentrate on aspects

such as the front office and sophisticated

trading technology. For many, the use

of fax machines and paper trails is still a

reality.Firms are not willing to write a blank

cheque when it comes to automation

projects, says Charlie Price, senior

T

The complexity of corporate actions has

stymied automation efforts for more than a

decade. But as Elliott Holleydiscovered, there

could be light at the end of the tunnel

STANDARD AND

DELIVER

director, pricing and reference data at

Interactive Data. Furthermore, there

arent that many solutions out there.

A handful of vendors basically own

the market and as a result there isnt

much competition. Many of the original

solutions were long processes, requiring

a lengthy installation and a lot of

resources, so that hasnt helped either.

Companies also differ in their

interpretation of exactly what

automation means. Jones at SmartStream

cites the example of one firm that simply

wanted to replicate its paper processes

on a screen, without making any other

changes. Other firms take an opposite

approach, focusing on achieving highlevels of STP rates wherever possible.

Automation means different things

to different clients, he says. The firm

CORPORATE ACTIONS

As more standardsevolve from initiationof a corporate actionto the end investor,well see further

automation throughout the corporateaction lifecycle

MARTY KRUSE, BNY MELLON


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CORPORATE ACTIONS

Gnrale, Target2-Securities (T2S), the

euro settlement platform, is providing

added push towards corporate actions

automation. The Corporate Actions

Sub-group is supporting the T2S

Harmonisation Steering Group and

the T2S Advisory Group in formulatingand monitoring the implementation of

harmonised rules for corporate actions

processing, in particular on the rules on

corporate actions on pending settlement

transactions (flow). While T2S used to be

seen as just a pure settlement platform,

according to SocGen it is now more than

that. Settlement includes on the one

hand corporate actions on flows and

on the other settlement transactions

as a result of the corporate actions

themselves.

Here is undoubtedly the clear link

between settlement and corporate

actions and this link, from a cross-border

common platform perspective, does

imply speaking the same language, says

de Nexon. It means having the same

definition for dates, their sequences

for a given event, the same rules toprocess it, the same format to exchange

information, the capacity to refer to a

unique identifier in order to be able

to refer to a given event without any

confusion.

The final push over the line for

corporate actions may yet come from

cloud solutions, which have started to

make inroads into corporate actions in

recent years, offering users the promise

of low-cost automation. In March,

Danish bank Ringkjbing Landbobank

implemented SmartStreams TLM

Corporate Actions, which takes a diary

management approach, controlling

milestone dates and key tasks associated

with each event. The key concept is to

present a normalised view of corporate

actions information from any source in

any format, which can be pre-populated

with data from a data vendor of choice.

Cloud has been seen to offer

a solution that provides quicker

implementation, says Price. The scope

of projects is greatly reduced and thetechnical requirements are essentially

removed. A box solution is held back

by the cost of building a server, so

eliminating that is a great step to better,

faster, cheaper implementation.

Before it can automate actions

between all participants, the industry

must adopt standardised templates so

that the information contained can be

processed effectively. However, there

often seems little sign that this will ever

fully take place.There is no standardisation at the

moment in corporate actions, but there

is an attempt to automate some of it,

for example, was established to inform

the European Commission on the state

of implementation of the endorsed

market standards for corporate actions

processing. Members of the group

include the European Federation of

Stock Exchanges, the European Banking

Federation and the European Central

Securities Depositories Association.

The Group is tasked with steering andcoordinating private sector actions to

dismantle the corporate actions barrier

identified by the Giovannini Group.

The European Central Bank (ECB)

is also playing its part. De Nexon

says the ECB is a motor behind the

implementation of the ISO 20022

standard. Program officers at the ECB

monitor harmonisation issues, standard

implementation achievements and

encourage intermediaries. A substantial

amount of work needs to be done untilthe end of 2013, although all standards

have already been endorsed for a while.

In addition, according to Socit

Even when humanrisk is limited with themanual process beingachieved correctly,it can still be an

expensive process simply by essenceof requiring qualified staff capable of

handling the complexity involved in anoperational environment

ERIC DE NEXON, SOCIT GNRALE SECURITIES SERVICES


14/40

DAILY NEWS AT SIBOS

CORPORATE ACTIONS

says Mike Foley, managing director at

Peterevans, a supplier of front and back

office systems. Certain corporate actions

can be mopped up, but the complexity

of others makes it practically impossible.

Others point out that longstanding

moves towards implementation of

existing standards have made some

progress so there is still hope. However,

the sheer number of standards and the

complexity of corporate actions as a

topic make for a challenging task.

Some 130 market standards for

corporate actions processing weredeveloped in 2008, endorsed in 2009

and have been in the process of

implementation at a national level since

then, says Werner Frey, head of post-

trade at trade body the Association of

Financial Markets in Europe (AFME). The

implementation process is well advanced

to the extent that some 85-90 per cent

of standards have been implemented

in what AFME has defined as the eight

major European markets: France,

Germany, Italy, the Netherlands, Spain,

Sweden, Switzerland and the UK.

According to others involved in

corporate actions processing, whileglobal corporate actions are widely

recognised as having some of the

highest risks outside of the trading floor

a factor that should help to encourage

their automation the same factor may

also lead to reluctance to abandon close

manual oversight to the machines.

There are lots of pits and traps out

of all the back office functions its the onewhere you could lose the most money,

says Rob Hardy, head of governance at

JP Morgan asset management. There

are lots of quirks in local legislation

and market practice. There are lots of

intermediaries; there are brokers and

custodians, local agent banks. They all

have very tight deadlines, and if you send

an instruction five minutes too late it will

be done on a best efforts basis. If you

elect for stock when you meant to elect

for cash or vice versa, it can be expensive,

so asset managers like us have kept our

arms tightly around it.

For BNY Mellons Kruse, to some

extent the complexity of corporate

action events will always slow overall

automation rates. But if the industry

continues to emphasise implementation

of flexible and meaningful standards to

the largest number of participants for the

highest volume event types that can be

automated, then implementing those

standards into core processing engines

will be adapted more quickly andeffectively than before. DNS


15/40




INNOVATION

S inventor Thomas

Edison once said: Theresa way to do it better

find it. Such thinking

helped him to develop

the telegraph, electric light bulb and

alkaline storage batteries, among others.

These are all products that are still in use

today, more than 80 years after his death.

Innovation in financial services may

not generate products quite so world

changing, but the principle of finding

better ways to do something does inform

most developments. Through innovation,financial institutions are seeking to

reduce costs (a considerable driver

post-financial crash), improve efficiencies,

U

Innovation is a buzzword at every Sibos. But

what does it mean? Heather McKenzieasked

some bankers for their definitions

THERE IS A

BETTER WAY


16/40


DAILY NEWS AT SIBOS


INNOVATION

reach new customers or improve

customer experience and of course,

make money. While innovation is often

considered to be something new, it very

often can be based on rethinking how

existing processes or systems are used; in

other words, doing it better.

Innovation can mean improving

systems, products or processes that

exist already, or creating something

new, says Teresa Connors, head of client

engagement, TS market engagement,

international banking at Royal Bank of

Scotland. Increasingly in the financial

institution and corporate space we are

seeing innovation in areas that directly

touch customers, as well as in the back-end processing area.

Connors says this is because many

of the previous inefficiencies in back

offices have been driven out by initiatives

such as the single euro payments area

and standardisation. More efficient

back offices have created a platform for

organisations to develop more client-

centric solutions.

David Watson, managing director,

global head of client access products for

global transaction banking at Deutsche

Bank says for a long time, banks have

been trying to determine how they can

offer their broad sweep of products and

services in a simple way for clients to

access and use. Traditionally, innovative

products were perceived as new and

rather complex solutions, which were

not necessarily built with a specific

market problem in mind, he says.

Our understanding is that innovative

products should help clients in a simple,

easy and intuitive manner without

adding further complexity to their dailywork-streams. Our goal is to integrate

ourselves into our clients business model

and reduce their daily tasks rather than

add to them.

A client focus when it comes to

innovation is also the philosophy at Citi.

Hubert Jolly, global head of channel

and enterprise services, Citi treasury and

trade services, says: Innovation is the

development of new solutions that meet

new requirements or existing market needs,

ranging across different forms includingproducts, processes and services. In the

current, highly commoditised transaction

banking market it is critical that innovation

is used to improve accessibility of bankingproducts and services, improve the client

experience and reduce operational cost for

both the corporate client and the banks.

Financial institutions will always say

that clients are at the heart of everything

they do; but developments in other

industries such as entertainment,

retailing and telecoms have led financial

services users both corporate and

consumer to expect much more

tailored services. Banks used to be able

to tell their clients here is the servicewe will offer you. The client could like it

or lump it. The development of digital

technologies has rendered such an

approach inadvisable; when a client cantrack a parcel with a logistics company

easily, it expects the same sort of

capabilities when tracking payments.

Its a well-observed fact that consumers

today have a huge preoccupation

with technological innovations such

as the latest iPhone or the launches of

Google Glass or Samsungs Galaxy Gear

Smartwatch, says Francyn Stuckey, global

head of strategic solution delivery at Bank

of Americal Merrill Lynch (BAML). Often

this translates into companies feelingcompelled to innovate for innovations

sake.


17/40




INNOVATION

Stuckey says BAML believes that

no matter how smart the innovation,if its not going to help solve clients

challenges, its not going to be

successful. Beyond the normal day

to day contact and client forums, one

action we have taken to ensure we align

our technology improvements with

clients needs is through the formation

of client advisory boards one purely

dedicated to our online banking portal,

CashPro Online, and another that

encompasses the entire transaction

services platform, she says.This second Client Advisory Board

comprises a group of senior finance

Technology is the driver for innovation

across transaction banking the world

over, says Stuckey. We are moving to

an increasingly global, online, real-time

environment and only by ensuring our

focus is on people and relationships can

we best leverage technology.

At the International Payments

Summit in London earlier this year many

of the sessions focused on innovation

and the new, disruptive players in the

payments industry. For many payments

professionals, PayPal is considered the

biggest disruptor of them all. However

PayPal is on something of a charm

offensive with financial institutions,

promoting the idea of partnership in

order to offer a more useful experience

for its clients and its banking partners

clients. Dan Schatt, general manager,

financial services innovation at PayPal,

said advanced technologies such as

geolocation were best left to technology

companies to integrate into banks

offerings. PayPal can partner with banks

and yes, we are also a big competitor. But

we have generated a lot of greenfield

interchange revenue for the banks.

Banks can integrate PayPal capabilitiesand we can provide more data around

consumers transactions than can the big

card processors.

Mike Jones, senior manager, financial

innovations at PayPal, expanded on the

organisations collaborative approach.

By making its application programming

interface available to the development

community and those who want to

interact with PayPal, the firm is allowing

innovation to happen outside our

world. PayPal gives a set of tools todevelopers but controls the processes

for onboarding new applications.

executives from some of the worlds

largest corporations. It was set up tospearhead leading-edge thinking on

treasury issues and to facilitate debate

and the sharing of ideas. But part of

the boards central purpose is around

innovation: to identify new solutions

critical to the issues facing todays

corporate treasurers.

This dialogue provides a major

influence for our product development

strategy and enables the company to

gain a far deeper understanding of the

challenges that clients need our help onin order to better meet their business

objectives, she says.

We are moving to anincreasingly global,online, real-timeenvironment and onlyby ensuring our focus

is on people and relationships can webest leverage technology

FRANCYN STUCKEY, BAML


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INNOVATION

Connecting to the development

community has helped us because we

did not have the capacity or developers

to do this ourselves.

Marcus Treacher, global head

of ecommerce for payments and

cash management at HSBC, says it is

important for banks to work with other

organisations because they often bring

different perspectives and ideas, which

can greatly help innovation. The real

value-added products of the future will

be a result of collaborations between

different groups.

Deutsche Banks Watson is also a

proponent of the collaborative approach.We see innovation as something clients

and banks have to do together. This type

of approach ensures that products meet

client needs and solve their day to day

problems.

To be a good innovator, says RBS

Connors, a bank has to be on top of

existing and future customer needs.

An organisation also has to be close

to the regulatory agenda and develop

propositions that support regulatory

intent. The amount of regulation we face

as financial institutions demands a lot of

resource, particularly compared to some

competitors in the payments space who

are non-banks.

Arthur Brieske, global head of

innovation and commercialisation, global

transaction banking at Deutsche Bank

agrees that the regulatory agenda is

important when it comes to innovation.

Deutsche Bank maintains close

relationships with regulatory bodies

and we are building systems that are

viable for the regulatory environment.

Increasingly in thefinancial institutionand corporatespace we are seeinginnovation in areas

that directly touch customers, ratherthan in the back-end processing area

TERESA CONNORS, RBS

19


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INNOVATION

Regulation can drive us to innovate and

to re-evaluate the way we are doing

things today. The bank creates new

solutions with regulatory requirements

built-in so that they are easier to

implement for clients. Additionally, we

are helping our corporate clients to

incorporate regulatory requirements into

the next evolution of efficiencies as they

move to centralised treasuries and shared

service centres to collect payments.

Banks face a conundrum when

it comes to innovation. Regulatory

pressures and the need to be seen as

trusted institutions means that very little

experimentation can take place withina banking environment. Entrepreneurs

can fail and fail again; but a failed

development at a financial institution

attracts headlines and ultimately heads

roll.

For this reason, some banks are

taking a similar approach to Swifts

Innotribe Incubator. The goal is to identify

business opportunities in which Swift

can co-invest, from a 5 million fund

allocated to the purpose. The Incubator

acts as a sandbox, enabling firms to

work in an environment of limited risk,

where financial institutions can judge

innovations on facts and procurement

officers can see applications in action.

HSBC set up an innovation group

a year and a half ago, as well as

strengthening its e-commerce team.

Says Treacher: This innovation group can

draw on a pool of funds in order to try

things out. We prioritise developments

based on a number of factors such as

market gap and the potential of the

idea. We select the ideas that we believehave the most chance of becoming a

transformational success. These ideas

must be able to make a difference for a

large number of our clients.

For example, the bank is working

on a prototype for a smart phone-

based collections solution. This

would be particularly helpful for large

multinationals that supply many small

items to a wide distribution network,

says Treacher. Once we have tested the

prototype we look to make it availablemore widely, by testing, ensuring robust

security and total reliability across all

the markets where a mobile collections

solution will be available.

Regulation is sometimes the spur

for innovation, in some cases financial

institutions will develop a solution

internally to address a regulatory

demand and then develop the solution

into a product for clients. For example,

RBS has developed a liquidity dashboard

in response to intraday liquidity

requirements that will be offered

to clients to support their liquidity

management needs.

Good innovation teams should be

able to both judge the market to see

when a new solution is needed and also

to determine when a product needs to

be retired. There should be a conveyor

belt of products and solutions, and the

team should know when to bring new

developments to market, Connors says. The

team should comprise creative thinkers

who are prepared to take calculated risks

and also very strong analysts. These involve

different skill sets and personalities.

The interesting thing about

innovation, says Treacher, is that you can

get the technology right but the acid

test is how new products and services

are received. We are always prepared to

evolve the channel to meet the needs of

our customers.DNS

The nine early-stage startup finalists are:

Azimo, a platform that uses mobile and social technology to reinvent the way that

economic migrants send money back to their families in the developing world.

Growth Intelligence, automatically generates qualified time-sensitive sales leads, tracking

the performance and activity of every business in the economy in real time.P2P Cash, a secure mobile platform that lowers money transfer cost to zero by using

Swift standards to allow cash to be sent or received from any mobile wallet or bank account

worldwide.

KlickEx (formerly PassportFX), a regulated clearing service for central and commercial

banks.

Pocketbook, an application to manage personal finance by providing a single view on

spending.

Realty Mogul, a Web platform that allows investors to browse, screen and sign rare real

estate opportunities that have been historically difficult to access.

Twikey (formerly Paymandate), a solution to efficiently manage online mandates and

contracts with end-customers.

XYverify, a virtually invisible mobile payment authentication solution that protects

consumers, merchants and financial institutions from identity theft and transaction-related

breaches.

z-crd, a cloud-based international transaction system.

Swifts Innotribe Challenge begins today at 12.30 in the Innotribe Space. A series of

regional heats produced the following finalists.

The six growth-stage innovator finalists are:

Gieom, a product that interconnects banking operations providing information on business

processes, screen simulations of IT systems, e-books of regulations and business performance.

Quantum4D, visual analytic software that enables users to access large-scale data systems

and construct, edit and explore interlinked 3D arenas and workspaces intuitively.

The Entrepreneurial Finance Lab, an automated service that has helped companies and

lenders in more than 20 countries to identify high potential, credit-worthy entrepreneurs basedon a psychometric system.

Virtual Piggy, a global payment enabling service that facilitates online spending by young

people, under parental supervision.

V-Key, software that protects mobile applications against cyber-attacks.

Waratek, a solution that solves a specific problem affecting the future use of Java as the

industry moves towards higher levels of infrastructure virtualisation and private clouds.

THE INNOVATORS OF TOMORROW


22/40


DAILY NEWS AT SIBOS


DAILY NEWS AT SIBOS

OPERATIONAL RISK

ell is other people, wrote

Jean Paul Sartre in his

1944 existentialist work

No Exit, a play abouteternal damnation.

The same sentiments are likely being

expressed by banks operational risk

managers given that an increasing extent

of this risk resides beyond the banks

own employees and systems and with its

vendors, clients and counterparties.

This operational risk is especially

significant in the transaction banking

business, where volumes are so high and

the number of clients and counterparties

are so diverse. Furthermore, the biggestfines and worst headlines in the banking

world of recent years have centred on

transaction banking with HSBC paying

out $2 billion as a penalty for lax anti-

money laundering controls.

The focus of operational risk

management today is to ensureconnections with all of the relevant

parties in the transaction chain and

all the processes from front to back,

says Heike Nott, global head client and

operational risk, global transaction

banking, Deutsche Bank. This gives a

complete picture of risk and allows a

more proactive approach to risk so that

judgments can be made to mitigate,

accept or avert risk. We have a diverse

set of clients and a variety of products

that we offer to them so it is vital that weknow our clients very well.

Banks have consequently bolstered their

due diligence process for taking on new

clients or helping existing clients enter new

markets. When we open an account for

a client we have to understand what the

client will be using it for, where that accountwill be based and how it will be used, says

Stephanie Wolf, head of North America

financial institutions and Canada sales,

global transaction services, Bank of America

Merrill Lynch (BAML). What I am looking

for most from my clients is how well they

know their own clients, says Wolf. Does

the client have the sufficient risk controls

and parameters that will help me to service

them?

Some industries and client types

have greater operational risk thanothers and BAML has identified seven

areas of heightened operational risk

within a payments perspective and will

H

HELL IS

OTHER

PEOPLEAs the focus on operational riskincreases, Nicholas Prattdiscoversthat the greatest threats to a bankssecurity lie outside of its four walls


23/40




OPERATIONAL RISK

investigate if a clients activity involves

any of these:

nCorrespondent banking the number

of heavy fines levied in this area;nCash products and processes always

at risk of being used illicitly;

nPrivate banking non-transparent

entities and complex structures;

nPolitical risk and corruption;

nNon-bank payment providers debt

collection agencies, casinos, payday

lenders;

nShell companies non-transparent

legal entities; and

nWire-stripping the omission of

transaction details.

Wolf recognises that this list is liable

to constant change and is more likely

to increase rather than decrease. For

example, the next area to be identified

might be virtual money and transaction

banks will have to examine exactlywhat this vague term means and to see

whether it is something their clients are

engaged in.

The bank then has to continue with

ongoing monitoring. BAML uses a system

to track the performance of its clients

activities and to determine whether the

value and volume of this activity is in

line with what is expected, says Wolf. It

is a two-tail risk. It is our job to generate

revenue for the bank but you also have

to investigate when you get more thanyou expect.

The more intensive due diligence

towards a banks clients has been fuelled

in part by the unfavourable headlines

that have greeted other banks and the

desire to avoid the same fate. And it

has been helped by the advancementin technology, says Wolf. Our systems

are more sophisticated so it is easier to

do the checking and monitoring. Much

more of it is possible through the click

of a button rather than through a tour of

the clients facilities.

For custody banks, which are

charged with the safeguarding of clients

assets, there is an intrinsic aversion

to any situations that would increase

operational risk. We do not outsource

to providers or operate in the cloud. Weare heavily dependent on Swift, which

mitigates many of our operational risks,

says Goran Frs, head of custody at SEB.



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DAILY NEWS AT SIBOS


DAILY NEWS AT SIBOS

RETAIL BANKING

However not every one of SEBs

counterparties is connected to Swift,

which is ostensibly a bank to bank

communication network, and this creates

a supply chain risk for banks. When we

communicate with other banks it is via

Swift which is very safe and secure. The

problem is more with our clients who are

happy to use the public Web. We provide

them with an interface to communicate

securely with us but it is very difficult to

impose specific technology processes or

protocols on clients.Going forward we will closely

examine how a client fulfils its AML

and KYC obligations and its regulatory

requirements in general. We will be more

careful in our due diligence and ensure

that the client has a viable operation but

it will not be as extensive as demanding

the use of specific technology.

The operational risk from a banks

counterparties is also increasing in the

securities world where new regulations

around the globe will reduce the lengthof settlement cycles. In Europe, under

the Central Securities Depository (CSD)

Regulation proposed by the European

Commission, all securities transactions must

be settled on a T+2 cycle by January 2015.

Euroclear will introduce T+2 settlement

in October 2014 and other CSDs and

international CSDs are expected to follow

suit in the last quarter of 2014.

For participants, moving to T+2

creates some significant operational

risk, says Tony Freeman, global head of

industry relations at post-trade solutions

provider Omgeo. There will be a whole

day taken out of the settlement cycle

so firms will have to review their entiresettlement process and this is not

something they can do on their own.

The investment management clients

of brokers and custodians also will have

to review their processes. This is likely

to put pressure on those investment

managers that have not automated

their post-trade processes, including

the communication of trade settlement

instructions, says Freeman. For the more

sophisticated firms with automated

processes, it is not too challenging toissue an instruction 24 hours earlier but

for the more manually reliant firms there

will be some operational issues.

For the custodians and transaction banksthat have a back-office based business

model, there has been sustained pressure

on clients to embrace automation. For

brokers, where client relationships are less

sticky and front rather than back office

activity has led strategy, this has not always

been the case.

However, says Freeman, the

shortening of the settlement cycle has

led broker dealers to take a closer look

at the operational efficiency of their

clients. The penalty for a failing tradewill rise and this will make operational

risk more tangible and increase pressure

from brokers on manually reliant clients.

OPERATIONAL RISK

When we openan account for aclient we have tounderstand what theclient will be using it

for, where that account will be basedand how it will be used

STEPHANIE WOLF, BAML


25/40

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26/40


DAILY NEWS AT SIBOS


There are clear signs that if a client is

operationally inefficient, the back office

will have more say in determining the

attractiveness of that client.

Alongside the know your customer

requirements, Europes Alternative

Investment Fund Managers Directive

and shortened settlement cycles there is

the straightforward technology risk that

comes from an increasingly connected

banking environment. Here private

and non-private networks co-mingle,

exposing banks to greater operational

risk and compelling them to take greatercare in their vendor management.

There is an expectation of security

from everyone in the supply chain and

everyone is expected to do their part,

says Chris Pickles, head of industry

initiatives, global banking and financial

markets at UK-based teleco BT. Banks

are realising that they have to take on

vendors and service providers that meet

an operating standard. Regulation does

not absolve banks of this responsibility.

Requests for proposals are moreexplicit about the technology risks and

for the vendors it is important that they

are well equipped to respond in full and

in time to these questions, says Pickles.

It is also important for vendors to take

a role in industry initiatives around

security and operational risk. Similarly

it is important that vendors are able to

participate in the discussions without

abusing that position and launching into

a sales pitch.

Positively, there have been a number

of market-wide security exercises in the

past few years that have involved banks

and their service providers. In the UK,an exercise led by the Bank of England,

the Financial Conduct Authority and the

Treasury has been carried out every two

years to examine the effectiveness of

business continuity plans.

Meanwhile in the US more than

60 broker dealers, clearing firms and

exchanges working under the umbrella

of the Securities Industry and Financial

Markets Association staged a mock

cyber-attack on 28 June this year to

test the robustness of their respective

trading systems in line with the proposed

Regulation SCI. The Regulation is

designed to ensure that all systems

involved in the US trading market

meet certain IT and business continuityrequirements.

Pickles believes that as cloud

technology becomes more pervasive

the ability of the financial industry to

work together on developing security

standards and creating private cloud-

based communities will be key to

ensuring security and availability in a

financial market of greater connectivity.

The development of cloud technology

will be based on the ability to plug and

play and to swap between companyproviders and application interfaces.

Standards will be key to ensuring the

right level of security. DNS

OPERATIONAL RISK

We do not outsourceto providers oroperate in the cloud.We are heavilydependent on

Swift, which mitigates many of ouroperational risks

GRAN FORS, HEAD OF CUSTODY AT SEB


27/40




GLOBAL CUSTODY

How is the global custody and asset servicing model changing? Will

consolidation occur? What do clients want? Daily News at Sibosfinds out

Gran Fors,global head of custody, SEBGlobal custody is set to go through tremendous changes in the near future,

posing challenges for all involved.

For many years we focused on developing efficient procedures for

corporate actions, talking about new markets, increasing efficiency and

mitigating risk. This was all done under the safe umbrella of continuous

growth in the industry, with increasing volumes and reasonable profits. Of

course, we spoke about the need for change. Following the crisis of 2008

we had to replace the umbrella with a new one as the old one blew away

and we actually got a bit wet.

Equipped with our new umbrella we continued with big smiles and

our industry developed well. Despite a few casualties along the way the

confidence level remained high.

But what did we change and what did we learn?

Looking back at the past five years I believe that we did learn a few

things, but that we did not really do what was needed to facilitate change.

Indeed it seems to be difficult to really

transform your model when you live under

continuous growth.

The regulators definitely learned that it

was possible to regulate our industry and that

has certainly been done in a big way.

We now live under heavy regulation,

strong cost pressure and declining volumes.

In combination with a lack of growth and

declining margins, this is a bit like being between a rock and a hard place.

That is rather an uncomfortable position and means that we need to take

some action in order to change our model for the future.

The custody industry is a very important part of the global capital

markets and will continue to play a significant role going forward. However,

we have to show that we are agile and can adjust to the new normal.

THIS YEARSMODEL

Joanna Meager,co-head, investor services, RBC Investor & Treasury Services

The custody industry continues to be defined by two themes: a major

shift in the needs of custody clients and ongoing regulatory changes.

Clients remain sharply focused on cost control, minimising riskand asset safety. The choice of custodian has become largely guided

by their financial strength as a counterparty and the reassurance this

offers. Clients are looking for transparency around fees, clarity on

ownership, segregation and accessibility of assets, and a provider with a

comprehensive system of internal controls and policies. Moreover, they

are seeking service providers with the ability to go beyond traditional

custody functions and support them in the execution of their growth

strategies through value added services such as distribution support

and investment analytics.

Similarly, educating and supporting clients in compliance with evolving

regulation is key. This continues to place cost, organisational and operational

demands on clients and final requirements

often remain under discussion as the

regulatory framework continues to takeshape. Custodians need to not only ensure

compliance with the regulation, but assist

clients in identifying the opportunities that

any change could potentially create.

As the industry continues to face a low

margin environment, taking this broader

role is as essential for custodians as it is for

their clients. It is paramount that service providers work to meet clients

business needs as a full and integrated partner. By doing so, they will in

turn meet their own objectives and those of their stakeholders, while

best serving their clients.


28/40


DAILY NEWS AT SIBOS


DAILY NEWS AT SIBOS

GLOBAL CUSTODY

Some global custodians have opted toexpand their inhouse subcustody network;whereas other niche players, servicingspecific markets or products, are alsostarting to emerge, as well as new playersentering the market place altogether

The model has changed and we needto explore new avenues and activitiesin order to continue to thrive. Thatrequires significant commitment inrespect of management time, resourcesand reinvestment in technology andintellectual capital

Samir Pandiri,chief executive, assetservicing, BNY Mellon

The global custody offering is continuously

evolving via incremental steps, but over

the past 12 months it is fair to say our

industry has experienced revolutionary

change. We are at an inflection point in

our history, a transformative moment. As

an asset servicer, we cannot stand still.

The model has changed and we need

to explore new avenues and activities in

order to continue to thrive. That requires significant commitment

in respect of management time, resources and reinvestment in

technology and intellectual capital. That bar is being set ever higher,

and we are already seeing consolidation as smaller, more narrowly

focused providers choose to exit this space.

Risk, regulation and cost control continue to be the key drivers

that we see driving demand among our clients for solutions that are

at once flexible and scaleable. This is a challenging and ever more

complex environment for everyone, and clients continue to look to

us to help them transform their business models, notably around risk

mitigation, collateral, transparency, compliance and distribution.The boundaries between traditional businesses and areas of

expertise are dissolving. Today clients want broader, more multi-

faceted solutions that are delivered in a more seamless fashion.

They are asking us to do more for them. Accordingly we have

reengineered our offering to ensure we are touching all points across

the investment lifecycle: from the creation of assets through the

trading, clearing, settlement, servicing, management, distribution

and restructuring of those assets. To support that, we have enhanced

our client management model to better align our resources with

emerging needs. And we are continuing to expand that model to

ensure better support for complex global clients, as well as creating

full-service teams focused on specific clients, market segments andregions and simplifying our operating and service delivery platforms.

Antonio Thomas, chairman,

RBS Fund Services

New regulations and the cost of

implementation are the main drivers

forcing the funds industry to reassess

traditional service models and crystallise

change. The Alternative Investment Fund

Managers Directive and the imminent

Ucits V Directive will both encourage

further clarification and harmonisation as a

result of increased liability for depositories

to protect the underlying investor and boost investor confidence.

Asset managers will be affected by these changes, which bring

increased controls, potentially less flexibility in the service model and

more cost, as the depositories for their investment funds review theirrisk appetite on subcustodian liability profitable markets, modifying

their subcustodian network model and carve ou

Documents

Sibos Wed 18 Sept