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Published by
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
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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
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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
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SIGN, PRODUCTION
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BEDITOR AND
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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.
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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
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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
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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
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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.
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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
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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
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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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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
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DAILY NEWS AT SIBOS
Wednesday18 September 201326
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
8/12/2019 Sibos Wed 18 Sept
27/40
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DAILY NEWS AT SIBO S
Wednesday18 September 2013 27
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.
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DAILY NEWS AT SIBOS
Wednesday18 September 201328
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