How to survive and thrive in a real-time world

Transcription

COLLATERAL
YVES MERSCH
Infrastructures can
alleviate a looming
collateral shortage
What a central bank
sees infrastructure
doing for consumers
How to survive
and thrive in a
real-time world
ISO 20022 needs harmonization, not
differentiation
Lisa-Landsdowne Higgins :
A mindset open to
change
Contents
Introduction
p.7
Deepening and widening our
collaboration with market
infrastructures
Juliette Kennel, head of market infrastructures at SWIFT, spells out
the many different ways in which SWIFT is expanding and deepening
its commitment to the sector.
Articles
INFLUENTIAL PEOPLE
p.10
Farewell Christine Cumming
STRATEGIC INITIATIVES
p.22
The challenges and rewards
of an ISO 20022 pioneer
ROUNDTABLE
p.31
What market infrastructures
can do for collateral managers
INFLUENTIAL PEOPLE
p.52
Mindset open to change
KEY PERSPECTIVES
p.64
European CSDs are still
authors of their own destiny
KEY PERSPECTIVES
p.76
What needs to be done
to make real-time retail
payments a reality?
p.80
The emerging single market in
South-East Asia
p.96
Innovation in European retail
payments
p.104
Everybody benefits from
standardizing the ISO 20022
standard
Former Federal Reserve COO Christine Cumming looks back on
35 years at the heart of financial deregulation and innovation, risk
management and operational resilience.
Sergey Putyatinskiy and Maria Ivanova of the NSD in Moscow
explain why Russia sees ISO 20022 as the foundation of a modern
payments and securities market infrastructure.
Ted Leveroni (DTCC), Andrea Tranquillini (globeSettle) and JeanRobert Wilkin (Clearstream) explore how market infrastructures can
help collateral managers.
RBC vice president and SWIFT board member Lisa LansdowneHiggins argues that no banking business today can rival payments
for interest and opportunity.
Isabelle Olivier of SWIFT finds that T2S, the single European settlement
platform which launched this summer, creates opportunities as well
as threats for European CSDs.
Shuji Kobayakawa (Bank of Japan), Steve Ledford (TCH),
Chris Hamilton (APCA), Hays Littlejohn (EBA CLEARING) and
Craig Tillotson (Faster Payments) give their perspectives.
The journey towards a full integrated capital market in South-East
Asia has begun, says Paul Gwee, Secretary General of the ASEAN
Bankers Association.
Yves Mersch, a member of the Executive Board of the ECB,
describes why the European central bank supports a real-time retail
payments infrastructure for Europe.
Andrew White outlines why the proliferation of local interpretations of
the ISO 20022 messaging standard is undermining the purpose and
value of the standard.
RISK & REGULATION
p.116
Pioneering MIRS
p.122
Payments are all about the
customer experience
RISK & REGULATION
p.130
CCP risk is a borderless
question in need of a global
answer
KEY PERSPECTIVES
p.138
Sharing what SWIFT has
learned about RT-RPS
The MIRS resiliency service developed for central banks by SWIFT
will become even more valuable as adoption spreads, thinks Kjetil
Heltne of Norges Bank.
Banks need to transform the way they think, work and invest if they
are to retain their customers, writes Mark Buitenhek, global head of
transaction services at ING.
Natasha de Terán, head of corporate affairs at SWIFT, says the
concentration and contagion risks of CCPs require more convincing
answers from international regulators.
Carlo Palmers and Elie Lasker, senior market managers, real-time
payments, at SWIFT, share what they have learned about real-time
retail payments systems.
MI Forum sessions
p.150
Ask not what infrastructures
can do for their users but
what users can do for
infrastructures
Banks and infrastructures are competing but mutually supportive
parts of the network that makes up the financial eco-system,
writes Frank Van Driessche of SWIFT.
p.162
The truly resilient
infrastructure is not afraid to
learn from other industries
John Hagon describes how CLS draws on the experience of other
industries to ensure the FX settlement infrastructure maintains its
reputation for operational resilience.
p.170
Safety and speed are not
alternatives
The momentum towards real-time retail payments 24/7, 365 days a
year is unstoppable, and checks and controls must adapt to the new
realities, says Liz Oakes of KPMG.
p.176
Blockchain has the power
to resolve the paradox of
infrastructural innovation
Customer demands, regulation and disruptive technologies are asking
questions of infrastructures attuned to safety-first, according to Virginie
O’Shea of Aite Group.
Market Infrastructures Forum magazine / Issue3
Publisher
SWIFT
Editor
Dominic Hobson
[email protected]
Head of Market Infrastructures, SWIFT
Juliette Kennel
[email protected]
Design
Bim Hjortronsteen
[email protected]
Avenue Adèle 1
B-1310 La Hulpe
Tel: +32 2 655 31 11
Fax: +32 2 655 32 26
SWIFT BIC: SWHQ BE BB
http://www.swift.com/
Disclaimer
SWIFT publishes MI Forum Magazine for information purposes
only. Any personal views expressed in MI Forum Magazine are
the contributors’ own and do not necessarily reflect the views of
SWIFT or its members. SWIFT © 2015. All rights reserved.
Introduction: Deepening and widening our
collaboration with market infrastructures
Welcome to the third edition of MI Forum magazine. The publication
is one measure of the importance SWIFT attaches to market
infrastructures, not just because they are valuable customers,
but because they serve the whole community and underpin
every transaction that takes place in the payments and securities
industries. This issue also marks the third anniversary of the
establishment of a team dedicated to market infrastructures at
SWIFT. In that time, both our users and the Board have become
convinced that SWIFT should not only maintain its focus on market
infrastructures, but deepen it. This publication offers a glimpse at
some of the ways in which we are doing that.
The
financial
market
infrastructures
(FMIs) that are so essential to both the
frameworks launched by the Association
of Southeast Asian Nations (ASEAN).
payments and securities industries are
undergoing significant structural changes.
With 79 Real Time Gross Settlement
The integration of FMIs at the regional level
(RTGS) systems and over half of the 150
was pioneered in Europe with the creation
central securities depositories (CSDs) in
of TARGET2 (T2), and more recently
the world now on our platform, SWIFT
the Single Euro Payments Area (SEPA)
is not merely a witness to structural
and TARGET2-Securities (T2S). Those
change, but a facilitator of it. In fact,
infrastructural initiatives have led the way
as systemically important institutions,
for the Integrated Latin American Market
what FMIs want first and foremost from
(MILA), the Southern African Development
SWIFT is that it maintain the highest
Community (SADC) and also, as this
standards of operational excellence
issue of MI Forum magazine records,
and availability on their behalf. Our
the financial and banking integration
classic messaging services are proving
easily adaptable to new uses, such as
After a slow start, ISO 20022 is now firmly
We have begun to build the RT-RPS
are both profiled in this issue, are certainly
collateral management. Our store-and-
established among FMIs, as the Russian
infrastructure for the New Payments
examples of such people. But then so, in
forward capabilities provide reassurance
CSD, the National Settlement Depository
Platform in Australia (NPP). This is
their different way, is everybody who has
and flexibility. Above all, amid mounting
(NSD), notes in this issue. However, the
exciting for SWIFT, not just because it
contributed to or been interviewed in this
anxiety about cyber-security, SWIFT
growing success of ISO 20022 is due
is a new business for us, but because
issue.
provides FMIs with the highest levels of
security and resilience.
in large part to its open status, and an
unfortunate side-effect of this openness
is the risk of a proliferation of multiple
we believe the underlying technology
we are building for Australia has the
potential to be redeployed in other
geographies and markets.
Engaging with the people who want to
make a difference to the payments and
securities industries will be an integral part
SWIFT continues to invest in
enhancing its services
versions in the marketplace. But, as
Andrew White writes in this issue, FMIs
That is why we are devoting so much
At SWIFT, collaboration with our clients is
But in an age of sweeping structural
have now recognized this risk, and have
space to RT-RPS in this magazine, with
more than a buzzword. We already host
change and fast-evolving competitive
started work to harmonize the use of the
contributions on the subject from both a
regular joint meetings with our clients’
and security threats, SWIFT cannot meet
ISO 20022 standard: at Sibos Singapore,
practitioner (Mark Buitenhek, global head
staff, and we are now experimenting with
these expectations without continuing to
they will jointly sign a charter to commit to
of transaction services at ING) and a
exchanging employees to improve our
innovate and invest in new technology and
a consistent use of ISO 20022.
regulator, (Yves Mersch, a member of the
understanding of what it is actually like to
Executive Board of the European Central
be a SWIFT customer.
services. This is why we have developed
new messaging and integration services
for T2S users; introduced a new payments
risk management service for central banks
Bank (ECB)), as well as through a series
RT-RPS opens new business
possibilities far beyond payments
called SWIFTScope; formed the SWIFT-
This is the kind of work that SWIFT is
for-India joint venture; delivered an ISO
well placed to facilitate. As Kjetl Heltne
20022-enabled high-volume messaging
channel that can be used, for example,
by CLS members; developed a Market
Infrastructure Resiliency Service (MIRS) for
RTGS operators; and encouraged the use
of products like MyStandards to help FMIs
with their roll-out of standards, including
ISO 20022.
It is impossible to overstate the importance
of ISO 20022 in the market infrastructure
space. As a message standard, it is of
course at the heart of what SWIFT does.
of Norges Bank points out in this issue,
users of SWIFT services expect us not
only to improve connectivity between
of interviews with leading figures in the
payments industry, and a question-andanswer summary of our own thinking on
the topic.
It takes people, not platforms, to
collaborate
The possibilities opened by RT-RPS
we provide already. Even our newest
technology are genuinely inspirational. Yet,
business venture in the infrastructure
however stale it sounds, FMIs are ultimately
space – the support that we are offering
driven not by technology but by people,
that want to offer real-time retail payment
services (RT-RPS) - fits into this pattern of
building on existing services.
This magazine is of course also a way
to share knowledge, information and
understanding with our clients. It is based
on the belief that, the more we share, the
more effectively we will work together. I
hope you enjoy reading it as much as we
FMIs, but also to improve the services
to payments market infrastructures (PMIs)
of our strategy over the next five years.
have enjoyed creating it.
and especially by people determined to
make a difference. Christine Cumming,
formerly of the Federal Reserve Bank of
Juliette Kennel
New York, and Lisa Lansdowne - Higgins,
Head of market infrastructures, SWIFT
of the Royal Bank of Canada (RBC), who
[email protected]
INFLUENTIAL PEOPLE
Farewell
Christine
Cumming
MI FORUM / 2015
Among payments bankers, the reputation
of Christine Cumming rests on her
leadership of the modernization of
Fedwire. But in a 35-year career at the
Federal Reserve that ended in June this
year, she also played a leading role in
fashioning the response of the bank to
financial deregulation and innovation, risk
management and operational resilience.
As Alexandra DeLuca discovered, when
she interviewed her shortly before her
retirement, Christine Cumming has not
lost her zest for continuous improvement.
Christine Cumming did not sound like a
improving the financial system—and,
central banker on the eve of retirement.
characteristically, that the time to start
The then still second-highest ranking
it was never more propitious.
officer, COO and first vice president of
the Federal Reserve Bank of New York
spoke with the energy and thoughtful,
measured conviction of an economist
The excitement of real-time retail
payments
still entrenched in the day-to-day life of
the capital markets.
Nowhere is that sense of urgency
more evident than in her views on the
When MI Forum magazine caught
American payments system. Fedwire—
up with her at 33 Liberty Street, she
the real-time gross payments system
was no more than weeks away from
operated by the U.S. central bank—
concluding a career at the American
fell within the purview of Cumming, in
central bank that stretches back more
her capacity as chief operating officer.
than 35 years. Yet she insisted there
She believes the Federal Reserve has
was still much work to be done on
an important leadership role to play in
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guiding the development of the entire
payments system.
Strategies for
Improving the U.S. Payment System,
a paper published by the Federal
Reserve in January of this year, pointed
to real-time retail payments (RT-RPS)
as the priority. “I am very excited about
that paper,” says Cumming. “It was a
wonderful effort within the Federal
‘‘The time is now, and
that is very valuable.
We are not alone in
this.’’
Reserve to ask where we need to get
to in the United States. The idea that
- Christine Cumming, formerly
quickly rose to the top was something
of the Federal Reserve Bank of
faster for retail payments than what
New York
we have today.” The Fed had hired
a consultant to examine alternative
routes to a faster, more secure and
more international payment system.
The central bank is clear it wants an
industry-led process of modernization.
“It is exciting, and I hear people
are eager to get on with this,” says
Cumming. “Hopefully there is going to
be engagement and even some heat,
a necessary by-product of producing
light. Roll up your sleeves; figure out the
pros and cons; and really talk seriously
about which of these solutions seems
to make the most sense. If there is a
service the paper has performed, it is
to get people to realize that the time
is now, and that is very valuable. We
are not alone in this.” On a recent trip
to Asia, Cumming joined a panel that
2015
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‘‘We have a lot of
legacy in the U.S. The
early advantage meant
we could rest on our
laurels a little more
than is desirable.’’
New York
2015
discussed similar efforts in Australia,
“I was very lucky at the time,” she
place to grow up,” she explains. “It
Japan, Singapore and Europe.
recalls. “The department had these
is low crime, very clean and very
forward-thinkers in economics such
homogenous. I was really interested in
as Tom Sargent, Neil Wallace and
going to a big city that was diverse and
Changing reality by putting ideas
into practice
Chris Sims, two of whom are Nobel
more challenging—where everyone is
laureates now.”
not necessarily nice.”
Where theory meets practice is natural
After earning her B.S., Cumming
Her first role was in the International
territory
travelled
a
Research Department. She covered
practical
scholarship. “My first big lesson as
Italy, which had a bank run late that
application of ideas was what drew
a student in Germany was watching
year. At the time, monetary policy in
her to study economics in the first
the impact that U.S. news has
countries such as Italy was conducted
place. She read the subject as an
overseas,” she recalls. “I wish it was
not by open market operations, but by
undergraduate at the University of
possible for everyone in the U.S. to
direct quantitative controls on credit.
Minnesota.
sounded
see how important what we do here
intriguing, partly because I did not
is, and how necessary it is to lead by
The Italian banking system was
know anything about it, but secondly
example.”
heavily cartelized, and an increase
A
for
Christine
fascination
with
Cumming.
the
“Economics
to
West
Berlin
on
in official rates in 1979 did not
because economists were described
as applying mathematical models
After returning to Minnesota for a
translate into increases in deposit
to the world,” she says. “I was really
year – a condition of the scholarship –
rates, leading to a flood of money
interested in how the world worked
Cumming identified an ideal place to
from bank deposits into government
and how business worked. I was
lead by example, and in her chosen
paper. “The inevitable happened,”
hooked right away.”
specialties
and
she says. “The Bank of Italy had to
monetary policy too. “The New York
do a large intervention to fill the gap.”
of
econometrics
practical
Fed was quite seriously at the top of
choice. As a native of Minnesota,
my list,” she says. “Its mission, and
By the end of 1979, the Federal
in-state tuition totaled a whopping
the fact it was international-facing,
Reserve was led by Paul Volcker, who
$125
was a huge attraction.”
squeezed inflation out of the system
The
university
a
was
quarter.
a
But,
luckily
if
by raising interest rates as high as 20
unbeknownst to her, the university
also happened to be one of the
She arrived in New York in 1979, as the
percent in 1981, providing a stable
leading schools for economics in
reputation of the city had just begun
foundation for nearly 30 years of
general and econometrics - the
to rise from its nadir, but nevertheless
expansion and innovation in financial
use of mathematics to describe
welcomed the challenge of starting a
markets. Cumming spent the first
economic systems - in particular.
career there. “Minneapolis is a nice
seven
years
of
that
remarkable
MI FORUM
period in International Research, a
when she joined the International
The crisis of 2007-08 put decision-
brief detour to J.P. Morgan apart, so
Capital Markets Group at the Federal
making based on partial knowledge
she knows how ideas can change
Reserve. A new department, it focused
to the ultimate test. “My whole
reality. “For a long time, that strong
on product and market innovation in
education had me thinking that
market tradition was beneficial to the
financial services. In the retrospective
we will never have another Great
U.S.,” says Cumming. “One of our
light of the financial crisis, the work
Depression,” recalls Cumming. “We
biggest exports was financial services,
of the group on the use of cross-
thought we knew how to prevent
because we had open markets and
margining to help repo-dependent
it.
sophisticated practitioners. Of course,
securities firms fund new financial
and totally wrong. We had a Great
the other side of our success is that we
products, and the unbundling and re-
Recession. The lesson is that we
have a lot of legacy in the U.S. The early
packaging of risks in the securitization
need to ask ourselves hard questions
advantage meant we could rest on our
and derivatives markets, reads oddly.
about our assumptions.”
Of course that was completely
laurels a little more than is desirable.”
Of
course,
innovation
sparked
multiple mini-crises in the 1980s
Combat the complacency of the
pioneer
and 1990s. Cumming had direct
The questionable value of
financial innovation
‘‘We under-estimated
the cleverness of
human beings adrift
from their moral
compass. We never
contemplated people
playing the type of
games they played
in the run-up to the
financial crisis.’’
experience of one when, after rising to
vice president in 1992, she joined the
One of the hard questions prompted
It is to combat complacency that
domestic arm of the Bank Supervision
by the financial crisis was the value
Cumming urges innovation now. “At
department. She arrived at the tail-
of financial innovation. “By the time
New York
this point, it is important for us to
end of a commercial real estate-
we got to the financial crisis, we
have a vision of where we want to be
related banking contraction. “Up until
realized it was not all for the good,”
in five or ten years’ time,” she says.
then, it was me and the computer,”
says Cumming. “Some of the things
“That is hard to do when our financial
she recalls. “It was concept and facts
that people were worried about in
institutions have to meet the business
- nothing that led to immediate action.
the 1990s came to fruition. I wish
and regulatory expectations of a post-
All of a sudden, I was in a job where
we had understood more deeply
crisis world. But, at the same time,
you had to make decisions, and the
what we needed to guard against.
the crisis is a tremendous opportunity
institutions had to make decisions,
We saw the glimmers, but we
for financial services firms to re-think
which
put
under-estimated the cleverness of
how they serve their customers in the
something forward and it mattered.
human beings adrift from their moral
21st century.”
You could not dither. It was a great
compass. We never contemplated
experience in decision-making - how
people playing the type of games
Her own experience of financial
you never know everything you need
they played in the run-up to the
innovation stretches back to 1988,
to know.”
financial crisis.”
means
you
had
to
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‘‘We ended up in this
grey zone, and it was
not clear how you
were accounting for
risk in some of the
credit instruments.
That was where a
huge amount of risk
built up in the system.’’
Inevitably, the crisis has made it harder
A lot of the approaches to measuring
for the central bank to collaborate with
market risk and credit risk were being
the banks in the ways that it did in the
developed in the late `80s and `90s,
1980s and 1990s. “It has been more
when I was in bank supervision. It was
difficult to do collaborative work with
very exciting to learn from the banks,
the industry to understand how rapid
the academics and consultants about
change is reshaping risk profiles,” says
how they were thinking of measuring
Cumming. “Good collaborative work
those risks.”
was done in the 1990s. The greater
and
Traditional measures of risk had a
supervised entity that was necessary
limited understanding of correlation. In
after the crisis makes that collaboration
fact, it was the sectoral measurement of
much harder. My own personal hope
risk that undermined the effectiveness
is that we can get back closer to the
of Basel I. Cumming helped to spur the
relationship in which there is learning on
decision to reshape the Basel regime in
both sides of the table to manage risk
the late 1990s. “That second effort was
distance
between
supervisor
‘‘We had not
contemplated physical
attacks. Today, we
have to contemplate
cyber-attacks and the
sad thing is, of course,
the nature of the
threats is much more
destructive than the
weather.’’
in the financial system better. But I think
successful, though it ran into problems
we still have quite a way to go before
created by the overlap between market
New York
we get back to those days.”
risk and credit risk,” says Cumming.
“We ended up in this grey zone, and it
New York
was not clear how you were accounting
The value of modern risk
management techniques
for risk in some of the credit instruments.
That was where a huge amount of risk
built up in the system.”
But Cumming reasons that something
valuable did survive the rupture of 2007-
She learned about yet another aspect
08. This was modern risk management
of risk when in 1999 she succeeded
techniques, which she encountered
Stephen Cecchetti as director of
for the first time in her role in Bank
research. It was an important job –
Supervision. “Risk management at that
she started to attend meetings of the
time was a new discipline,” she explains.
Federal Open Market Committee - but
“There were old risk management
Cumming says the thoroughness of the
techniques, but no one saw how they
work of her two predecessors made it
fit together in a common framework.
“the least hard job I ever had.”
2015
Unusually for a research director,
much to precise measurement, so
operational risk became a major focus.
making it more visible turned out to be
The introduction came in the form of a
very valuable,” she says. “Risk events
research paper submitted to her on the
get characterized as mistakes, and
effect of 9/11 on the payments system
there is a natural tendency to want to
and
“Previously,
put mistakes in the shadows. But there
we worried about hurricanes and
is always a tremendous lesson to be
snowstorms,” she says. “We had not
learned from any risk event about how
contemplated physical attacks. Today,
to improve.”
financial
markets.
we have to contemplate cyber-attacks
and the sad thing is, of course, the
That programme was singled out by the
nature of the threats is much more
Federal Reserve as a signal success
destructive than the weather.”
of the career of Christine Cumming,
when the central bank announced her
retirement in October last year. But she
Building a more resilient market
infrastructure
does not see it, or indeed any other
single achievement, as her greatest
personal success.
One result of both the 9/11 experience
and the research was a step-change
“When you are a central banker—
in resiliency planning at the Federal
unless you are Paul Volcker, Ben
Reserve. Its goal was to insulate the
Bernanke or Mario Draghi—the large
payments system and markets from
accomplishments are made up of many
disruption, not only through back-up
small accomplishments and it takes
sites and geographical diversification,
a lot of people to make those things
but by measures designed to protect
happen,” she says. “When you look
the health and lives of the employees
over the sweep of time, there has been
of the Bank.
a tremendous amount of advance, and
it was rewarding to be a part of that.”
It was Cumming who extended the
thinking of the Federal Reserve on
operational risk still further, by introducing
an
operational
risk
programme.
“Operational risk does not lend itself
MI FORUM / 2015
The challenges
and rewards of
an ISO 20022
pioneer
Russia is a pioneer in the implementation
of ISO 20022 messaging as the
foundation of a payments and securities
markets infrastructure that meets the
highest international standards. Sergey
Putyatinskiy, chief information officer
(CIO), and Maria Ivanova, vice president,
director for development and client
relations, at the National Settlement
Depository (NSD) in Moscow, explain how
corporate actions and proxy voting are
merely the first steps towards creating a
market infrastructure that is among the
first in the world to be ISO 20022-compliant
across every service it provides.
The infrastructure of the Russian
innovations and improvements are in
securities
changed
prospect. Importantly the foundation
dramatically in the last few years. A
which underlies many of these disparate
single central securities depository
changes is the ISO 20022 messaging
(CSD) is in place. Nominee accounts
standard.
markets
has
are now legal. A trade repository has
opened to improve transparency in
Many securities market infrastructures
the OTC derivative markets. The legal
have now endorsed the new standard
and tax bases of the securities markets
as a replacement for the SWIFT FIN
are now significantly improved. And
and ISO 15022 message types, and
the two international central securities
the National Settlement Depository
depositories (ICSDs), Clearstream and
(NSD), as the single CSD for the
Euroclear, now offer foreign investors
Russian
a convenient way to settle and hold
exception. Historically, payments in
Russian
the Russian market were dominated
securities.
Many
other
securities
market,
is
no
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Adapting ISO 20022 to local
market peculiarities
by FIN messages and exchanges
paper form and processed by hand,
of securities information - such as
adding to costs and increasing the risk
corporate actions - by manual and
of errors - corporate actions messages
paper-based processes. The adoption
will in future be shared between issuers,
All of that said, the ISO 20022 standard
of the ISO 20022 standard provides an
custodians, registrars and the CSD
still has to be adapted intelligently to
opportunity to replace existing formats,
in a single, machine-readable format
local market requirements. This was
in both securities and payments, with a
compliant with the ISO 20022 standard.
not easy, since the Russian market, like
single standard which is flexible enough
Dividends, including tax deductions, will
many others, suffers from a number
to accommodate the demands of the
now be paid automatically.
of requirements which are peculiar to
Russian markets without inhibiting their
it. Fractional securities, for example,
openness to the rest of the world. Not
Improving the efficiency of corporate
persist in Russia. Worse, they are
unimportantly in Russia, ISO 20022 is
action processing may be a global
based on common rather than decimal
also the first internationally recognized
trend but, in the context of the
fractions. The fact that ISO 20022
message standard to support the
Russian market, the adoption of ISO
messages permit the inclusion of
Cyrillic script.
20022-compliant corporate actions
additional fields or extensions to tags
messages represents a major advance.
to take account of fractional securities
Instead of retaining a purely domestic
marks an improvement over ISO 15022
standard, the reform obliges even local
messages, which lacked the flexibility
market participants to rise to the ISO
in their field functionality to do this.
of
20022 standard. It recognizes that
However, the NSD still had to include
the new ISO 20022 standard are
international investors were deterred
fractional security messages in its list of
corporate actions. The processing of
from investing in Russian stocks by the
messages, and specify how they were
corporate actions notifications and
complexity and inefficiency of paper-
to be used.
instructions is the subject of thorough
based corporate actions. By raising
and
Russia
the Russian market to international
In fact, the CSD had to establish a
today. One of the principal objectives
standards, the reform can be expected
complete list of the messages to be
of the reform is the dematerialization
to
foreign
used in the Russian market; specify
of corporate actions processing. By
investment in Russian equities. It can
how they were to be used by Russian
rendering corporate actions information
also be expected to increase the level
market participants; translate into a
in a standard digital format, the rate of
of engagement by foreign investors in
Russian idiom the logic of fields in each
straight-through-processing (STP) of
Russian companies, because it will be
message, as defined by the ISO 20022
notifications and instructions can be
easier to collect dividends and other
standard; and specify to Russian
increased significantly. Unlike today -
entitlements, elect for cash or stock,
market participants how the different
when corporate actions are issued in
and vote on company resolutions.
fields within each message relate to
Why corporate actions first?
Chief
among
continuing
the
applications
reform
in
increase
the
level
of
‘‘The processing of
corporate actions
notifications and
instructions is the
subject of thorough
and continuing reform
in Russia today.’’
- Maria Ivanova, NSD
2015
MI FORUM
‘‘Conversion cannot be
a permanent solution
for participants
in the Russian
market, or any other
market. The limited
functionality of the
ISO 15022 standard
by comparison with
its more advanced
ISO 20022 successor
is already creating
problems of data loss
when information is
converted from one
standard to the other.’’
- Sergey Putyatinskiy, NSD
other fields in other messages. The end-
the future belongs to the ISO 20022
result was not just a Russian version
standard, though it is well understood
of ISO 20022 messages, but a set of
that the transition to the new standard
messages that are understandable and
across different markets cannot be
machine-readable by international as
accomplished overnight, and must
well as domestic banks active in the
proceed step-by-step. A successful
Russian market. This has created an
transition depends on a unified plan
opportunity to accelerate the pace at
that is approved by all major market
which the historic ISO 15022 messages
participants. Eventually, the entire post-
are replaced by the improved ISO
trade industry will benefit from switching
20022 alternatives.
to the ISO 20022 standard.
Corporate actions provide an excellent
The safe transition to ISO 20022
is a long one
example of why the transition to
ISO 20022 in the Russian market
will be prolonged. So far, the NSD
During the transition from ISO 15022
has automated only those corporate
to ISO 20022, the NSD will support
actions announced at annual (AGMs) or
both standards. The CSD has also
extraordinary general meetings (EGMs),
developed a tool for converting ISO
including the right to vote at these
15022 messages into ISO 20022
meetings. Though there is are more
messages,
But
than 50 different types of corporate
conversion cannot be a permanent
action in the Russian market, this was
solution for participants in the Russian
the appropriate priority. Transparency
market, or any other market. The limited
into proceedings at AGMs and EGMs
functionality of the ISO 15022 standard
is essential to retain the confidence
by comparison with its more advanced
of
ISO 20022 successor is already creating
protect their rights as shareholders.
problems of data loss when information
The e-proxy voting service for Russian
is converted from one standard to
issuers, launched by the NSD last year
the other. Despite the assistance
using proprietary formats, was made
of mapping tables from SWIFT, the
available in the ISO 20022 format in
conversion of messages also creates
April this year. Since 1 April 2015, 79
additional costs. It is evident that
issuers, including major companies
and
vice
versa.
international
investors,
and
to
2015
such as Sberbank and Gazprom, have
foreign market participants a high level
hosted shareholder votes using the ISO
of confidence in the ability of the NSD
20022 format.
to finish what it has started.
NSD is already using the ISO 20022
Using ISO 20022 to join the
Russian market to the world
standard in corporate issuer services
and is planning to make use of the
standard in other business areas.
By guaranteeing international investors
Importantly, the NSD also recognizes
access to information, and the ability
that a standard digital language in
to
ISO
which to exchange information is the
20022-based reforms to AGM and
key to interacting with infrastructures
EGM messages are of importance to
in other markets as well as essential
the integration of the Russian market
to attract international investors. The
into the global marketplace. Other
CSD has not failed to notice that, with
countries
automated
ISO 20022 underpinning both the
voting, such as Turkey, noticed sharp
Single Euro Payments Area (SEPA) and
increases in the participation of foreign
TARGET2-Securities (T2S), the new
investors in shareholder meetings. It will
message standard also has the support
take a number of years to automate
of the regulators and central banks that
other types of corporate event, but the
are driving important infrastructural
necessary work is already in hand. The
initiatives. The enthusiasm of the NSD
government has amended stock market
is proving infectious. A group of Russian
laws to regulate the use of electronic
banks and corporates have worked
technologies
and
together to publish a new set of ISO
processing corporate actions, making it
20022 messages that address markets
easier to extend ISO 20022 into other
operating
aspects of the Russian stock market.
Through its strategic commitment
In fact, Russia is likely to be among
to ISO 20022, the NSD is driving the
the first markets to base its automated
adoption of the standard abroad as
infrastructural processes on the ISO
well as at home.
vote
electronically,
which
for
have
these
distributing
20022 standard. Completing the task
will be difficult, but the experience of
reform ought to give domestic and
with
currency
controls.
ROUNDTABLE
What market
infrastructures
can do for
collateral
managers
MI FORUM / 2015
MI FORUM
2015
Expectations of a global shortage of collateral have not
disappeared. They have merely receded. The question is
Jean-Robert Ted
Wilkin
Leveroni
Andrea
Tranquillini
at Clearstream in Luxembourg how market infrastructures
Executive director and head
Executive director of
Managing director, business
can contribute to the development of a truly liquid global
of product management,
strategy and buy-side
development, globeSettle
global securities financing,
relations, DTCC
what might precipitate a squeeze on eligible collateral. To
avert a shortage, it is essential to widen the range of eligible
collateral and broaden the range of market participants to
include corporates as well as fund managers.
Giving market participants the ability to move assets
quickly and efficiently from wherever they are to wherever
they are needed is a crucial to that process. While greater
internal efficiency in collateral management is helpful,
seamless movement of collateral also requires market
infrastructures to develop automated and standardized
collateral mobilization services.
MI Forum Magazine editor Dominic Hobson discussed with
Ted Leveroni, executive director of strategy and buy-side
relations at the Depository Trust and Clearing Corporation
(DTCC); Andrea Tranquillini, managing director, business
development, at globeSettle, the central securities
depository (CSD) owned by the London Stock Exchange
Group; and Jean-Robert Wilkin, executive director and
head of product management, global securities financing,
marketplace in eligible collateral.
Clearstream
MI FORUM
‘‘There is an increasing
need, due to regulation,
for a change in market
practices. The world
has evolved from an
unsecured to a secured
environment, from an
un-cleared to a cleared
market, and from
commercial bank money
to central bank money,
but the infrastructure to
underpin all this has not
kept pace.’’
- Andrea Tranquillini, globeSettle
2015
The predicted global collateral
only. Firms that we deal with still
shortage has not yet materialized.
believe that a collateral squeeze will
Why?
occur. They also expect the squeeze
to be felt in a non-equal way, based
Wilkin: In my opinion, this is due to
on what firms trade, the nature of their
delays in regulatory implementation,
business and what they have naturally
especially concerning the transition
at hand in terms of available collateral.
from bi-lateral trading to centrally
cleared
OTC
derivatives.
Sell-
side firms have also de-leveraged,
What will trigger that collateral
reducing their need for collateral. If you
squeeze?
combine that with low interest rates,
it is not surprising volume growth
Leveroni:
is lower than expected. Curiously
mandatory clearing regulations in
enough, at the moment we even see
Europe and Asia, and of the non-
a decrease in the amount of collateral
cleared margin rules globally, in the
we manage on behalf of central
U.S. as well as Europe and Asia.
banks. The collateral deposited at
The collateral shortage will not be a
central banks, at least in Europe, is
tsunami that occurs on a certain date.
decreasing. We were expecting repo
It is a tide that will rise as each of
volumes to pick up again, which they
these regulations is implemented, and
started to do two years ago, but now
the impacts will increase as a greater
we see a downturn in the amount of
proportion of swap transactions fall
collateral volume being mobilized in
under the new collateral requirements.
repo markets too.
Implementation
of
the
Wilkin: The balances of all tri-party
Leveroni: The drivers of the collateral
collateral agents have increased. This
shortage were going to be mandatory
is due to the increasing use of equities
OTC derivative clearing in the United
as collateral, and the greater use of
States (U.S.), Europe and Asia, and
tri-party
implementation of margin calls in non-
lending agents, which are replacing
cleared markets, which were going to
cash with non-cash collateral. We
require copious amounts of collateral.
also see central counterparty clearing
Of those five drivers, only one has
houses (CCPs) move away from cash
been implemented, and in one country
as collateral because, like the banks,
structures
by
securities
MI FORUM
they do not know where to reinvest it.
Tranquillini: globeSettle looks at the
collateral management world from a
‘‘The model is
changing already.
What we now see
is collaboration.
Standardized, quasiutility services are
being offered not
only by individual
infrastructure
providers but also by
groups of industry
players that have
got together and
said, ‘You know, we
could use an industry
solution here.’ ’’
- Ted Leveroni, DTCC
different perspective, because we do
not provide collateral management
services directly. Instead, we are an
infrastructure that aims to help market
participants manage the regulations
that are coming into effect over the
next few years. From that perspective,
the concept of collateral “scarcity” is
not correct. It would be more accurate
to say that collateral is misplaced,
and that the infrastructure is not
efficient in moving collateral to where
Eurobonds we have that could be
eligible as collateral. $25 trillion? In
five years’ time, money market funds
and exchange traded funds (ETFs), as
well as Eurobonds, could be eligible.
But they can be used only if we have
an efficient infrastructure to get the
collateral moving. I believe we should
try to build the concept of a single
global collateral day, because we are
talking about global banks that think
globally, whose treasury is global,
and who serve as collateral agents
regulation, for a change in market
practices. The world has evolved
from an unsecured to a secured
locations and geographies.
What will the infrastructure that
supports a global collateral day
actually look like?
environment, from an un-cleared to a
cleared market, and from commercial
Leveroni: There are going to be
bank money to central bank money,
challenges, but what will make them
but the infrastructure to underpin
surmountable is to change the model,
all this has not kept pace. Take, for
and the model is changing already.
example, the fact that you can leverage
What we now see is collaboration.
the
Bank
Standardized, quasi-utility services
Model (CCBM) of the Eurosystem
are being offered not only by individual
quite efficiently for collateralization
infrastructure providers but also by
in central bank money, but only until
groups of industry players that have
4.00 pm in the afternoon. So you have
got together and said, ‘You know, we
limited operating hours for transferring
could use an industry solution here.’
collateral. Think how many trillions of
DTCC-Euroclear
Correspondent
Central
‘‘There are going to
be challenges, but
what will make them
surmountable is to
change the model, and
the model is changing
already. What we see
now is collaboration.’’
and clearing members in different
it is supposed to be. For this reason,
there is an increasing need, due to
2015
Global
Collateral
MI FORUM
Limited, the partnership between
Euroclear and DTCC, is an example
of one. There is collaboration, there
‘‘I believe we should
try to build the
concept of a single
global collateral
day, because we
are talking about
global banks that
think globally, whose
treasury is global,
and who serve as a
collateral agents and
clearing members in
different locations and
geographies.’’
is co-operation, there is creation of
solutions, at unprecedented levels.
That is the model going forward. It
is not the creation of a single global
pool of collateral. It is collaboration
between the CSDs to create a single
virtual pool of collateral.
Tranquillini: I agree. We see more
and
more
co-operation
infrastructures
and
between
commercial
entities. It helps to create a globally
integrated collateral market, but the
industry is still fragmented. T2S is
an improvement but it is limited to
Europe. How we connect Europe to
the rest of the world, mobilizing nonEuropean collateral into Europe and
vice-versa – this is the next frontier.
The more U.S. collateral becomes
eligible in Europe, the better, because
Europe is in the middle of the global
collateral day. I agree there will never
be a single global pool of collateral,
but we will have what we are missing
today: efficient connections between
different pools of collateral. For this,
we also need to overcome conflicts
between the Dodd-Frank Act in
the U.S. and the European Market
Infrastructure Regulation (EMIR).
2015
MI FORUM
Wilkin:
Alliance
(MTU) at the DTCC, firms can agree
partnership we have formed with
on their exposures, identify the optimal
other market infrastructures makes
collateral to deliver via the CMU, and
the collateral management technology
then deliver it via the MTU. If it is within
and the expertise Clearstream has
the
developed available to local CSDs
the collateral can be moved by
around the world on a white-label basis.
electronic
It is a business process outsourcing
the collateral is elsewhere we can
(BPO) arrangement, where we at
electronically instruct its movement.
Clearstream white-label our technology
The end result is increased automation
and operate the platform on behalf of
and mobility.
The
Liquidity
DTCC-Euroclear
book-entry
environment,
transfer.
If
the local CSD. This makes it easy for the
CSD to provide a collateral management
service in their market at a relatively low
What factor do you think
cost. It connects the different collateral
will be most powerful in
pools, making it more efficient and less
costly for market participants to move
driving the creation
of a global collateral market?
collateral around. To a certain extent,
the Liquidity Alliance is comparable
Tranquillini: The principal driver is
to the DTCC-Euroclear joint venture
regulation. We should admit that
because, instead of implementing a
the most significant changes on
collateral management solution alone,
the infrastructure side are driven by
the partners have chosen to share
regulation, and from the Giovannini
technology and expertise.
Barriers until T2S regulation has been
Leveroni: Global Collateral Limited
is indeed similar. It not only offers
the
linkage
between
market infrastructure.
DTCC
Leveroni: There needs to be an
and Euroclear to permit collateral
infrastructure to move collateral from
mobility east–west, but leverages
locations that are collateral-rich to
the
collateral
locations that are collateral-poor. That
management service via a Collateral
is pure infrastructure. It is the roads
Management Utility (CMU). By linking
and the bridges that collateral move
the CMU to the Margin Transit Utility
across. There probably is enough
Euroclear
tri-party
the
in the driving seat of re-shaping the
2015
‘‘The principal driver is
regulation. We should
admit that the most
significant changes
on the infrastructure
side are driven by
regulation, and from
the Giovannini Barriers
until T2S regulation
has been in the driving
seat of re-shaping the
market infrastructure.’’
MI FORUM
collateral in the world in aggregate. It is
Why will the buy-side require a
ensuring that it can be mobilized, and
different combination of providers
transformed, and optimized so it gets
to the sell-side?
in the hands of the right people at the
right time. That is where infrastructure
comes in. That is where all of us are
looking to help the industry.
Wilkin: Market infrastructures are
really collateral administrators. The
buy-side needs providers that are
Wilkin: Market infrastructures alone
prepared to use their balance sheet
will not be sufficient. Why? Because
to resolve their collateral challenges.
the biggest challenge we face is the
That role will not be fulfilled by
dramatic increase in the number
the investment banks any more,
and the type of participants in the
because they want to move away
collateral
market.
from that type of business. The
For the last four or five years, we
global custodians will have to play
have talked about the inter-bank
a more active role in servicing their
management
market and the commercial bank
buy-side clients, including putting
their balance sheet at risk.
the challenge is to introduce the
Leveroni: It is worth remembering
- Jean-Robert Wilkin,
that the buy-side is not a single,
Clearstream
Fund managers need to deliver
monolithic entity. Each buy-side firm
collateral for cleared and uncleared
has a different mandate, different
margin calls. They need access to
holdings and different needs. There
collateral givers. In many cases,
are firms that have eligible collateral
they lack the right assets, because
in their portfolios. Other firms have no
investment managers are not paid
need for eligible collateral, because
to manage cash. They will then
they do not trade derivatives, and
need to deliver. Will we be able to
can actually leverage what they
support that? None of us can do it on
have in their portfolios by lending
our own. It requires a combination
it, or repoing it out for an extra
of
the
return. Some buy-side firms look
–
at the future collateral challenge
and
as an opportunity - others as simply
the
infrastructures
commercial
between
service
global
and
providers
custodians
market infrastructures.
a challenge.
‘‘Market
infrastructures
alone will not be
sufficient. It requires
a combination of the
infrastructures and the
commercial service
providers – between
global custodians
and market
infrastructures.’’
to central bank market. Tomorrow,
buy-side to collateral management.
2015
MI FORUM
Can you envisage a time when
What can be done to encourage
the buy-side open accounts
corporates to participate in the
directly with the market
collateral markets?
infrastructures?
Leveroni: Corporates are active in the
Leveroni: It is possible but difficult,
tri-party repo market today. Many are
especially at the CCPs. Mutualization of
cash-rich, and act as cash providers.
risk is an essential component of CCP
But no two corporate treasuries are
risk management, and that is difficult
alike, in the same way that no two
for a buy-side firm to accept. So there
fund managers are alike, so to talk
would have to be a significant model
about them as a monolithic entity is
change for the buy-side to become
inaccurate. In fact, you see a lot of
self-clearing. However, the motivation
corporates acting like investment
is there, so it may happen.
managers in the money markets.
Wilkin:
Eurex Clearing has already
opened up to buy-side firms for
certain types of repo and securities
lending transactions. Our sell-side
clients are actually calling for buy-side
membership, because they need to
collateralize transactions with fund
Investing cash in repo is, for the
foreseeable future, the space they will
play in. However, there is discussion
about getting corporates to be more
active liquidity providers in a cleared
environment, and some firms see that
as an opportunity.
managers, and where else can they do
Wilkin: It is the same in Europe, where
that? They are happy with the solutions
corporate treasurers are not involved
we have provided for them, and they
in the centrally cleared markets, but
want to re-use the same solutions with
like to place cash against collateral,
their buy-side clients because it is the
and tri-party is the easiest way to do
easiest way to do it. It is not as easy
that. We have connected our service
for the buy-side because they are not
to money market trading platforms,
connected to market infrastructures.
and devised a simplified multi-lateral
That is why we need collaboration
trading
between market infrastructures and
corporates to participate. Despite our
global custodians, who are the natural
efforts, not all corporates are SWIFT
service providers to the buy-side.
participants, so not all of them can
agreement
to
encourage
‘‘Our sell-side clients
are actually calling for
buy-side membership,
because they need
to collateralize
transactions with fund
managers.’’
Clearstream
2015
MI FORUM
‘‘The implementation
of the regulations is
so challenging that
participants will come
to rely on tri-party
more and more.’’
2015
use SWIFT to instruct their tri-party
holistic in how they manage their
agents. However, I strongly believe
collateral, but most still have separate
that we will soon see corporate to
collateral management solutions for
buy-side
developing
different lines of business. It is difficult
because, once we have connected
to leverage these to cover foreign
corporates to our infrastructure, they
exchange, repo, securities lending
can trade with non-banks as well as
and cleared and non-cleared OTC
banks. It is of course in commercial
derivative collateral management.
transactions
bank money only, since they do not
have accounts at the CSD.
What part can standards play in
making collateral management
Does tri-party have wider
more efficient?
application in facilitating the
growth of a global collateral
Leveroni: A lot. An example would
market?
be the SWIFT messages for collateral.
The challenge is to get people to use
Wilkin: Yes. Tri-party is one of
them. We all benefit from standards
the tools which will definitely be
once they are used, but everyone
leveraged for many different types of
has a long list of more pressing
collateralization. One of the challenges
technology priorities, especially in
all of us are trying to address is non-
terms of regulatory compliance, so
cleared
as
standards adoption is at risk of falling
its moves from cash to non-cash
behind. That is where community-
collateral. The sell-side wants to use
based offerings can facilitate the use
tri-party to meet it.
of standards on an industry-wide
derivative
margining,
Leveroni: I agree. We are going to see
scale.
more tri-party collateral management.
Wilkin: As tri-party agents, we make
The implementation of the regulations
good use of SWIFT messages, and
is so challenging that participants will
they are well accepted by our clients
come to rely on tri-party more and
too. We are now applying them for
more. It also meets an operational
CCP collateralization, but only for
challenge. Firms are becoming more
exposure
notifications,
when
we
face many other problems, such as
They can be adopted and used on
collateral eligibility and concentration
and off the SWIFT network.
criteria. Standards for these do not
exist today. But there is a big demand
for them because, if we want to
automate collateral flows on a global
scale, standards are essential. Either
Leveroni:
There
is
a
growing
understanding that standards need to
be leveraged, in more and more of the
collateral space in the U.S.
everybody uses a single provider
for
global
collateral
management
– so that entity can impose its own
standards – or SWIFT must come
up with a collective set of industry
standards to facilitate inter-operability
between different providers.
Standardized documentation on a
global scale would help too. Who
should drive that?
Wilkin: This is an opportunity for the
International Swaps and Derivatives
Association (ISDA) to come up with
a pragmatic solution. If thousands of
Is the main obstacle to
market participants could sign up to
standardization the fact your
counterparties are not on SWIFT?
Wilkin:
No.
The
standard
goes
a single document it would make it
easier to exchange collateral.
Leveroni:
The
documentation
beyond the SWIFT network. Once
challenge is a balancing act. We want
we adopt a standard, we propagate
standardized documents but there is a
it externally with our clients, as well
reason to resist them, especially in the
as internally. Many of our clients use
derivatives markets, which need a lot
the SWIFT messages without even
of customization. It is up to ISDA and
knowing it, because we present them
the Securities Industry and Financial
with
They
Markets Association (SIFMA) to look
might even believe it is a Clearstream
at that dilemma and ask, `How can
standard but, if they go to another
we create more standardization while
tri-party agent, they will realize that
still allowing for the customization that
they are expected to provide exactly
individual firms are going to require?’
the same thing. That is the benefit of
One of the biggest success stories of
SWIFT coming up with the standards.
standardization is the move towards
standardized
formats.
clearing in the U.S. That created a
huge new collection of standardized
documentation and contracts.
Wilkin:
In
standardized
financial
transactions like repos or securities
lending or OTC derivatives, even if
they are not centrally cleared, the days
of expensive bi-lateral agreements
should be over. We have come up with
single multi-lateral agreements for both
fund managers and corporates, which
enable them to trade tri-party with
every other counterparty. Contrary
to perceptions, these marketplace
agreements do not compete with or
‘‘The days of
expensive bi-lateral
agreements should
be over. Marketplace
agreements do not
compete with or
replace standard
documents, but they
have encouraged
much wider
participation in the
global collateral
markets.’’
replace standard documents, but
they have encouraged much wider
participation in the global collateral
markets.
Clearstream
INFLUENTIAL PEOPLE
MI FORUM / 2015
Mindset open to
change
Making payments is the sort of banking
that is supposed to be routine or almost
boring. So it comes as a surprise to hear a
payments banker advise her colleagues to
flee from conventional wisdom, embrace
new technology, turn regulation into a
lever, and help staff understand how lucky
they are, and how exciting their jobs can
be. But then Lisa Lansdowne-Higgins,
vice-president, payments and trade
operations and product support at the
Royal Bank of Canada (RBC) in Toronto, is
not your average payments banker.
“Why do I love payments?” asks
and technologies such as blockchain
Lisa Lansdowne-Higgins. “Because
as the only solutions for the future.
I learn something new every day.
“New technology is not a threat but
Payments challenge me in ways
an opportunity,” she says. “Banks
that keep everything fresh.” One
may still be figuring out what the
reason why payments are bracing
opportunity is, but we are leveraging
is that no area of banking is more
legacy
obviously challenged by new entrants
appropriate,
armed with disruptive technologies.
technology. The new entrants have
Lansdowne-Higgins does not deny
their own hurdles to clear, especially
the payment business in the traditional
in terms of coping with volume, and
sense is being challenged, but refuses
delivering transparency. For us, the
to see the likes of virtual currencies
change continues to be about divining
infrastructures
and
embracing
where
new
MI FORUM
2015
what the customer really wants and
needs.”
The importance of taking the
customer perspective
Lansdowne-Higgins
has
never
forgotten the importance of adopting
the client perspective in everything
she does. It helps greatly that she
started her career as a teller, with
Guaranty Trust in Toronto. “Being a
teller in a branch has always anchored
me in the customer experience,”
she says. “It is easy for me to walk
in the customer’s shoes.” Counter-
‘‘It is easy for me to
walk in the customer’s
shoes. As a teller, I
learned a number
of things I still use
today, but the most
important lesson was
client service, and that
means knowing what
the customer needs
really are.’’
intuitively, Lansdowne-Higgins even
believes that banks can replicate the
relationship-building capabilities of a
teller through digital channels. “Online, resilience, availability and the
ability to self-serve all become part of
the relationship,” she explains. “As a
teller, I learned a number of things I
still use today, but the most important
lesson was client service, and that
means knowing what the customer
needs really are.”
Take for example, real-time payments,
a topical question now being raised
by most central banks. “Are we trying
to solve the problem in the same way
- Lisa Lansdowne-Higgins, RBC
MI FORUM
‘‘The leaders of the
payments industry
are standing up and
paying attention.
In the last three
or four years, the
conversation has been
elevated. In the past,
we talked about new
entrants as being on
the fringe. Now we
see them as impactful.
We are getting the
message.’’
we always have?” asks Lansdowne-
payments
global
Regulatory demands on banks, argues
Higgins. “The answer tends to be,
scale,” she says. Yet Lansdowne-
Lansdowne-Higgins, can be used to
‘Yes.’ If we continue to do that, we
Higgins understands that banks must
commercial advantage too. When
will not win. We need to get outside
justify the investment. “Leveraging
she ran product development on the
the box, and think about the problem
in a completely different way.” She
recalls, as personal revelation, being
invited by the speaker at a conference
on
a
middleware, or new technologies to
support ISO 20022, is a potential way
forward,” she adds.
her cell phone. The fact it was far
easier to retrieve her cell phone
spoke volumes about which device
cash management side at HSBC
Bank Canada, meeting regulatory
requirements
secure
to retrieve her debit card, and then
Seizing the opportunities hidden
in data
actually
internal
product
helped
funding
functionality.
for
to
new
Lansdowne-
Higgins says even mergers, which
are so often disruptive, can divert
threats into positive changes. Early
would capture the future. “You could
in her career, when Central Trust and
see, instantaneously, where we were
Lansdowne-Higgins
nevertheless
Guaranty Trust merged into a single
moving as an industry,” she says.
warns banks to resist the temptation
company, she worked to integrate
to postpone ISO 20022 adoption,
multiple technologies into a unitary
thinking,
because it will limit their ability to
platform. “For the first time, I had to
Lansdowne-Higgins advises bankers
seize a conspicuous opportunity:
work with people who were not always
not just to go to conferences, but to
the curation and monetization of Big
sitting next to me,” she says. “We had
To
escape
conventional
buy new technology, engage younger
employees in decision-making, meet
services
2015
with corporations outside the financial
industry and form partnerships with
technology companies. SWIFT has
Data. Banks already know a great
deal about consumer behaviour and
spending, and ISO 20022 messages
will
provide
even
more
insights.
long argued that another way to cope
Suitably processed, that data has
with the threat is to adopt the ISO 20022
value to every business served by the
standard: since they can carry more
banks as well. “We have seen how the
information,
20022-compliant
telecommunications companies have
messages create room for banks to
mined their data to anticipate what
add value to payments services. As
customers want,” says Lansdowne-
a SWIFT board member, Lansdowne-
Higgins. “We are exploring what it
ISO
Higgins is completely convinced of
the advantages. “I do think ISO 20022
is essential to any bank providing
can tell us, provided we are mindful
not just of customer privacy, but of
regulatory demands as well.”
to merge not just technologies, but the
different cultures of different banks.
That was when I really learned how
powerful change can be. Whether it
is regulation, market disruptors or the
introduction of new technologies, how
you see it is your choice.”
How to keep employees
engaged and motivated
In her current role as vice president,
head
of
payments
and
trade
operations and product support, one
MI FORUM
2015
of the principal challenges is attracting
“‘You mean I cannot move between
and retaining new talent, especially in
fields without touching the screen?’,”
operational roles. “While some people
jokes Lansdowne-Higgins. “’I have
prefer a predictable routine, because
to use the Tab key?’ ‘What is the
they know what to expect day in and
Tab key?’
day out, new graduates challenge us to
usually means there is nothing cool
think differently,” argues Lansdowne-
and exciting to work with. When we
Higgins. “Being in operations today is
do employ new systems, employees
an exciting place to be. The type of
are immediately on-board to make the
transformation taking place provides
change. They are waiting for it. They
every employee with the opportunity
become my leaders of change.”
A legacy infrastructure
to identify more efficient ways to work,
and understand the links between
But
then
Lansdowne-Higgins
their own efforts and the profitability
knows a lot about technology. She
of the business.”
studied computer science alongside
mathematics in high school and
It sounds like a challenging place to
university. In fact, it was developing
work, but she insists the staff respond
a “compare routine” to automate
enthusiastically. “I want to make
ATM reconciliation at Guaranty Trust
things easier,” explains Lansdowne-
that first alerted the management to
Higgins. “I want people to understand
the possibility that Lisa Lansdowne-
the connection between the work
Higgins was no ordinary banker.
and the outcome. It is no longer just
about processing the transaction. It is
In retrospect, it is not hard to trace
about understanding its linkages and
the origins of her determination to
its purpose, the customer behaviour
find a better way. She had a difficult
behind the payment, and the risk it
upbringing in Mimico, a community
represents to the bank. This provides
just outside Toronto.
staff with greater depth, and an
separated when she was nine years
opportunity to grow, while still offering
old and she was raised by a single
them a high degree of comfort.”
mother, who supported the family
Her parents
by working full-time. “I learned from
Interestingly, out-of-date technology
my mother that working was really
is the major deterrent to new recruits.
important to my independence,” she
MI FORUM
2015
explains. There came a time when
obvious symptom of that change of
the executive ranks and at board
have the opportunity to be better
Lansdowne-Higgins
job
attitude, she says, is the willingness
level, but we have to consider putting
balanced, allowing us to stay true to
because she needed it. It was the
of banks to adapt to the threats
some measures in place to get
who we are as female leaders.”
good fortune of Guaranty Trust that
created
customer
traction,” says Lansdowne-Higgins.
she responded to an advertisement
behaviour,
proprietary
“What I have learned throughout my
Lansdowne-Higgins
she saw from the window of a bus
technology projects with technology
career is what you do not measure,
women can be more demanding at
she was riding on Eglinton Avenue in
partnerships.
you do not succeed in changing.”
work, without sacrificing their natural
took
a
by
changing
balancing
is
confident
strengths of nurturing relationships
Toronto.
She advises women to share success
and team-building. Certainly, her life
with colleagues more readily, take
outside the office, as well as within
more risk in putting themselves
it, is proof of that. Although her
forward, be more direct about how
mother no longer lives in Mimico, she
But some familiar things have hardly
management could better support
returns there regularly. Her son is a
Far from being held back by these
changed at all in the last 30 or 40
their development, and always have
professional lacrosse player, and they
experiences,
Lansdowne-Higgins
years. Ever since she was the only
an up-to-date curriculum vitae at
go back together, not just for matches
reckons she has reached the position
woman taking the computer science
hand - not just to seize unforeseen
against local teams, but because
she is in today largely because of
course at university, Lansdowne-
opportunities,
insulate
Lansdowne-Higgins has not forgotten
them. “It forces you to look at things
Higgins
male-
themselves against the vicissitudes
where she came from. “I have often
differently,” she says. “You hope for
dominated environments. Today, she
of corporate life. “In general, women
told my son that I was raising him not
change. My childhood taught me to
finds herself the only woman on the
do a good job, and think that they will
just to be a good man, but a great
embrace change. In some ways, I
25-member
Lieve
be recognized,” says Lansdowne-
one, and that greatness consists in
always look forward to change.” This
Mostrey having stepped down at the
Higgins. “Men are more vocal about
being able to build and sustain strong
is a valuable attribute in an industry
end of 2014. She accepts that her
their next step. Men ask for more
and healthy family relationships, and
facing a string of existential threats,
position reflects the continuing male
money, whereas women are very
to give back to the communities you
but Lansdowne-Higgins thinks she
dominance of the banking industry,
grateful.” She disputes the idea that
come from,” she says. For a time she
is not alone in possessing it. “The
rather than any implicit or explicit
the pioneers in female leadership
considered a political career as the
leaders of the payments industry are
barriers, but Lansdowne-Higgins still
of the industry have in any way
best way to give back, even nursing
standing up and paying attention,”
thinks the industry could do more.
damaged
opportunities
an ambition to be the first female prime
she says. “In the last three or four
As she points out, nominations
for other women. “Those that have
minister of Canada. “Kim Campbell
years, the conversation has been
to the SWIFT board come from
led the way had to find their way in
beat me to it,” she jokes.
elevated. In the past, we talked about
the membership of SWIFT, rather
a very difficult position,” she says.
new entrants as being on the fringe.
than SWIFT itself. “There is a lot of
“They had to adapt to the realities
A successful career in banking, and
Now we see them as impactful. We
dialogue about the advancement of
of the situation. Because we are the
a family, ultimately left no room for
are getting the message.” The most
women in the industry, both through
beneficiaries of their success, we
politics. But if Lansdowne-Higgins
Banks are rising to the
challenge of new entrants
The advancement of women as
leaders in the banking industry
has
operated
SWIFT
in
board,
but
potential
to
has abandoned public life, she is far
from cynical about the public sphere.
“Having had the opportunity to travel
in my life, it has made me appreciate
how lucky I am to live in Canada,”
she says. “Growing up, I knew I had
‘‘We bankers are very
lucky people.’’
the freedom to do anything that was
within my grasp, whether I was a
female or not. Not everybody has that
freedom.”
Where banking is ahead
She has also learned how fortunate
she is to work in the banking industry.
Her husband is a general foreman on
commercial building sites. Though his
ability to deliver projects on time and
to budget would be more than useful
in the banking industry, construction
otherwise remains (no pun intended)
completely unreconstructed. “It is so
dramatically different, it makes me
appreciate the banking world so much
more,”
says
Lansdowne-Higgins.
“The codes of conduct which govern
how bankers interact, the strategic
thinking, the talent management.
None of that exists in his world - other
than what he is able to give to the
crews that he works with. We bankers
are very lucky people.”
KEY PERSPECTIVES
MI FORUM / 2015
European CSDs
are still authors
of their own
destiny
T2S, the single securities settlement
platform for Europe launched successfully
this year, with the admission of the Greek,
Italian, Maltese, Romanian and Swiss
depositories. They are the first of four
waves of CSDs in 21 European countries
to join T2S over the next two years, in
a process expected to trigger a major
realignment of the market infrastructures
of Europe. Isabelle Olivier, T2S
programme director at SWIFT, finds that it
is up to CSDs to decide if they are victims
or victors in a post-T2S environment.
TARGET2-Securities (T2S) is changing
Bodart observes, the current tendency
the competitive landscape of the
is to focus on “short term T2S readiness
securities
and smooth delivery of this critical market
market
infrastructures
pan-
infrastructure in Europe. Longer term,
European processing platform, T2S
one may expect from CSDs strategic
is
competition
positioning, involving collaboration, co-
CSDs
and
operation and the transformation into
custodians. It is forcing CSDs to
real commercial entities with marketing
change their strategies.
functions.”
Meaningful competitive re-positioning
In delaying significant strategic decisions,
– including further consolidation of
CSDs also gain time to understand how
CSDs in Europe, where so far only the
a potential significant driver of structural
three Baltic CSDs are in the process
change – the right of issuers to choose
of merging into one - is not expected
the CSD into which they issue securities,
before the end of the T2S migration
under the Regulation on settlement and
in 2017. As T2S board member Paul
Central Securities Depositories (CSDR) –
of
for
Europe.
By
precipitating
survival
creating
fierce
between
a
MI FORUM
sort of monopolistic world.” Philippe
will materialize in practice.
Leblanc, T2S project director for the
The environment in which CSDs must
4CB (Deutsche Bundesbank, Banca
make decisions is also fluid. Global
d’Italia, Banco de Espana and Banque
custodians, sub-custodians and global
de France) and operational director
investment
re-thinking
for European market infrastructures at
their own approaches to European
the Banque de France, agrees. CSDs,
securities services. In particular, T2S
he says, have not only to connect to
has accelerated a long competitive
T2S but work out how to exploit the
battle between CSDs and custodians
opportunities created by T2S.
over
banks
responsibility
are
for
settlement,
“T2S brings new functionality to CSDs
safekeeping and asset servicing. that they did not always have before,
are
such as harmonized matching and
evident already. One is that the
settlement rules, a single settlement
international CSDs (ICSDs), which have
window,
long competed with custodians, are
algorithms,
extending ICSD services to customers
management and a central pool of
of the domestic CSDs they own. The
collateral,” explains Leblanc. “All these
other is that some CSDs are looking
new services will replace those currently
to expand their services into areas
offered by CSDs for settlement. But
previously controlled by custodians,
T2S is not a CSD, and will not replace
and developing more sophisticated
CSDs, which remain in charge of issuer
offerings in areas such as asset
services, notary services, and asset
servicing and collateral management
servicing. T2S triggers harmonization
across multiple countries.
and centralization of the settlement
However,
two
developments
‘‘T2S triggers
harmonization and
centralization of the
settlement process,
but does not make
CSDs disappear.’’
settlement
optimization
centralized
liquidity
process, but does not make CSDs
disappear.”
Opportunities as well as threats
for CSDS
The opportunity for CSDs with
ageing systems, explains Leblanc,
No wonder Paul Bodart believes that
is to offer new services without
T2S is having a “huge impact on
investing in a new platform. “The
CSDs, which are emerging from a
opportunity of T2S is not limited
- Philippe Leblanc, Banque de
France
2015
MI FORUM
‘‘To be successful as
a CSD going forward,
you need to be either
big or beautiful – by
which I mean excelling
as a specialist, and
being highly efficient.
Revenues will be
eroded, making cost
control critical.’’
to large CSDs,” he says. “Smaller
Indars
CSDs will be able to benefit from
president
these
they
management board of Nasdaq Baltic,
adapt their current platform and
the Latvian CSD, agrees that cost
make the necessary efforts to
control is critical to survival. “In my
customize their services to deliver
view, to be successful as a CSD going
a relevant offer to their client base.
forward, you need to be either big or
Each CSD, according to its history,
beautiful – by which I mean excelling
its size and its client base, needs
as a specialist, and being highly
to construct its own business
efficient,” he says. “Revenues will be
development project and define a
eroded, making cost control critical.
strategy that fits the needs of its
IT is one of the biggest cost drivers
clients, without necessarily looking
we have, and the importance of IT in
to compare and compete with
enabling CSDs to be competitive, to
bigger CSDs.”
offer straight-through-processing, to
provided
and
associate
chairman
of
vice
the
underpin excellent corporate actions
Philippe
- Indars Ascucks, Nasdaq Baltic
services,
Ascucks,
Leblanc
adds
that
the
processing, will be very high.”
critical determinants of a successful
competitive response by a CSD are
Alex Dockx, an executive director in
timeliness and cost. “T2S services
custody product strategy and the T2S
are quite complex and represent a
programme director at J.P. Morgan
big jump for some CSDs, especially
in London, points to an unavoidable
the smaller ones, some of which
T2S connection cost, which applies
have started to realize only now
irrespective of the size of the CSD.
what T2S is offering, and hence may
“There is a one-off adaptation cost
not have identified yet how to take
for projects like these which is not
full advantage of the platform and
related to volumes,” he says. “It is
what new services they can develop
a threshold cost. The bigger the
and offer to their own clients,” he
volumes you can process, the more
says. “In addition, CSDs’ capacity
you can spread that cost, which is
to attract new business - and their
not linear. This gives you a pricing
pricing policies - will be linked to the
advantage, but size and scale alone
adaptation cost to T2S.”
will not make a CSD or an institution
successful. You still have to adapt
2015
your business to the new environment
and evolving customer needs.”
‘‘The bigger the
volumes you can
process, the more
you can spread that
cost, which is not
linear. This gives you
a pricing advantage,
but size and scale
alone will not make a
CSD or an institution
successful. You still
have to adapt your
business to the new
environment and
evolving customer
needs.’’
Banks are confident they can
compete with CSDs
Meeting evolving customer needs
inevitably pits CSDs against custodians
large and small. Luca Terzaghi, head
of banking solutions and services at
Istituto Centrale delle Banche Popolari
Italiane (ICBPI), acknowledges the
competitive threat but is confident that
directly connected banks such as his
own can meet it. “The competition
with CSDs is getting fiercer, but they
cannot develop in a short time-frame
all the services that custodians have
been offering for years, especially
with all the effort they need to make
to have their own and their clients’
processes adapted to T2S,” he says.
“Clients value smaller custodians for
- Alex Dockx, J.P. Morgan
the customized services we can offer.
Even if the competitive landscape
is
changing,
T2S
represents
an
opportunity for banks like ICBPI.”
The perspective of a large bank is
similar. At BNY Mellon, which recently
put plans to build a CSD of its own
on hold, Tom Casteleyn, managing
director and head of T2S and market
MI FORUM
infrastructures, highlights differences
of culture and reach between CSDs
and custodians. “Their perspectives
‘‘Clients value smaller
custodians for the
customized services
we can offer. Even
if the competitive
landscape is changing,
T2S represents an
opportunity for banks
like ICBPI.’’
- Luca Terzaghi, ICBPI
are
fundamentally
different,
as
is the scope of their respective
services,” he says. “CSDs usually
offer settlement and basic portfolio
services on a limited set of assets.
Banks offer a wide range of services
beyond settlement, including certain
aspects of liability and credit which
CSDs just cannot offer. Custodians
can also offer bespoke service levels,
while CSDs offer one service level for
all clients. These differentiators will
remain.”
Alex
developments could be elaborated
with the market,” he says. “The
T2S alone cannot deliver that level
playing field. It also requires at least
the full implementation of CSDR. The
settlement period agreed in CSDR is
already harmonized on trade date plus
two days (T+2) in all countries except
Spain, but the buy-in discipline to
enforce it, and open access and
common operating rules for all CSDs,
have yet to be implemented. In
addition, Europe needs harmonization
of all the post-trade activities itemized
in the Giovaninni reports of 2001 and
2003.
Dockx,
who
endorses
the
view that commercial banks have
a different service proposition from
CSDs focused on cutting cost and
risk, argues that there are CSDs who
are pro-actively looking to compete
with each other and with banks
in certain areas, though their core
service proposals – especially on
the provision of banking services –
remain fundamentally different. “It is
a good thing, as long as it happens
on a level playing field,” he says.
“And this is debatable when you are
looking at totally different regulatory
frameworks
T2S is only one part of a long
process of integration
applicable
and to CSDs.”
to
banks
The failure to harmonize areas such
as corporate actions and collateral
management
provides
continuing
scope for competitive differentiation.
But it also creates room for markets
and market participants to protect
themselves
from
competition,
so
further harmonization is important
to generate effective rivalry between
service providers.
industry
to
Eurosystem could do more, based on
its ability to deliver huge projects on
time and within budget.”
Alex Dockx believes that harmonization
needs to be pursued actively and should
remain a core axis of infrastructural
reform. Other areas of expansion
are interesting, he notes, but the key
objective remains a successful roll-out
of the four waves of CSDs affected by
T2S. “Given how large the changes
are in every market, that must be the
primary focus,” he says. Philippe
Leblanc
adds
that
full
harmonization will be easier to achieve
once T2S is delivering the benefits it
was designed to achieve, especially in
releasing liquidity currently trapped in
national markets to support settlement
processes. A 2014 study by Oliver
Wyman, commissioned by Clearstream,
suggested brokers, asset managers
and banks could save between €30 and
€70 million a year through consolidating
Bodart sees ample potential for
the
2015
further
leverage
T2S to achieve higher levels of
harmonization. “As soon as stability of
the platform is achieved, with a critical
mass of settlement activity, further
their cross-border flows across the
major T2S markets alone, even before
taking account of potential savings on
domestic transactions.
“We
may
challenge
the
figures,
but there are still strong arguments
that demonstrate tangible benefits,
especially in the liquidity management
area,” says Leblanc. “Some CSDs, in
waves one and two, have focused on
developing their interface with T2S. It is
unlikely that they will be offering all the
services they had in mind as of day
one of their go-live. The benefits to the
market will depend on how capable
‘‘The benefits to the
market will depend
on how capable and
quick the CSDs prove
to be in offering these
services.’’
and quick the CSDs prove to be in
offering these services.”
If Philippe Leblanc is right, the
- Philippe Leblanc, Banque de
France
impact of T2S will accelerate over
time, and the speed of that impact
depends on the ability of the CSDs
to realize the benefits of T2S. It is a
message somewhat at odds with the
widespread belief that T2S will, by
reducing the settlement revenues of
European CSDs, result in a far-reaching
consolidation of market infrastructures.
But it certainly does not contradict it. The
future shape of the infrastructure which
will service the securities markets of
Europe will be determined by the CSDs
themselves, as well as T2S and the
custodians, over the next two years.
“A future for CSDs?” at Sibos
Monday 12 October 2015
15:30-17:00 p.m.
Conference room 4
KEY PERSPECTIVES
Perspectives:
What needs
to be done to
make real-time
retail payments
a reality?
Shuji
Kobayakawa
Steve
Ledford
Chris
Hamilton
Associate director general,
Bank of Japan
Senior vice president,
product and strategy,
The Clearing House
Chief executive
officer, Australian
Payments Clearing
Association Limited
Real-time payments (RTP) can contribute to global economic
growth. First, if real-time retail payment systems (RT-RTPS)
link across borders, it will enhance the payment flows created
by the cross-border exchange of goods and services. While
such linkages are a challenge, they may have a higher chance
of success between countries whose economic and financial
systems are well-integrated. From that perspective, the
success of the New Payments Platform (NPP) in Australia,
and a possible link to its equivalent in New Zealand, might be
an important precedent to assess the viability of such links.
Secondly, RTP can be combined with other services to raise
social welfare. The NPP initiative is leading the world through
the provision of “overlay services.” Moreover, if remittance
information can be added to payment messages, it will
generate a potentially transformative evolution of electronic
data interchange (EDI). EDI will benefit not only industries (which
can cut costs by automating back offices), but banks (which
can generate additional business by meeting new customer
demands). Japan is taking steps to realize EDI as part of
its growth strategy. Last but not least, nobody will use RTP
unless they are confident of its security. Every payment system
represents a trade-off between efficiency and risk, and the
optimal balance between those factors changes as payment
systems evolve. RTP inevitably adjusts that balance. Risk
remains an issue which must be addressed by policymakers
and other stakeholders. Mitigating that risk and enlarging the
frontier on which the trade-off occurs are essential to sustain
the global trend towards RTP.
Those organizations developing and deploying
real-time payment systems around the world need
to keep doing it. That RT-RPS is a necessary but
not a sufficient condition for real-time payments
(RPS). What will bring them to life is the creation
of innovative and compelling products that
consumers and businesses can use. Until that
happens, we will have built infrastructure but not
created new payment systems. Banks need to
come up with propositions for consumers, such
as person-to-person payments, or immediate
payments for such things as taking part in market
research and product promotions. For businesses,
RT-RPS could bring electronic invoicing to life. It
could make just-in-time supply chains possible
even for the smallest businesses. Creative minds
will invent products based on real-time that are
impossible to predict. When he invented the
Worldwide Web, Tim Berners-Lee was not
thinking about transforming the taxi business, but
the Internet did it all the same. Finally, someone
has to go out and sell the products. The idea that
you build it and they will come is not realistic. In the
United States we had debit cards for years, but it
took advertising to make them popular. There is
a role for the networks, especially in emphasizing
the importance of network effects, but success
depends on financial institutions coming up with
products that deliver value for them as well as
their customers. That gives them the incentive to
increase sales through advertising. If they get this
right, banks have little to lose and everything to
gain.
Contrary to what people say, speed is not the driver.
Data and flexibility are. Accelerating the movement
of value from one place to another is useful, but by
itself it is not going to be useful for long. A real-time
retail payments system (RT-RPS) that endures will
be based on how it might be used in the future,
not on how payments were made in the past. The
key to making really useful retail payments is not
moving value around really fast. It is moving value
around fast in the context of data which is also fast.
Modern, qualitative payment relationships are all
about the flow of data. For example, a consumer
buying a second-hand car would find it helpful if
the check that the car was unencumbered, the
re-registration of ownership, the road tax and the
insurance were added to the payment transaction.
What the consumer needs is a used car app, not
just a payment, because every payment is always
part of a much larger transaction. There are of
course millions of different payment contexts,
not all of which can be predicted in advance. A
used car app is not much use to someone who
wants to take out insurance, or pay an energy bill,
or a phone bill. So the successful real-time retail
payments infrastructure will be flexible enough to
accommodate all contexts using a single set of
basic components. In my view, the future is about
re-intermediation, not disintermediation, as new and
old players offer more data-driven services along
the value chain. Banks have a fantastic opportunity
to add value by adding data, context and flexibility
to payments. If they do not, others certainly will.
KEY PERSPECTIVES
Perspectives:
What needs
to be done to
make real-time
retail payments
a reality?
Hays
Littlejohn
Craig
Tillotson
Chief executive officer,
EBA CLEARING
Chief executive officer,
Faster Payments
Scheme Ltd.
It is easy to think of instances where real-time payments
(RTP) will be useful to consumers. They can avoid late
payment charges on bills. In house purchases, they can
replace escrow arrangements requiring payments to be
made days in advance. RTP will be useful to businesses too.
They can optimize their cash management by settling bills
just-in-time, and pay manufacturers to ship goods directly to
their customers. But RTP will also create opportunities that
we cannot even imagine today. So banks should be excited
rather than fearful of RTP. Far from cannibalizing existing
payments, they are likely to replace a wide range of pure
cash transactions that banks do not currently intermediate,
such as paying pocket money or the babysitter. That said,
real-time processing will challenge all parties in the payment
transaction chain. Most payment infrastructures would have
to be enhanced in terms of speed and capacity. Nor can
all banks yet make funds available, or handle Anti-Money
Laundering (AML) Know Your Client (KYC) and sanctions
screening checks, in real-time. A scheme, or set of rules
that ensures both the payer and payee know exactly when
funds will become available, also needs to be developed.
Even the best technology cannot compensate for the lack of
a rulebook to which all parties subscribe, especially in crossborder payments. Lastly, we need efficient mechanisms to
mitigate the settlement risk of being open 24/7, 365 days
a year. Setting credit limits and sticking to net settlement in
Real-Time Gross Settlement Systems (RTGS) are the most
obvious measures in this context.
In the United Kingdom we are not at the start of the transition to real-time,
but in the middle of it. Consumers, reared on pre-paid phones, already think
of payments as real-time. Availability in their account is more important to
them than real-time settlement at a central bank, but neither is as important
as a 24/7 service. More than half the payments we process occur outside
traditional banking hours. Ubiquity matters too. Consumers will not use a
system that requires them to check whether they can pay someone in realtime or not. That means the system must encompass all retail banks and
payment service providers (PSPs), not just large banks. That is why we invited
FinTech companies as well as banks to aggregate payments on behalf of
smaller providers. By sharing fixed costs, aggregators reduce overall costs.
The pre-funding of settlement accounts we introduced in September also
opens up participation for smaller banks and PSPs. Pre-funding has other
advantages. It maintains the consumer assurance of irrevocable payment,
while relieving banks of credit exposures prior to settlement. The alternative,
of building a Real-Time Gross Settlement Systems (RTGS) that operates
24/7, would require failsafe links between two infrastructures and every
bank and PSP, plus massive increments to capacity (at peak times Faster
Payments processes 400 times as many payments as the RTGS system).
Pre-funded net settlement is also systemically safer. It retains overnight
and weekend breaks for the central bank, reducing the risk of destabilizing
out-of-hours surges of liquidity between banks, while still being available to
consumers 24/7.
“Come and discuss real-time
payments with us…” at Sibos
15:30-17:00 p.m.
Conference room 1
MI FORUM / 2015
The emerging
single market in
South-East Asia
The ASEAN countries are fully
embarked on a long journey towards
a fully integrated regional economy
which they call the ASEAN Economic
Community (AEC). Financial market
integration, built on co-operation
between banks and regulators and on
standardized connectivity between
market infrastructures, is in the
vanguard of development. Paul Gwee,
Secretary General of the ASEAN
Bankers Association (ABA) says that,
with member-states already capturing a
growing share of international flows of
goods, services and capital, and the major
cities of the region growing fast, the AEC
is one of the most attractive markets for
financial services in the world.
In January 2007, leaders of the
region, and freer movement of capital
Association of Southeast Asian Nations
between member-states.
(ASEAN) affirmed their commitment to
the creation of the ASEAN Economic
The creation of a single market of 600
Community (AEC) by 2015.
As a
million consumers represents a huge
single market, the AEC will allow the
economic opportunity. ASEAN as a
free movement of goods, skilled labour,
whole had a combined gross domestic
services and investments throughout the
product (GDP) of more than S$3 trillion in
1
2013. If it grows at the 5 percent annual
1 The ASEAN Economic Community: A Work in Progress, Asian
Development Bank and Institute of Southeast Asian Studies, December
2013
rate projected for the years between
MI FORUM
2015
What will govern the financial
integration of ASEAN
The ASEAN Central Bank Governors are
in agreement on the end-goals of financial
integration. However, the process of
integration has to proceed on the basis
of two important considerations. First,
each member-state of ASEAN starts
from its own initial conditions. Secondly,
‘‘The extent to which
each country will open
up its financial sector
will differ from country
to country.’’
each member-state is free to define its
own intermediary goals and timelines to
achieve the common end-objective of
full financial integration.
It follows that, while the end-goal is
2014 and 20182, the collective GDP
since it will open access to the region
will increase to S$3.8 trillion. And 5
for global companies and investors (and
percent is a conservative estimate: as
vice-versa).
states of ASEAN have grown by 6.5
The AEC is now poised to become a
percent a year since the onset of the
reality by the end of this year. Since 2015
global financial crisis in 2008. Rates of
will go down in history as a milestone in
that magnitude remain a dream in most
the development of ASEAN, it is a timely
other regions of the world.
moment to take stock of the progress
that the Association has made in terms
integration,
built
on
of financial integration. More importantly,
international standards and a common
now is the right time to evaluate the
platform, is likely to accelerate the pace
role of financial services in accelerating
of growth. Certainly it will support the
and
wider integration of ASEAN economies,
integration.
2 Local businesses to have new growth opportunities with ASEAN
Economic Community, Channel NewsAsia, 2015
deepening
extent to which each country will open up
its financial sector will differ from country
to country. As the Asian Development
a collection of economies, the member-
Financial
common, the routes taken will vary. The
regional
economic
Bank (ADB) pointed out it in its 2013
report, “the distinctive feature of the
financial sector liberalization under the
AEC is that first, the liberalization target
is extended to the year 2020 instead
of 2015 and, secondly, there is no prespecified scope of liberalization.”3
Financial integration is a crucial element
of regional integration, but it presents
challenges.
Across ASEAN, markets
3 The ASEAN Economic Community: A Work in Progress, Asian
Development Bank and Institute of Southeast Asian Studies,
December 2013, page 109.
- Paul Gwee, ABA
are still divided by different legal regimes,
currencies, regulatory systems and foreign
ownership restrictions. This makes it difficult
‘‘Across ASEAN,
markets are still
divided by different
legal regimes,
currencies, regulatory
systems and
foreign ownership
restrictions.’’
- Paul Gwee, ABA
to introduce a single set of international
standards across the region quickly.
The result, explained in a 2014 Bloomberg
report, is that “within the financial services
sector, integration will continue beyond
2015, as measures will be consistent with
national laws, and appropriately paced to
suit the level of development of individual
members.”4
Concrete steps towards financial
integration
Even if ASEAN financial integration
remains a work-in-progress, ASEAN
finance ministers and central bankers can
point to concrete progress. The ASEAN
Financial Integration Framework (AFIF), in
conjunction with the ASEAN Banking
Integration Framework (ABIF), is a
crucial pair of instruments for deepening
financial and economic integration. 4 ASEAN Integration 2015: A Progress Report, Bloomberg,
December 2014
MI FORUM
With the finalization of the ABIF by all
ABIF will also strengthen other
in ASEAN, the ASEAN Working
ASEAN central bank governors, any
initiatives designed to accelerate
Committee
two ASEAN countries may now enter
regional
integration,
Settlement Systems (WCPSS), the
into reciprocal bi-lateral agreements
increase cross-border trade, and
Electronic Transaction Development
to allow banks that have acquired
boost regional investment flows.
Agency of Thailand (ETDA) and
Qualified ASEAN Bank (QAB) status
To enhance the efficiency of trade
SWIFT - last year conducted a
to operate in neighbouring countries
settlement and regional payment
series of workshops across ASEAN
and
across
ASEAN
capital cities. Their aim was to
local banks. In December 2014,
economies, for example, member-
raise awareness of ISO 20022 and,
the Bank Negara Malaysia, Bank
states of ASEAN adopted in January
by improving understanding of its
Indonesia
2015 the Principles of Product
benefits, promote local adoption of
Keuangan - the Indonesian Financial
Transparency
the standard.
Services Authority – signed heads of
Trade Settlement.
receive
equal
and
treatment
Otoritas
as
Jasa
financial
and
between
on
Cross-Border
Another
agreement under the ABIF.
on
Payments
standard
–
and
financial
There is recognition within the region
reporting - is already being adopted.
The Malaysian-Indonesian agreement
that adoption by banks of the ISO
In Cambodia, Laos, Myanmar and
is the first to fulfil the promise of
20022 messaging standard would
Vietnam
ABIF: to provide QABs with greater
further accelerate the growth of trade.
the
access to third country markets and
The standard, which enables banks
corporate
operational
to
payments
bankers
have
standardized,
training
courses
flexibilities
consistent
exchange
detailed
with those of domestic banks. By
information
giving
machine-readable
banks
readier
access
to
in
formats,
would
(known
CLMV
Financial
collectively
states),
financial
as
accountants,
officers
benefited
and
from
on
International
Reporting
Standards
the domestic markets of ASEAN
not only hasten the integration of
(IFRS). Encouraging issuers to adopt
member-states, ABIF will support
payments systems in the region but
common accounting standards is an
the expansion of small and medium-
make invoicing, reconciliation and
important element in the integration
sized
and
payment in commercial transactions
of Asian capital markets, because
corporates from ASEAN countries
more efficient. This would make
it facilitates investment in different
to other member-states. This is an
cross-border payments faster, richer
markets across the region.
important contribution to trade in
in
a region which is fast emerging as
more secure.
enterprises
(SMEs)
accompanying
detail
and
economy.
These efforts are mirrored by study
events designed to encourage the
the production centre of the world
2015
In recognition of this, the ASEAN
adoption of best practices in financial
Bankers Association - in partnership
markets. All efforts of this kind play
with national banking associations
their part in helping the AEC achieve its
‘‘South-East Asia will
replace China as the
leading manufacturing
region of the world
economy within the
next ten years.’’
- Paul Gwee, ABA
Benefits of Financial Integration
Financial integration across the AEC requires global
Concrete Steps Towards
Financial Integration
standards and ubiquitous access to common
SWIFT, regional banks and governments
higher economic growth and more gainful employment
platforms.
have been taking concrete steps towards
for South-East Asia's communities.
AEC: A Single Emerging Market
The benefits of financial integration will result in
financial integration in ASEAN.
ASEAN Trade Flows
Financial integration
can help the AEC
capitalize on booming
intra-ASEAN trade;
already worth
23 percent of total
trade in
the region.
Bank Payment
Obligation
This industry-wide standard
raises levels of automation;
increases efficiency while
lowering cost; and enhances
collaboration with
non-ASEAN banks.
Free movement of
goods, skilled labour,
services, investments
and capital between
member-states.
Export Development
ASEAN has become
the fourth-largest
exporting region in the
world, accounting for
7 percent of global
exports.
ISO 20022
Common messaging
and data standards
improve transparency,
transaction visibility and
problem resolution for
payments and
securities.
Regional Market
Practice Guide
This guide improves
inter-operability of
markets within the
region; and boosts
accessibility of markets
outside it.
Growing Middle Class
Urban middle classes
now account for 65
percent of regional
output,
driving demand and
production across more
goods and services than
ever before.
BN
D
G
IDR LA K M Y R MM K P H P S
KHR
D
TH
ND
BV
Greater transparency
for consumers,
greater financial
visibility for regulators
and central bankers.
Monetary
Infrastructure
101
BND KHR IDR LAK MYR
MMK PHP SGD THB VND
LUXURY
ASEAN Credit
Transfer Scheme
The scheme integrates
ASEAN's market
infrastructures by
ensuring rules for
payments are widely
documented, shared, and
made transparent.
$
Attract and
support more
investment from
global investors
and companies
MI FORUM
2015
objectives of greater connectivity between
ASEAN capital markets, and greater
accessibility of ASEAN investments.
ASEAN is already increasing
trade and investment flows
The success of these various initiatives in
driving the integration of ASEAN markets
is evident in the gathering momentum
of the AEC. The ASEAN countries are
experiencing an increase in trade and
‘‘Banks also need to
consider how they
can best capitalize
on the opportunities
created by the rapidly
growing cities of the
region, and their rising
standard of life.’’
capital flows, both within the region and
internationally.
Simultaneously,
these
flows are enhancing the competitiveness
of ASEAN businesses.
Intra-ASEAN trade now accounts for 23
percent of total ASEAN trade, up from
21 percent at the turn of the century.
ASEAN
has
become
the
fourth-
largest exporting region in the world,
accounting for 7 percent of global
exports. This is expected to rise still
further as member-states develop more
sophisticated manufacturing capabilities
and diversify their exports.
A recent report by ANZ Bank forecast
that the bi-lateral trade between Australia
and New Zealand and ASEAN countries
would more than double by 2025, from
- Paul Gwee, ABA
MI FORUM
2015
US$100 billion today to US$230 billion.5 If
South-East Asia, by offering automated
and pay suppliers and distributors
endorsed for use in the region by the
that happens, South-East Asia will replace
trade services. Many are exploring the
abroad.
Working Committee on Payment and
China as the leading manufacturing
use of the industry-wide Bank Payment
region of the world economy within the
Obligation standard, not only to raise
The biggest challenge to overcome is
next ten years. One reason that it is likely
levels of automation, but to enhance
the scale of the investment needed to
to happen is rising labour costs in China.
their collaboration with banks outside the
harmonize domestic payment clearing
At the same time, the payments
region.
and settlement systems across multiple
infrastructures
jurisdictions. Different markets need to
Malaysia, Singapore and the Philippines
Another reason for the rise of South-
Settlement Systems (WCPSS), which is
the regional grouping of central banks.
of
Brunei,
Thailand,
East Asian manufacturing is the growing
But banks also need to consider how they
agree on a comprehensive set of open
are all using SWIFT messaging services
sophistication and dynamism of the
can best capitalize on the opportunities
market message standards and a secure
in their domestic systems to clear and
burgeoning urban middle classes, which
created by the rapidly growing cities of
and standardized digital communications
settle payments. This not only helps their
are driving the production of a wider range
the region, and their rising standard of
platform.
participant banks fulfil their compliance
of goods and services. Already, cities in
life. The urban consumers of South-East
South-East Asia account for more than
Asia will need not only a higher quality of
In
services
technology costs, and improves their
65 percent of the output of the region,
food, entertainment, household goods
industry and government authorities
connectivity with banks outside the
and their population is expected to rise by
and savings products, but also massive
are
region.
2030 to more than 90 million consumers.
investments in infrastructure, transport
SWIFT messages in general, and
and housing.
those that comply with the ISO 20022
This improved connectivity between
According to McKinsey, the 67 million
standard in particular. It is obvious to
banks is supported by the efforts of
“consuming class” households of the
market participants that the adoption
ASEAN governments. They are not
of ISO 20022 gives them better
only looking to remove obstructions to
visibility into financial transactions, and
the cross-border movement of capital,
their customers a higher degree of
without
transparency. In addition, ISO 20022
stability or undermining the supervision
ASEAN member-states will double to 125
households by 2025, creating one of
6
the largest and most valuable consumer
The role of infrastructure and
regulation in ASEAN financial
integration
markets in the world. This will boost trade
obligations, but also reduces their
ASEAN,
the
encouraging
financial
the
adoption
of
disrupting
exchange
rate
within the region, and attract imports and
The financial market infrastructures of
makes it easier to resolve problems that
of cross-border transactions, but by
capital into the region.
the region are making their contribution
arise.
developing a regional financial market
infrastructure. A good case in point is
to the growth and integration of ASEAN
good
the ASEAN Trading Link, established in
settlement systems. An efficient regional
progress in promoting wider adoption
September 2012 as a single gateway to
payments network is essential to free
of the standard. As a result, the region is
the Malaysia, Singapore and Thailand
investors to invest and withdraw capital
witnessing convergence on a common
stock exchanges.
in different markets throughout the region
data standard to underpin the integration
and to enable industrial and commercial
of the payments systems of the region.
Regulators are also keeping pace with
businesses to spend money at home
The ISO 20022 standard has been
increasingly complex banking institutions
ASEAN banks are already capitalizing
economies
on the consequent increase in trade
flows within and between markets in
5 ASEAN: The Next Horizon”, ANZ Research, April 2015
6 “Understanding ASEAN: Seven things you need to know”,
McKinsey Insights, May 2014
by
connecting
national
ASEAN
has
been
making
operating across borders. They are
they tend to use. By lowering the cost
working closely with banks to design
of financial transactions, standardization
and implement prudential policies that
opens markets up to companies of all
support a regionally integrated banking
sizes.
system that is both efficient and resilient.
This ambition is echoed in the AEC
But the benefits spread wider than
blueprint, which emphasizes the need
that. Standardization makes it easier for
for regulatory harmonization and policy
market infrastructures to inter-operate. It
co-ordination between the member-
increases transparency for consumers. It
states.
makes it easier for regulators and central
bankers to monitor the financial system
for signs of instability. Standards reduce
Looking beyond the achievement
of AEC
costs. They make it easier to attract and
In widening and accelerating this process
These are the fruits of financial integration.
of integration, SWIFT is assisting ASEAN
By promoting it, ASEAN nations are
in two ways. First, with the ABA it has
encouraging the liberalization of the flow
initiated a regional market practice guide,
of goods, services and capital. They
not only to facilitate the inter-operability of
are delivering economies of scale and
markets within the region, but to enhance
value-enhancing transfers of data and
the accessibility of its markets from
technology. All of these developments
outside the region. Secondly, SWIFT is
are positive for growth and employment
facilitating an ASEAN Credit Transfer
– and it is growth and employment which
Scheme. This connects the market
are bringing more and more of the people
infrastructures and financial institutions
of South-East Asia within the scope of a
in ASEAN, by ensuring that the rules for
sophisticated financial services industry.
payments are fully documented, widely
shared and transparent.
One of the principal advantages of
these initiatives is to help SMEs access
and penetrate the markets of the region
through the smaller and local banks
support investment.
MI FORUM / 2015
Innovation in
European retail
payments
Retail payment providers in Europe are responding to
growing consumer and commercial pressure to deliver
faster payment and offer more than the efficient
transfer of value. Yves Mersch, a member of the
Executive Board of the European Central Bank (ECB),
welcomes these developments and explains what
European regulators are doing to ensure the payment
providers and services that emerge are safe and
efficient, as well as fast and innovative.
In the fast-moving world of today,
the sharing of music files over the
innovation in retail payments is crucial to
Internet, it has become clear that
keep pace with the changing needs of
record companies cannot simply add
customers. However, new technology
the Internet as an additional distribution
and tools must not be implemented
channel for their products – they need
rashly or without ensuring adequate
to completely re-think their business
safety. After all, the first priority for
models.
payment services is that they are safe,
secure and reliable.
As more and more people turn to digital
streaming services like Spotify, sales of
Much recent innovation has been driven
CDs are plummeting; artists and record
by digitalization. This phenomenon has
companies will only survive this shift in
had a huge impact on almost every area
consumer behaviour if they embrace it
of life. Alongside the many advantages,
and adapt to it, rather than fight against
it has also presented a number of
the technology.
challenges. It has called into question
many traditional business models that,
until recently, were hugely successful.
Consumer expectations driving
innovation in retail payments
One only needs to look at the music
industry for one of the most striking
The retail payments industry now faces
examples. With online streaming and
a similar choice. Whether it will undergo
MI FORUM
a transformation as deep and as quick
integrated, innovative and competitive
as the one in the music industry remains
market for retail payments in euros
to be seen, but it is clear that user
in the European Union – agreed that,
expectations have changed.
regardless of the payment instrument on
which they are based, instant payment
Consumers are now asking themselves
solutions should be developed at the
why, in this day and age, it still takes
pan-European level.
so long for an e-payment to be
processed, while an e-mail can be sent
If a pan-European solution cannot
to the other side of the world in a split
be
second. Demand for instant payments
developed at the national level instead,
is increasing and the time is ripe for
these should at least be inter-operable
innovators to come up with solutions to
with other solutions based on the same
meet this demand.
payment instrument. The ERPB has
developed,
and
solutions
are
invited the European Payments Council
Of course, just as there are people who
(EPC) to develop a proposal for the
still prefer to buy a newspaper than read
design of an instant payment solution,
the news online, there will always be
based on the Single Euro Payments
those who want to pay by cash or use
Area (SEPA) credit transfer scheme, to
the more “traditional” cashless payment
be presented by November 2015.
methods. We are therefore no closer
- Yves Mersch, ECB
to becoming a completely cashless
society than we are to having completely
paperless offices, but what is important
‘‘The ERPB has
invited the European
Payments Council
(EPC) to develop
a proposal for the
design of an instant
payment solution,
based on the Single
Euro Payments
Area (SEPA) credit
transfer scheme,
to be presented by
November 2015.’’
An integrated retail payments
market in Europe is a priority
here is choice. Users should be able to
pay in the way that suits them best at
The
any given moment in time.
foundations for an integrated retail
SEPA
project
has
laid
the
payments market in Europe. The goal
In order to provide that choice, the
of the project is to make the national
discussion must no longer be about if
borders within the European Union
or when to implement instant payment
invisible when it comes to cross-border
solutions, but how. At its June meeting,
payments. Thanks to this project,
the Euro Retail Payments Board (ERPB)
Europe now has SEPA credit transfers
– a multi-stakeholder group fostering an
and direct debits, two tools which
2015
MI FORUM
‘‘The SEPA project and
the harmonization it
has achieved therefore
provide a solid basis
on which to now
build a pan-European
instant payment
solution.’’
- Yves Mersch, ECB
make it possible for consumers to
chains. Users want these value chains
send and receive payments anywhere
to seamlessly integrate e-commerce,
in Europe under the same conditions
social media and retail payments.
and at the same cost as a domestic
transaction. The SEPA project and the
For example, in on-line stores, it has
harmonization it has achieved therefore
become increasingly common to buy
provide a solid basis on which to now
and pay with one click, rather than
build a pan-European instant payment
having to transfer from the merchant
solution.
website to Internet banking websites,
where passwords, secure codes and
However, SEPA has also shown that
personal data all have to be entered
harmonization can be quite time-
separately.
consuming, which is why, given the
e-commerce players have developed
speed with which innovation can move
their own payment services, threatening
forward, we in Europe now need to act
to take this traditional banking service
as quickly as possible. Indeed, some
away from the banks.
Some
of
the
biggest
national communities have already
begun to develop their own instant
The market pie for retail payments has
payment methods, while others are
not yet been sliced up and shared out
undecided as to whether to wait for
– even if a few players have taken a
a pan-European solution or to start
first bite. Just as players in the music
developing their own. Time is of the
industry have had to re-think their
essence and we will need to work
business models to get a share of
together to get a pan-European solution
the new digital market, retail payment
off the ground.
providers must likewise re-think their
business models to embrace this new
environment. Simply adding on a few
The competition for market share
Internet services as an after-thought will
not be enough.
As a result of the digitalization of
and
While a few non-banks have already
commerce, payments – in particular
taken some pioneering steps forward in
remote payments – have become part
this domain, the comparative advantage
of increasingly long and complex value
of banks means that they are in a
information,
communication
2015
strong position to take full advantage
- for example, through the provision
of this market opportunity. Banks
of settlement services, and possibly
tend to have well-developed data and
also through the facilitation of clearing
operational security systems and enjoy
activities for instant payments.
the confidence of their customers. This
is crucial if instant payments are to be
The emergence of virtual currencies and
a success and not just an experiment.
the use of distributed ledger technology,
which allows for the implementation of
decentralized payment mechanisms,
In retail payments regulators
seek openness as well as safety
has
attracted
considerable
public
attention. The Eurosystem monitors
those innovations in terms of their
The role of regulators and central banks
possible impact on monetary policy,
in this field has not changed all that much.
financial stability and the provision of
They are still responsible for maintaining
Eurosystem market infrastructure.
confidence in payment systems by
ensuring safety and efficiency. However,
These are just some of the challenges
the emergence of new payment services
presented by the structural changes in
and providers means that regulators
the retail payments industry resulting
must ensure a level playing field for
from digitalization. In the coming months
both newcomers and long-established
and years, Europe will seek to build
players. Moreover, while Europe seeks to
new, innovative solutions in response
develop pan-European solutions, global
to this new environment. But if we want
service providers are focusing on global
to make them a success we need to
solutions, which adds an additional
ensure they are safe and secure, without
dimension to the challenge.
sacrificing comfort and user-friendliness.
Striking this balance is the goal.
In its capacity as an operator of a market
infrastructure, the Eurosystem needs to
adapt and upgrade security measures, in
particular in the field of cyber-resilience.
Moreover, the Eurosystem must study
how best to support innovative and
competitive retail payment solutions
“In conversation with Yves
Mersch, European Central
Bank” at Sibos
Tuesday 13 October 2015
14:30-15:30 p.m.
Conference room 4
MI FORUM / 2015
Everybody
benefits from
standardizing
the ISO 20022
standard
Payments and securities market
infrastructures are working with SWIFT
to ensure greater consistency in the way
the ISO 20022 messaging standard is
implemented. According to Andrew White,
formerly general manager, settlement
services, at the Australian Securities
Exchange (ASX), greater consistency will
release significant benefits for market
infrastructures and their users.
At 8.00 a.m. on Thursday 2 October
have somehow managed to be both
2014 an eclectic mix of central banks,
adjacent and invisible to each other:
payment associations, central securities
payments and securities. By bringing
depositories
representatives
(CSDs)
and
payment
of
the
payments
clearing houses drawn from Africa, Asia,
and securities market infrastructures
Europe and the Americas, gathered
together to consider how the ISO
together in Boston, Massachusetts.
20022 messaging standard could be
They did so for two reasons. The first
implemented consistently, the twin
was to have breakfast. The second
meetings have overcome more than
was to discuss how best to guarantee
cultural and historical differences.
a higher level of consistency in the
implementation of the ISO 20022
The subject of their deliberations is a vital
messaging standard.
one. Consistency in the implementation
of the ISO 20022 messaging standard
That initial meeting was followed by
matters a great deal. Unless the
a summit at the end of April 2015 to
standard is implemented in a broadly
agree the way forward. In both cases,
homogeneous fashion, many of the
these gatherings broke down barriers
benefits
between two industries that, like the
infrastructures and their users will
parallel universes of modern physics,
be hard to capture. This is because
to
both
financial
market
MI FORUM
inconsistencies increase the risks of
Bob Masina, head of technology and
processes and, as a result, increases
project implementation.
operations at the Australian Payment
rates of automation and straight-
Clearing Association (APCA), says “the
through-processing.
cost of implementation for participants,
Consistent use of ISO 20022
reduces implementation risk
and alignment with global best practice,
Seventhly,
consistency
in
the
are key factors in a successful roll-out.”
implementation of the ISO 20022
messaging standard increases the
Consistency mitigates that risk in seven
Fourthly,
consistent
scope for inter-operability between
principal ways. First, it enables market
implementation of ISO 20022, market
different market infrastructures. Wilfree
infrastructures to predict and control
infrastructures are able to provide
Ho, chief information officer at Hong
the costs of their and their customers’
their customers with standard, proven
Kong
implementation. Development is more
message specifications for testing, even
describes
easily aligned with budget cycles, which
before their own system developments
“critical.”
SWIFT users are already familiar with
are complete.
with
a
Interbank
this
Clearing
Limited,
inter-operability
as
from their existing SWIFT FIN MT and
ISO 15022 message maintenance
Fifthly,
market
infrastructures
can
processes.
provide a familiar environment for
customers, and thereby reduce the
Secondly,
20022
implementing
consistently
ISO
across
market
time and effort spent on educating
stakeholders
and
readying
market
infrastructures reduces the cost of
participants for the change. Familiarity
customer connectivity with market
also increases the likely take-up of new
infrastructures,
of
services by customers. “Harmonization
those
is necessary to reduce the learning
interfaces over time. As Edwin de
curve for the market,” explains Bernard
Pauw, head of product management,
Lenelle, senior vice president in product
Europe, at Euroclear, puts it, consistent
management at Clearstream.
maintaining
and
and
the
costs
upgrading
adoption of the ISO 20022 standard
can “avoid solving common problems
Sixthly, market infrastructures are able to
in different ways.”
use a consistent messaging standard to
provide an end-to-end, fully automated,
are
straight-through-processing solution. In
able to implement changes in a way
fact, consistent adoption of ISO 20022
that matches industry best practices.
increases the predictability of business
Thirdly,
market
infrastructures
Market infrastructures have
less incentive than banks to be
consistent
Some of these benefits are already
familiar to market infrastructures
‘‘Consistency in
the implementation
of the ISO 20022
messaging standard
matters a great deal.
Unless the standard
is implemented in a
broadly homogeneous
fashion, many of
the benefits to both
financial market
infrastructures and
their users will be hard
to capture.’’
from their implementation of the
SWIFT FIN MT standard. This is
- Andrew White,
because the MT standard was first
formerly of the ASX
used principally in bank-to-bank
activities such as correspondent
banking, before being adopted by
market infrastructures.
Bank-to-bank
business
creates
“many-to-many” networks, which
entail
participants
using
highly
automated straight-through-processing
to
exchange
high
volumes
of
2015
MI FORUM
2015
practices and rules to govern how their
market infrastructures. “We need to
participants actually use the messages.
be clear about the problem we are
looking to address,” as Arthur Cousins,
This potentially leads, as ISO 20022
the former chief executive officer of
implementations proliferate around the
the International Payments Framework
world, to a high degree of variability in
Association, has explained. “The global
the ways in which the standard is used.
financial institutions are facing the
Already, there are multiple versions of
problem of version proliferation.”
the same message, different market
Figure 1:Countries with ISO 20022 initiatives led by
practices and rules, and asynchronous
It is because it is creating problems
release cycles. This variability threatens
for users of market infrastructures that
to undermine the ability of the standard
achieving consistency in implementation
to deliver greater flexibility in transaction
of the ISO 20022 messaging standard
processing,
information,
is so important. The ultimate aim must
lower costs, reductions in risk, and
be for customers that interface with
inter-operability
multiple market infrastructures around
richer
between
market
infrastructures.
market infrastructures, live and planned
the world – whether they are central
banks, clearing houses or CSDs – to be
able to do so in a consistent fashion. “50
messages with each other. This cannot
infrastructures, especially in payments
work unless all participants are using
and
the same version of each message
Infrastructures work to a “one-to-many”
and upgrade at the same time, creating
or “many-to-one” model rather than a
a natural pressure to converge on
“many-to-many” model.
corporate
actions
messages.
common practices.
In an environment in which single
That natural pressure ensured that
market infrastructures are exchanging
the SWIFT FIN MT standard evolved
messages with multiple customers,
in a predictable way, with an annual
each market infrastructure is free to
maintenance process culminating in a
choose - in conjunction with its users
cut-over every November to the latest
- which version of a message to deploy,
version of the standard. The adoption
and when to switch to the newer version.
of the ISO 20022 standard, by contrast,
Moreover, market infrastructures are
is being driven mainly by market
also free to impose their own market
Users of market infrastructures
need a global standard
flavours of ice cream is fine, but not for
standards,” says David Renault, head
of STEP2 services at EBA Clearing.
In short, the ISO 20022 implementation
process is at risk of creating a variant
Since market infrastructures are the
of the problem Andrew Tanenbaum
source of the problem of variation, it
identified as a major obstacle to the
might seem counter-intuitive to argue
successful networking of computers:
that it also makes sense for them to
“The nice thing about standards is that
take the lead in solving the problem.
there are so many of them to choose
However, this responsibility must fall
from.”
to the institutions that are taking the
lead in the adoption of the ISO 20022
The present degree of variation is
message standard - and that means
causing connectivity problems and
the market infrastructures.
additional costs for global users of
MI FORUM
ISO 20022 is the default standard
for market infrastructures
2015
Common platform
2014 and April 2015 were the starting
point. At the meeting in April 2015,
market infrastructures agreed to work
No fewer than 200 of the ISO 20022
with SWIFT on a four-fold strategy for
initiatives currently in train around
enhancing the level of consistency.
Implementation
support
the world are being sponsored by
market infrastructures (see Figure 1).
First,
a
common
According to SWIFT, although market
be
infrastructures currently account for
of
less than 10 percent of total SWIFT
implemented,
message flows, this proportion is
messages,
provided
platform
for
information
the
publication
on
messages
new
and
versions
new
Market practice
Powered by MyStandards
Figure 2: Four-fold strategy
of
for ensuring ISO 20022 roll-out
version
2018. By 2020, 30 percent of that
use of harmonized global market
share of messaging is expected to
practices will be promoted by market
be couched in the ISO 20022 format.
infrastructures
the
differences in market practices are
ISO 20022 is definitely emerging
same business domain, whether it
sometimes necessary to take account
strongly as the default messaging
is payments or securities. Thirdly, a
of local regulatory and tax regimes
standard for market infrastructures
common standards release cycle,
and other individual circumstances.
around the world, domestically and
aligned with existing financial industry
internationally, and in the securities as
processes,
and
But the strategy is also based on the
the four-pronged strategy, market
well as the payments industries.
promulgated. Fourthly, implementation
knowledge that local variations are
infrastructures agreed with SWIFT
support will be provided to users of
often no more than accidental: a result
a “maturity model” for
market infrastructures, especially in
of
specifying
harmonization. It lists five incremental
the fields of testing and connectivity.
different ways of using the ISO
steps a market infrastructure should
Figure 2 illustrates the four elements
20022 standard to achieve the same
take towards achieving a harmonized
of the strategy.
objectives. “All markets have their
implementation of ISO 20022. The
unique aspects,” as Richard Dzina,
steps will be followed by market
strategy
a senior vice president at the Federal
infrastructures
Given this demonstrable leadership
aims to bring consistency to the
Reserve Bank of New York, points out.
published
role,
are
implementation of ISO 20022 in a way
“But variations in practice that threaten
collaborative
the obvious leaders of a global
that benefits users without sacrificing
harmonization objectives need to be
owned and operated by SWIFT.
campaign for greater consistency in
the flexibility market infrastructures
classified as ‘convenient’ or ‘essential,’
the implementation of the ISO 20022
need to deal efficiently with their own
with those in the ‘convenient’ category
Market infrastructures can choose
standard. The meetings of October
participants. It acknowledges that
subject to greater scrutiny.”
how quickly or slowly they progress
This
market
infrastructures
operating
be
in
agreed
four-dimensional
the
consistency
release
will
Secondly,
Standard release
cycle
forecast to increase to 25 percent by
Market infrastructures
must lead the campaign for
consistency in ISO 20022
implementation
cycles.
will
Consistent
Roll-out of
ISO 20022
A five step programme towards
global harmonization of ISO
20022 implementation
To implement the first stage of
independent
groups
on
through
ISO 20022
information
MyStandards,
standards
the
platform
Always upgrade
to latest version
5
Change date
aligned with MT
process
4
Publish timeline
with cutover
dates
3
MI-specific
market practice
published
Figure 3: Five-step implementation
2
Presence on
MyStandards
!
framework for ISO 20022
1
through the five steps to ensure they
infrastructures to view the current ISO
remain fully up-to-date with each fresh
20022 capabilities of other market
release of the ISO 20022 standard.
infrastructures, and compare where
Each step will build incrementally on
they stand relative to their peers.
the previous one towards a greater
level
of
overall
consistency,
as
The objective of the service is to cover
each and every one of the 200 ISO
illustrated in Figure 3.
20022 initiatives sponsored by market
By the first quarter of 2016, the
infrastructures
MyStandards
be
today. Collection of the necessary
enhanced with new functionality that
information has already begun. By
will enable each market infrastructure
making market infrastructures using
to publish a summary of its ISO 20022
ISO 20022 aware of the progress of
capabilities, including the number of
others implementing the standard, a
ISO 20022 messages types that are
set of global best practices will evolve
supported. This will enable market
and mature.
platform
will
around
the
world
MI FORUM
‘‘Variations in
practice that threaten
harmonization
objectives need
to be classified
as ‘convenient’ or
‘essential,’ with those
in the ‘convenient’
category subject to
greater scrutiny.’’
2015
In agreeing to follow this “maturity
Implementation Guidelines for Use
the five-step programme to achieve
model,”
of ISO 20022 within High Value
harmonization.
market
infrastructures
“In
2017
release
“The
discipline
synchronization
has
of
clear
recognize that they are all at different
Payments
stages in terms of their familiarity with
TARGET2 will implement ISO 20022
benefits,” says Sergey Putyatinskiy,
ISO 20022, and that they will not all
in line with this like-for-like based
chief information officer (CIO) at the
be ready or able to implement every
market practice before moving to
National Settlement Depository (NSD)
step at the outset. This is especially
a broader usage of the standard
in Moscow. Jette Simson, head of
true for those embarking on the
in
community-
EURO1/STEP1 service maintenance
implementation of ISO 20022 for the
agreed
confirms
at EBA Clearing in Paris, adds that “the
first time.
Sylvain Debeaumont, head of the
benefits of an annual cut-over, aligned
operations and data analysis section
with FIN MTs, apply to everyone.”
However, the “maturity model” also
Systems.
successive
phases,”
at the ECB.
The five-step maturity model will be the
recognizes that any step taken by
any market infrastructure is capable
The
the
subject of further discussion at Sibos
of
global
second stage of the ‘maturity model’
Singapore in October 2015, but the
community of market infrastructures
– timelines with cut-over dates,
course towards harmonization of the
and their users. While providing a
alignment with the current SWIFT
implementation of ISO 20022 by the
- Richard Dzina, Federal Reserve
means of sharing that knowledge,
FIN MT message upgrade cycle
market infrastructures of the world is now
Bank of New York
the MyStandards platform will also
of November each year, and the
firmly set. To adapt the metaphor used by
encourage market infrastructures to
commitment always to adopt the
David Renault, the market infrastructures
take progressively more demanding
latest version of ISO 20022 – require
of the future will have fewer flavours of ice
steps.
more work. However, information
cream to choose from, but the ice cream
on ISO 20022 version changes will
they do have will be of higher and much
market
be published on MyStandards in
more consistent quality.
infrastructure-specific best practices
April each year, well ahead of the
for ISO 20022 implementation will
November deadline for SWIFT FIN
be published. At that point - which
MT upgrades.
benefiting
Eventually,
the
wider
global
steps
that
lie
beyond
is synonymous with reaching the
second stage in the ‘maturity model’
- market infrastructures will be able
to measure and declare their degree
“Driving the industry towards
a truly global ISO 20022
standard” at Sibos
Market infrastructures support
the case for a new approach
of alignment with best practice.
The
Group
Payment
has
Market
already
Practice
published
Market
infrastructures
are
enthusiastic about the potential of
15:30-16:30 p.m.
Conference room 1
RISK & REGULATION
Pioneering
MIRS
MI FORUM / 2015
Norges Bank is the second central bank to adopt the
Market Infrastructure Resiliency Service (MIRS), the
RTGS resiliency service developed for central banks by
SWIFT. Kjetil Heltne, who is leading the MIRS project
at the Norwegian central bank, has already formed a
favourable impression of the scope and functionality
of the service, but thinks its real value will emerge as
more RTGS systems gain experience of when and how
MIRS capabilities can best be used.
Norges Bank replaced its end-of-day
of the Oslo stock exchange expect their
net settlement process with its first
purchases and sales to be settled in
Real Time Gross Settlement (RTGS)
central bank money, and without the
system in 1995. At the time, the primary
concern of the bank was to mitigate
the risk of a repetition of the losses it
incurred during the Nordic banking
crisis of the early 1990s. But in the 20
risk of delay, let alone failure.
“The importance to market participants
of being able to trust in the RTGS
years that have elapsed since then, the
system has increased, year by year,”
importance of the RTGS system has
says Kjetil Heltne, director, inter-bank
increased enormously, and not just in
settlement department at Norges Bank
terms of rising transaction volumes.
in Oslo. So far, the central bank has
fulfilled that trust. Since the original
Expectations have risen dramatically
too. The domestic and foreign banks
and local market infrastructures active
in the Norwegian payments and foreign
exchange
markets
expect
RTGS
mainframe-based RTGS system was
replaced in 2009 with a platform based
on technology developed by SIA
subsidiary Perago, the RTGS system
services to be available continuously.
has achieved 100 percent availability. It
Likewise, foreign investors which own
has never failed to process an incoming
close to 40 percent of the capitalization
payment.
MI FORUM
‘‘The foreign investors
which own close to
40 percent of the
capitalization of the
Oslo stock exchange
expect their purchases
and sales to be settled
in central bank money,
and without the risk
of delay, let alone
failure.’’
That measure is the Market Infrastructure
different infrastructure and software
Resiliency Service (MIRS) developed for
from our own. Most importantly, in a
central banks by SWIFT. Norges Bank
situation where we cannot use our
had already made the decision to acquire
primary or secondary sites, MIRS allows
an additional contingency solution for
us to continue to settle transactions
extreme circumstances by the time
securely on an automated basis. That is
the principles for financial market
the main reason we chose it.”
infrastructures (FMIs) were published
by the Committee on Payments and
Market Infrastructures (CPMI) and the
International Organization of Securities
The shortcomings of manual
contingency plans
Commissions (IOSCO) in April 2012
(the CPMI-IOSCO principles). A year
Without MIRS, the recovery of the
later, when the central bank conducted
RTGS system would depend on a
a self-assessment of its status relative
manual support system. This worked by
to the CPMI-IOSCO
principles, the
downloading the positions of the banks
test confirmed that the implementation
using the RTGS system several times a
of MIRS would be an important step
day, adding unsettled transaction data
Norges Bank has long relied on
towards meeting the requirements
from SWIFT, and settling payments
defences
of Principle 17, which addresses
in spreadsheets. The manual system
operational risk.
was never tested in a live environment.
- Kjetil Heltne, Norges Bank
Developing multiple defences
against operational risk
2015
against
these
threats
developed by the IT industry. They
Reliability of that kind depends on
are installed in the normal course
detailed management of operational
of business by EVRY, the private IT
Principle 17 sets a “recovery time
of the current RTGS system in 2009,
risk. Naturally, the RTGS system is
company to which the central bank
objective” of two hours to establish
simulations
backed by a second remote site with
outsourced the operation of its RTGS
the status of all transactions at the
calculating the positions of banks at
full redundancy. This protects it against
system in 2003. But Heltne does
time of the disruption of an RTGS,
the time the system was disrupted,
physical attacks, and the breakdown
not regard them as sufficient. “There
and suggests central banks consider
and again when normal service was
of physical components, but cannot
is a risk that an error introduced
building a third site to guarantee this.
resumed. MIRS, by contrast, will
provide security at a similarly high level
to the software in the production
“Before choosing MIRS, we had a
automatically
against intentional and unintentional
environment, or malware, will be
long discussion about the need for a
real-time with minimal impact on the
integrity breaches, such as errors
replicated immediately at our back-up
third site,” recalls Heltne. “MIRS is not
participating banks.
introduced to the software, malware, the
sites,” he explains. “It was principally
equivalent to a full third site. But it does
breakdown of a software component
this risk that led us to add a further
give us access to an RTGS settlement
However, as Heltne points out, MIRS
supplied by vendors, and cyber-attacks.
measure to protect the system.”
engine which is based on a totally
is not a fully automated alternative to
However, after the implementation
exposed
upload
difficulties
positions
in
in
MI FORUM
2015
Too soon to extend the concept
to other markets
a properly functioning RTGS system.
the RTGS halted on 20 October 2014.
process, Norges Bank is in the process
Some manual routines will be retained
In the event, MIRS was not activated,
of establishing a Business Continuity
to
because Bank of England officials knew
Forum with its major participants.
offer
what had caused the RTGS system
Heltne adds that meetings of central
Heltne is more sceptical of the idea
automated interfaces to the cash and
to fail, and reasoned that resolving the
banks, convened and serviced by
of adapting MIRS to other financial
collateral management systems, or the
issue in the RTGS system would be
SWIFT, have also provided useful ideas
markets, such as fund accounting
general ledger, of Norges Bank. If MIRS
quicker than switching MIRS on and
on the implementation and operation
and transfer agency, before its value to
is invoked, the interfaces between all
then off.
of MIRS.
RTGS systems is proven. Norges Bank
cover
CLS
payments.
Nor
foreign
does
exchange
MIRS
three systems will have to be operated
has encountered delays of its own in
In
welcome
adapting its RTGS system to MIRS, and
wider adoption of MIRS by central
in drawing up a service level agreement
banks, to create opportunities to
with SWIFT which reflects the criticality
share knowledge of how it can best
of the service once it is activated. “MIRS
“Deciding when to activate MIRS is
be deployed. “Obviously, central
is an extreme contingency solution
This is the price paid for keeping MIRS
challenging,” says Heltne. “We would
banks deploying MIRS will - if
for an RTGS,” says Heltne. “It might
as simple as possible, since simplicity
have to weigh the pros and cons of the
possible - be even more dependent
be possible for other FMIs to adopt a
reduces risk. “It is a reasonable
actual situation. If we have a severe
on the SWIFT network continuing
similar concept, but we would prefer
approach
back-up
loss of both sites, and are unable to
to operate normally, but we believe
SWIFT to concentrate on supporting
system,” says Heltne. “If you started
identify the exact nature of the problem,
that SWIFT is well-supervised, and
early adopters in developing rules and
trying to cover every possibility, it would
or how quickly it can be recovered, we
has an excellent track record. If
routines to ensure that it can be used
create a more complex system, which
would of course activate MIRS, but it
there is a problem, our experience
effectively. In the short and medium
would inevitably be more risky. MIRS
will always be sensible to take time to
is that SWIFT will solve the problem
term, SWIFT should focus on rolling out
is an extreme contingency solution
decide. Every crisis is different from the
quickly. In general, systemic risk
MIRS to other central banks first.”
with reduced functionality compared to
previous one, and every incident will
should not be increased if more
what we would expect of a third site. It
have specific aspects. ”
central banks use MIRS in addition
manually. In addition, banks which are
not users of SWIFT will have to be
serviced manually by the central bank
The challenge of deciding when
to deploy a contingency solution
using the MIRS web service.
for
a
generic
fact,
Heltne
would
to contingency solutions already in
replaces the manual support system.”
Obvious specificities include the time
place.” For the participants in the
The word “extreme” is chosen carefully.
of the day and the day of the week on
RTGS system, adds Heltne, the
Norges Bank planners have absorbed
which the RTGS system is disrupted,
advantage MIRS has over alternative
the findings described in the Deloitte
since the severity of the immediate
extreme contingency solutions is
report on the experience of the Bank
consequences will depend on how
that they can continue to use SWIFT
of England, which has also subscribed
close the incident is to business cut-off
messages as normal, even in a
to MIRS, in deciding whether or not to
times or if it occurs during peak hours.
situation where the central bank has
invoke the contingency system when
To help map the decision-making
activated MIRS.
Payments
are all about
the customer
experience
MI FORUM / 2015
Despite threats from new entrants armed
with digital technologies, banks can remain
relevant to payments markets, provided
they act now to reinvent themselves. Mark
Buitenhek, global head of transaction
services at ING, argues that banks
retain the advantage of trust but need to
transform the way they think, work and
invest if they are to retain their customers.
Undeniably, digital disruption threatens
and Ipsos found that no less than 84
the historic domination of the payments
percent of mobile device users trust
business by the banks. However,
the payments app provided by their
the same technology can also help
bank. The equivalent figure for apps
them create the better, faster and
from social network providers is a
less expensive services that will not
mere 5 percent. In fact, 42 percent of
just enable banks to remain relevant,
respondents admitted they do not trust
but actually ensure they become an
non-bank apps.
indispensable part of everyday life
for both institutional and individual
customers.
The payments markets are rich in
growth opportunities
Consumers still trust banks
There are also plenty of good reasons
why social network providers are
Trust is a large part of the explanation of
interested in entering the payments
the durability of banks in the payments
markets. They are growing at double
business. Despite everything that has
digit rates. Payments technology is
happened since the acute phase of
developing rapidly. Its price is falling. The
the great financial crisis in 2007-08,
technologies are becoming more widely
a recent survey conducted by ING
available.
Electronic
payments
are
MI FORUM
taking the place of cash. E-commerce
and
m-commerce
have
created
completely fresh markets, which need
low value payment services.
No wonder an estimated 25,000
financial technology companies around
the world are trying to devour a market
hitherto dominated by banks. And the
technology is powerful enough to lower
the barriers to entry. A single individual,
working out of a garage, can now
reach millions of customers who are
willing to help him improve his or her
product, not only in terms of speed and
cost, but in terms of user experience.
That is the depth of competition banks
are facing today.
Take an uncompromising
approach to innovation
To compete successfully, banks need to
embrace the mindset of the users of the
start-up in the garage. Unfortunately,
banks are still organizing innovation
in the same way that they always
have: through committees, working
groups and task forces. This creates
consensus, and consensus leads to
compromise, and a compromising
approach to innovation is not adequate
to the scale of the challenge. If banks
‘‘This creates
consensus, and
consensus leads to
compromise, and
a compromising
approach to
innovation is not
adequate to the scale
of the challenge.’’
- Mark Buitenhek, ING
2015
MI FORUM
are to transform the user experience
better user experience can increase the
API as long ago as 2012. ING has now
of their products, compromise is not
revenue of a web site by 20 percent.
also developed an open API as an
integral part of its technology strategy.
enough. Banks need to reinvent their
‘‘Although banks have
trust on their side
when it comes to
making payments, the
customer also has to
find payments easy
and reliable.’’
- Mark Buitenhek, ING
2015
business model, and start thinking like
It is much easier for a retailer to negotiate
customers, not producers.
the price of a payments service if he or
Banks are starting to collaborate
she can demonstrate revenues will rise
with start-ups too. A research study
The new generation of consumers
by a fifth if payments are made one way
published by Accenture found 80
do not use traditional methods of
rather than another. It follows that trust
percent of bank executives were
payment. For them, smart phones
is not a sufficient defence for banks
convinced that collaboration with start-
are at the centre of how they manage
against an improved user experience.
ups generated new ideas for their
their lives. They expect more and more
Speed and convenience, not trust,
business. But 56 percent of the same
from the device. The ING-Ipsos survey,
are the main reasons consumers use
set of respondents reckoned their
of 15,000 mobile device users in 13
payments apps.
organizational culture needed to change
European countries, the United States
in order to collaborate successfully.
and Australia, found that 41 percent
Procurement
of the respondents already use their
smart phones for mobile banking. And
The four keys to successful
innovation
departments,
for
example, need to be engaged in the
innovation process so that they are
able to adapt their purchasing criteria to
a further 15 percent plan to do so.
Although banks have trust on their side
work successfully with start-ups.
when it comes to making payments,
Innovations must improve the
user experience
the customer also has to find making
Thirdly, it is essential that banks invest
payments
The
in improving the user experience of
challenge banks must address is
their payments services. Investment
The survey also found smart phones
how to meet those customer needs.
is of course a cost, and there is no
are even more pervasive in shopping
They cannot do so without adopting
guarantee of success. What is new is
than they are in banking. 58 percent
a completely different approach to
the pace at which an investment needs
of respondents shop online using
innovation. That approach has four
to pay off. Banks are accustomed to
their smartphones. 34 percent were
key features: openness, collaboration,
undertaking large technology projects
more likely to be a repeat customer if
investment and people.
that take between three and five years
easy
and
reliable.
to complete. At ING, the bank now aims
the retailer saves their details on-line,
That
An open approach to innovation is
to develop, build, test and introduce
proportion climbs to 55 percent if the
at the heart of the digital revolution.
innovations within six months. If a
retailer
convenient
Fortunately, banks have understood
project does not work within that time-
shortcuts as well. In other words, a
this. Crédit Agricole launched an open
frame, it is abandoned.
to enable “one click ordering.”
provides
other
MI FORUM
2015
This has beneficial effects financially
of the changes necessary to reinvent
as well as commercially. Instead of
the payments business. That outcome
spending millions of euros on one or
would be a pity, not just because the
two large and well thought-out projects,
current environment is fantastically rich
ING is now spending a few thousand
in new opportunities, but because a
euros on multiple smaller projects,
defeat of that kind is entirely avoidable.
introducing them to the market more
Success requires no more than a
quickly,
change in attitude and ways of working:
and
then
making
further
improvements as customers start to
use them. In effect, ING is managing its
investment process in much the same
way that app manufacturers do. It is an
agile approach to innovation.
Harness the talent of the Internet
generation
Finally, banks cannot succeed in
creating the conditions to survive the
digital era unless they recruit, retain and
manage talented people. The payments
industry has achieved a great deal,
technologically and otherwise, in the last
20 years. But it cannot transform itself if
it fails to attract talent that possesses
the mindset of the Internet generation.
Without that talent, this industry could
easily find itself subsumed in legacy
technology, regulatory compliance and
the inevitable focus on tackling the
day-to-day problems of business-asusual. It would be easy to lose sight
from ourselves to our customers.
RISK & REGULATION
MI FORUM / 2015
CCP risk is
a borderless
question in need
of a global answer
Since the financial crisis of 2007 to
2008, regulators have accorded CCPs a
leading role in the strengthening and reregulation of financial markets. However,
their expansion into new classes of asset
and market participant has sparked a
simultaneous debate on the concentration
of risks at CCPs and their members, and
their ability to mitigate and contain those
risks. Natasha de Terán, head of corporate
affairs at SWIFT, says unanswered
questions demand a co-ordinated
response from international policymakers.
In September 2014 J.P. Morgan Chase
CCPs should plan carefully enough and
& Co. published a paper. Its title, What is
husband sufficient resources to avoid a
the Resolution Plan for CCPs?” posed
situation in which recovery and resolution
an obviously rhetorical question. There
would even need to be considered.
is no single resolution plan for central
Secondly, the paper considered recovery
counterparty clearing houses (CCPs),
provisions as the priority. Only then did it go
and there cannot be one, but the paper
on to consider how a failed CCP should be
did set out precisely what component
resolved.
1
J.P. Morgan Chase & Co. thought a
successful plan would incorporate.
First, the bank made clear that it preferred
In CCP risk management, prevention
is better than cure
preventative measures. In other words,
J.P. Morgan Chase & Co. argued that
Although the prescription of J.P. Morgan
Chase & Co. was not welcomed in all
1 What
is
the
Resolution
Plan
September 2014, J.P. Morgan Chase & Co.
for
CCPs?,
quarters, the idea that recovery is superior
to resolution appears eminently sensible.
MI FORUM
Measures which protect CCPs from
of CCPs, and the growing reliance of
that are concentrating the risks – so too
getting into difficulty help to ensure
financial market participants on their
are their clearing members. The number
that disaster never occurs. As Gary
intermediation, demand certainty in a
of CCP members either self-clearing or
Cohn, president and chief operating
crisis, if not a guarantee of continuity.
clearing on behalf of third parties is not
rising in line with the number of risks
officer of Goldman Sachs, put it in an
2
article published in June this year,
This consideration requires regulators
being cleared. Far from it, in fact - the
both market participants and regulators
to draw up and publish detail resolution
number is actually shrinking.
should “maintain their focus on ensuring
plans for CCPs, and make compliance
that the failure of clearing houses never
with them mandatory. But when will they
Many of the brokerage firms that entered,
becomes a real possibility.”
do so, and how?
or pondered entering, the clearing
market as the drive to central clearing
began in earnest in 2009, have since
It is not only banks which have
emphasized that it is better to prevent a
CCP failing than to rescue one which has
Concentration risk is not just a
CCP problem
either exited the business, or abandoned
Indeed, when Tabb Group studied the
failed. Most of the work of the regulators
on this issue has also focused on the
The matter is increasingly urgent.
OTC clearing services landscape in June
protection of CCPs, rather than their
Since 2008, the role of CCPs has
2014, its analysts found that just 13
resolution. Regulators have prescribed
expanded dramatically. Today, they are
Futures Commission Merchants (FCMs)
rules for CCP investment profiles;
intermediating more risks for more end-
accounted for 50.5 percent of the
holding periods; margin parameters; risk
clients than ever before. Prior to the
global OTC derivative clearing market.
assumptions; waterfall structures; and
crisis, the clearing of over-the-counter
The regular reports of the Commodity
governance arrangements.
(OTC) derivatives was a niche service,
Futures Trading Commission (CFTC)
used by a select few in large but self-
show that the 174 FCMs active in the
Many jurisdictions have implemented
contained markets. Seven years on,
United States derivatives markets in
local requirements that put preventative
market participants can clear almost
2002 had shrunk to just 75 by the end
measures of this kind into effect. The
every variety of OTC derivative, from
of 2014. Of those, only a fraction are
old adage – an ounce of prevention
index and single name credit default
clearing for third parties, and even fewer
is worth a pound of cure – may hold
swaps, through cash-settled and non-
doing OTC derivative clearing.
true for CCPs. But in extremis those
deliverable forwards, to overnight index,
preventative measures will only ever
inflation and variable notional swaps.
2 Clearing houses reduce risk, they do not eliminate it, Gary Cohn,
Financial Times 22 June 2015.
From a contagion risk perspective,
this concentration of business with a
go so far. The systemic importance
‘‘Regulators and
the industry alike
should maintain their
focus on ensuring
that the failure of
clearing houses
never becomes a real
possibility.’’
their plans to become clearing brokers.
This is concentrating risk at CCPs. But,
shrinking number of clearing brokers is
even if only a handful of major CCPs clear
more worrying than the concentration
these products, it is not the CCPs alone
of risks at the CCPs. Should a clearing
- Gary Cohn, Goldman Sachs
2015
MI FORUM
‘‘It is not the CCPs
alone that are
concentrating the
risks – so too are their
clearing members.’’
- Natasha de Terán, SWIFT
2015
member default at one CCP, the chance
performance on that occasion, it would
second is equally important. Judging
of it defaulting at a second is high. If a
be imprudent to assume it guarantees
by the Lehman experience, CCPs can
clearing broker defaulted at more than
similar success in the future. Moreover,
find themselves awash with liquidity at
one CCP, the solvent clearing brokers
even though the CCPs concerned can
times of stress. This is because market
could face calls from multiple CCPs to
rightly congratulate themselves on their
volatility increases margin calls, and
cover the shortfalls. Those calls would
performance in 2008, the episode did
in times of stress clearing members
occur at precisely the time the positions
raise four awkward issues that have
will often prefer to post additional
of the failed clearing broker needed to
yet to be resolved satisfactorily. First,
margin in cash rather than securities,
be allocated to the solvent firms, when
co-ordination
CCPs
including the substitution of cash for
volatility would be rising in line with
was far from perfect. Secondly, co-
non-cash collateral they have posted
increased margin calls and growing
ordination between private sector
already. The result is an accumulation
credit concerns.
entities and public sector authorities
of cash at CCPs. The CCPs obviously
was not always harmonious. Thirdly,
need to reinvest that cash quickly and
public sector co-ordination across
safely, but it is not obvious where. By
borders was rudimentary. Finally, the
and large, they reinvest it either in the
resolution of the cleared Lehman
assets they clear, or with the clearing
positions
about
members for which they clear. The
public and private money which are
circular nature of these movements of
still unanswered.
cash is not reassuring.
The resolution of the Lehman
default left unanswered
questions
That said, and as CCPs often point out,
between
raised
the
questions
the Lehman Brothers default provides
some reassurance that the difficulties
The money question is easily the
can be surmounted. The investment
most urgent. It has two facets. The
bank was a major clearing member at
first is whether the public authorities
all the leading CCPs, and carried both
should afford central bank liquidity to
house and client positions. It was a
one, some or all CCPs that get into
The
major default, yet none of the CCPs
difficulty. The second is where CCPs
unanswered by the handling of the
sustained serious losses, all the house
are best advised to deposit surplus
Lehman collapse really reduce to a
and client positions were either taken
liquidity in a crisis.
single question: Who decides? Any
over or liquidated, and the margin held
International co-operation is
easy in theory, hard in practice
other
three
questions
left
successful resolution of an ailing CCP
by the CCPs was sufficient to cover the
Those who believe the re-regulation of
will require decisive action by at least
costs.
financial markets aims primarily to avert
one authority. Where the activities of
public bail-outs of private problems
a CCP span borders, it will require
But much has changed since the collapse
naturally insist on the primacy of the
close co-operation between the home
of Lehman Brothers. Despite strong CCP
first facet of the question. But the
authority and each of the authorities in
all of the jurisdictions in which the CCP
This political reality argues strongly for
provides clearing services.
a single global resolution framework for
CCPs. Unfortunately, there is not even
The Financial Stability Board (FSB)
a single global recognition framework
is aware of this need. Its guidance
for CCPs in place today, nor an outline
expects the home authority of any
agreement
cross-border CCP that gets into
jurisdictions on the application of their
trouble to co-ordinate its actions
respective insolvency regimes, let alone
with all other relevant regulators,
a single global resolution framework.
between
the
relevant
central banks and public authorities.
In a paper on CCP recovery and
Finding a solution to this conundrum is
resolution published in December
becoming urgent. If a global consensus
2014, LCH.Clearnet echoed that
cannot be reached soon on the question
advice.
of CCP recovery and resolution, it is only
3
a matter of time before fragmentation
While
it
sounds
sensible,
the
international co-ordination of multiple
sets in and the idea of a class of
genuinely global CCPs will die.
parties is not easy to deliver, especially
for a large organization clearing a
Understandably, LCH.Clearnet is more
wide range of assets on behalf of a
concerned about this issue than its
large number of clients and clearing
competitors. It clears interest rate
members in a variety of jurisdictions
swaps in Sterling, and in Hong Kong,
around the world. If the solvency of
Singapore, Australian and New Zealand
large banks in any country, or the
dollars, as well as Japanese Yen. Its
liquidity of its currency, swap or repo
clearing membership is equally global.
market, came to depend on CCPs and
Its paper argues that work should
their supervisors in a third jurisdiction,
begin to establish the enforceability
it is a given that the government of
of cross-border resolution regimes. It
the country affected would want to be
recommends that the international crisis
involved in the decision made by the
management groups envisaged by the
third country CCPs and supervisors.
FSB should undertake regular crisis
management exercises. Worryingly, the
groups have yet to be formed, let alone
3 CCP Risk Management, Recovery & Resolution, LCH.Clearnet
White Paper, December 2014.
started testing the viability of their plans.
KEY PERSPECTIVES
Sharing what
SWIFT has
learned about
RT-RPS
MI FORUM / 2015
The case for real-time retail payments systems
(RT-RPS) is increasingly apparent in business-tobusiness (B2B), person-to-business (P2B), and
person-to-person (P2P) transactions. Instantaneous
or near-instantaneous posting of payments is now
a reality in 18 countries, and a further 12 are either
building, or planning to build, or exploring a RT-RPS.
Europe is also looking to enhance the Single Euro
Payments Area (SEPA) by adding a RT-RPS. Although
there are differences between the approaches to
RT-RPS between countries, they have in common
both adoption of the ISO 20022 data standard, and a
commitment to operating 24 hours a day, seven days
a week, 365 days a year. SWIFT has a natural interest
in the development of RT-RPS. It was involved in the
construction of many large infrastructure projects,
such as TARGET2, TARGET2 - Securities (TS2) and
Continuous Linked Settlement (CLS), and is now
building the New Payments Platform (NPP) in Australia.
It is also part of the mission of SWIFT to monitor
important infrastructural developments, and to inform
and educate its members about their implications.
Which is why SWIFT is publishing a series of white
papers on RT-RPS. The first two of these, The Global
Adoption of Real-Time Retail Payments Systems,
and Guidelines for the Next Generation of Real-Time
Payments Systems, are now available. MI Forum
Magazine editor Dominic Hobson asked Carlo Palmers
and Elie Lasker, senior market managers for realtime payments, at SWIFT, what the white papers can
tell readers about the origins, costs and benefits, and
future direction of RT-RPS.
MI FORUM
to attract foreign direct investment, so
the regulators are pushing not only
for faster payment, but for a wellordered and well-functioning payments
system. Other regulatory drivers include
consumer protection and transparency.
So there are multiple dimensions
and, depending on the country, one
dimension will weigh more heavily than
another.
Palmers: Real-time is intended to
‘‘If real-time payments
are passing through
the banking system,
regulators have better
visibility and greater
control.’’
replace a number of existing methods
of payment. But one of the methods
Hobson: Are consumers asking for
RT-RPS or is it entirely the creation of
regulators?
Palmers: The regulators have taken
this up, but the original push came from
consumers. There is an expectation in
the market that payments need to be
faster, because the delivery of goods
is faster. At Sibos in Boston last year, it
beneficiaries should not have to wait for
their money.
delivery within one hour. If the payment
for that delivery still takes days, despite
cash transactions, which are of course
a form of real-time payment. If real-
Lasker: There are already services
time payments are passing through the
out there that offer a form of real-time
banking system, regulators have better
payment, including PayPal, so real-
visibility and greater control.
time is becoming the new normal. In
common with other innovative products,
what starts as a luxury soon becomes
a necessity. Eventually, of course, a
necessity becomes a commodity.
Lasker: One of the biggest arguments
in favour of RT-RPS for the banks is
the reduction in the circulation of cash,
because the cost of printing, transporting
and handling cash is extremely high. It
is costing the European banks alone
was pointed out that, in some cities in
the United States, eBay now guarantees
regulators certainly want to replace is
Hobson: What do the regulators want
billions of euros a year.
from RT-RPS?
Hobson: What else is in it for banks?
the fact it is completely electronic, it is no
longer acceptable to consumers. Many
Lasker: It depends on the country. The
question the need for instantaneous
Mexican central bank, for example, has
payment, but there is now undoubtedly
mentioned financial inclusion as a key
an expectation among consumers that
driver. In other countries, there is a need
Lasker: Banks are supporting RTRPS to re-intermediate themselves.
- Carlo Palmers, SWIFT
2015
MI FORUM
Ultimately, transactions will always settle
Hobson: Are businesses demanding
across borders, or at least will facilitate
via the banking system even if they are
RT-RPS?
this. Cross-border RT-RPS is going
to happen much sooner in Europe
captured and initiated by third parties,
‘‘Banks are giving up
on customer intimacy.
By supporting instant
payments they can
retain the relationship
with the customer.’’
- Elie Lasker, SWIFT
2015
but this means that banks are giving up
on customer intimacy. By supporting
instant payments they can retain the
relationship with the customer. They can
see the transactions, and understand
what their customers are doing, so they
have the business intelligence to crosssell.
Palmers: Any consumer who is using
real-time payment in his private life will
expect to be able to pay and get paid
in real-time in his business life as well.
have to wait to get paid, they need more
sooner, because they do not have to
payments. But building a business case
wait so long for the money. That gives
for RT-RPS on P2P mobile transactions
them a further competitive advantage.
alone is difficult, so banks are now
RT-RPS does not just speed up the
offer additional value to consumers,
companies, and e-commerce platforms.
If an e-commerce platform is linked to
an RT-RPS, buyers and sellers can not
only trade in real-time but close deals
in real-time. If those payments remain
within the banking community, then the
banks have full sight of the reason for
the payment, who is paying who, and for
have to provide equivalence between
cross-border and domestic payments
services. There will be either a single
system for Europe or inter-operability
Europe.
about RT-RPS, they focused on mobile
that
systems
optimize their working capital. If they
they can release goods to customers
services
payments
between multiple domestic systems in
working capital. RT-RPS also means
“overlay”
euro
Lasker: RT-RPS allows businesses to
Palmers: When banks started thinking
developing
because
financial transaction. It speeds up
the whole transaction. It also makes
transactions more efficient. Moreover,
because most modern RT-RPS use
ISO 20022 messages, payments can
carry more information about who the
payment is from, and what it is for.
This translates into massive savings
Lasker: For systems to inter-operate
successfully, even a common set of
standards is not enough. A common
set of behaviours, i.e market practices,
is required too. Banks exchanging
payments in real-time have to behave
in the same way, in terms of which
message is used, how it is populated,
how much time is taken to respond,
and how exceptions are handled and
repaired. It is critical that the rules
of
behaviour
between
banks
are
harmonized to ensure systems interact
in the same way.
for businesses in their reconciliation
departments.
Hobson: Who can agree and enforce
those harmonized rules of behaviour?
what reason. ‘‘Big Data’’ is a hackneyed
expression, but it is essential for banks
Hobson: Can ISO 20022 do even
to keep track of what their customers
more, and link RT-RPS across borders?
are doing, if they are to grow their own
Palmers: In the payments industry, such
sets of rules are called a “scheme.” The
business by helping their customers to
Palmers: ISO 20022 will likely become
euro-zone banks had to agree a scheme
develop their business.
a
ahead of the introduction of SEPA. The
requirement
for
inter-operability
MI FORUM
banks in the United Kingdom had to
RPS handle instructions one-by-one. To
agree one before the introduction of
go from batch - where you can postpone
Faster Payments. The Australian banks
processing
are doing the same ahead of the NPP.
available - to processing payments one-
Agreeing a scheme in one country is
by-one is a major step. It entails a switch
already difficult. Agreeing a scheme that
from operating specific hours during
crosses currencies, time-zones and
the working day to operating 24/7/365.
settlement mechanisms is even more
So ACHs will definitely have to change.
difficult. In Europe, fortunately, the banks
But RTGSs will also have to extend their
can build on the SEPA rules. Even so, an
operating hours, and add the capacity to
RT-RPS scheme will have to go beyond
cope with much higher volumes.
the SEPA rules, because it is expected
that banks will have only three seconds
in which to agree a real-time payment.
The expectation is that the European
Payments Council (EPC) will step in and
work on such a scheme, but it could also
be done by the operator of the RT-RPS.
until
sufficient
files
are
lose traffic when an RT-RPS is established
in a currency. RTGSs are considered
as systemically important systems and
typically do not mix urgent high value
payments with lower value – and less
urgent – retail payments. We have seen
Lasker: Even if the EPC defines a
traffic from the ACHs moving to the RT-
pan-European set of rules, it does not
RPS. So ACHs probably need to react
guarantee that countries outside the euro-
first. In the future, however, the borders
zone will follow the same rules. If we are
between ACHs, RTGSs and RTRPS
to have a global RT-RPS, all participating
are likely to blur and, in the longer term,
domestic and regional schemes will need
converge.
to harmonize their rules.
Hobson: Are ACHs adapting yet and, if
Hobson: Which of ACHs and RTGSs
‘‘In the future the
borders between
ACHs, RTGSs and
RT-RPS are likely to
blur and, in the longer
term, converge.’’
Lasker: We have not yet seen an RTGS
so, how?
stands to lose or gain most from RT-RPS?
Palmers: We have not seen an ACH
Palmers: Both RTGSs and ACHs will
take up the challenge and roll out a RT-
have to adapt, but in different ways. ACHs
RPS. In the countries where a RT-RPS
process payments in batch files while RT-
is in place, it is a new system built next
- Elie Lasker, SWIFT
2015
MI FORUM
‘‘It still makes sense
for certain types of
payments to be netted
and batched.’’
to the existing one. There are also a
RT-RPS, but by multiplying the number
few countries where the RTGS is taking
of settlement cycles. This allows the
over the role of a RT-RPS, but no ACH
banks to post payments intra-day.
is doing the same.
Lasker: What we have seen is
some of the RT-RPS offer to process
batch payments. Faster Payments
Hobson: What is SWIFT doing to help
the transition to RT-RPS?
in the United Kingdom, for example,
processes batch payments, allowing
Palmers: The best way to answer that
its members to offer same-day value,
question is to look at the components
whereas the BACS system still takes
we are building for the NPP in Australia.
three days.
We are re-using as much of the existing
SWIFT infrastructure of the Australian
banks as we can. We are also decreasing
Hobson: Will RT-RPS ultimately
our latency by installing a new protocol
replace the RTGSs or the ACHs?
that allows messages to be processed
locally rather than via remote operating
Palmers: As Elie said, banks are still
centres, which increases the speed of
willing to treat systemically critical
the transactions. We are also re-using
payments separately. But, from a
and upgrading interfaces to ensure we
functional point of view, a RT-RPS
orchestrate the flow of messages in
could handle a RTGS payment as well.
accordance with the demands of the
Will the ACHs disappear? It still makes
NPP.
sense for certain types of payments to
be netted and batched. For example, if
a major telecommunications company
is paying salaries to 50,000 employees,
it makes more sense for them to deliver
a bulk file to their bank and say, “Look,
this is the debit account. Debit it once
and pay these 50,000 employees.”
Lasker:
Carlo is talking in terms of
solutions. RT-RPS is also a relatively new
topic. Like any new topic, it has triggered
a lot of discussion. SWIFT provides a
space where the industry can discuss
RT-RPS, agree and disagree, and work
on standards. Because we are neutral,
we can facilitate dialogue between
Lasker: To some extent, ACHs have
stakeholders, whether they are banks,
already started to adapt, not by building
central banks, vendors, or market
2015
MI FORUM
‘‘The commitment of
market participants
to collaborate is
absolutely essential.
In Australia the banks
are so committed,
co-operative and
collaborative that it is
really helping to drive
the project forward.’’
infrastructures. The other aspect of our
found each other. Although the NPP
work is educational. Because RT-RPS
was driven at first by the central bank,
is a new topic, people in the industry
once the commercial banks started to
need to be brought up to speed, and
think about the overlay services that
that is a natural role for SWIFT to play.
they could put in place, and of the
That is why we are publishing a series of
potential benefits that the new platform
white papers.
could bring to their business, there was
Palmers:
SWIFT
is
important
to
standards too. One of the reasons
incredible commitment and drive from
them to make it happen.
SWIFT was created was to provide
Lasker: The NPP is a project that
a place where standardization can
is forcing us to re-think the way we
be discussed. With this new type
function and alter the assumptions we
of
is
make too. Today, for example, SWIFT
something that needs to happen.
does not offer all its services 24/7. The
Standards are really important to RT-
fact that we are entering a new market
RPS.
– and a retail market – where operating
transaction,
that
discussion
24/7 is a given, has forced us to change
our outlook. So NPP is a health-giving
Hobson: What has SWIFT learned
project for SWIFT. It is stretching the
from its experience in Australia so far?
boundaries of the co-operative and the
way we think. SWIFT is being changed
Palmers: The commitment of market
by this.
participants to collaborate is absolutely
essential. In markets where there is
insufficient commitment, a system might
be created, but it is not successful. In
Australia, by contrast, a large majority
of the banks are so committed, cooperative and collaborative that it is really
helping to drive the project forward.
Almost the whole Australian banking
community, including the central bank
and the regulators, came together. They
“Come and discuss real-time
payments with us…” at Sibos
15:30-17:00 p.m.
Conference room 1
2015
MI FORUM SESSIONS
Ask not what
infrastructures
can do for their
users but what
users can do for
infrastructures
It is natural to think of banks and financial
market infrastructures (FMIs) as occupying
separate categories in the financial system. It
is why regulators look to FMIs to reduce the
systemic risk created by banks, and banks look
to FMIs to provide the platforms from which they
can launch services. In the face of the mounting
challenge of regulatory compliance, and a range
of competitive threats from new entrants, Frank
Van Driessche, senior business manager, market
infrastructures at SWIFT, argues that it is time
for users of FMIs to stop thinking in terms of
institutional categories and start thinking in
terms of networks.
It is simplistic to ask whether financial
payment banks with opportunities to
market
develop innovative services.
infrastructures
(FMIs)
are
meeting the needs of their users.
In reality, FMIs not only serve their
members, but evolve in line with shifts in
But the role of the FMI is not confined
the marketplace to create new service
to operating reliable platforms on
possibilities for users. In custody, for
which banks can develop competitive
example,
have
new services. They can also help their
long monitored the ability of sub-
users to access new markets, as they
custodian banks to keep up with the
are doing in European payments and
service innovations of central securities
securities markets already. Inevitably,
depositories (CSDs). In a similar way,
however, they might also be drawn into
by developing real-time retail payment
competition with their users as their
systems (RT-RPS), payments market
services develop to the point at which
infrastructures (PMIs) are providing
they displace their members from a
network
managers
‘‘Relationships between FMIs and their
users are never one-dimensional. They
are multi-layered, complex, dynamic,
and evolve over time.’’
- Frank Van Driessche, SWIFT
market altogether, especially where this
services, and entirely new FMIs are
can be shown to cut costs. And they
emerging to meet cross-border needs.
can create openings for new entrants,
TARGET2
as they are by developing RT-RPS
(T2S) are instances of infrastructural
services. So relationships between
adaptation to growing cross-border
FMIs and their users are never one-
traffic. The international CSDs (ICSDs)
dimensional. They are multi-layered,
have long serviced both international
complex, dynamic, and evolve over
and domestic market participants and
time.
asset classes. The real-time gross
and
TARGET2-Securities
settlement (RTGS) systems that support
currencies widely traded outside their
FMIs are crossing borders,
but only at the tempo set by
transaction flows
In an increasingly global marketplace,
FMIs are also developing cross-border
domestic markets, such as the U.S.
dollar, have extended opening hours to
cover multiple time-zones. In a world in
which currency barriers remain intact,
CLS was built specifically to eliminate
the settlement risk of cross-currency
‘‘But in the long
term it is a natural
development for
FMIs to establish
links that make
it easier and
cheaper for
their domestic
constituencies to
transact business
across borders.’’
transactions. When any domestic FMI
is built or refurbished, consideration
is always given to how cross-border
transactions can best be supported,
especially
through
adoption
of
international message standards.
Yet participants in both the securities
and payment markets are nevertheless
operating in a context in which crossborder
links
are
incomplete.
The
majority of RTGS systems exist primarily
to support domestic constituencies,
and automated clearing houses (ACHs)
have made little impression beyond their
domestic market, albeit largely because
cross-border flows have yet to rise to
constituencies to transact business
the level which would encourage them
across borders.
securities depository (CSD).
These patterns imbue FMIs with an
to do so. Providing a robust and secure
- Frank Van Driessche,
service to domestic market participants
In the securities markets even the
understandable focus on servicing
SWIFT
is a natural priority. This is why even
most internationally-minded investor
domestic clients, transactions and asset
the pioneering New Payments Platform
still accesses domestic markets in a
classes. The settlement of payments
(NPP) in Australia is aiming to provide no
comparable way. Stocks and shares
and trades remains for the most part
more than a purely domestic RT-RPS
are bought and sold remotely via a
restricted to local market opening
initially, with cross-border payments
link to the local stock exchange, or
hours, at least in markets other than the
continuing to be intermediated by
through a seat a global broker retains
major internationally traded currencies.
the existing correspondent networks
on the local stock exchange, or by a
This makes cross-border settlements
that provide the gateways into purely
local broker approached either directly
relatively cumbersome. They require
domestic infrastructures. But in the long
or via a global broker. Trades still clear
high levels of intermediation in both
term it is an equally natural development
and settle locally too, through the sub-
payments (two correspondent banks
for FMIs to establish links that make it
custodian bank of a global custodian,
adjacent to the relevant PMIs) and
easier and cheaper for their domestic
between accounts at the local central
securities (a global broker, a local broker,
a global custodian, a sub-custodian
and a CSD, and perhaps also a local
‘‘It is not just
liquidity that
ensures trading
and investment
activity remains
primarily local:
there is an
infrastructural
reason for it too. ’’
central counterparty clearing house,
or CCP, as well). They also tie up cash
in local markets as transactions await
settlement, or require the provision of
credit at the local level.
The internationalization of
infrastructure has begun
In other words, it is not just liquidity
that ensures trading and investment
activity remains primarily local: there is
an infrastructural reason for it too. FMIs
have yet to provide the underpinning
for
a
genuinely
seamless
cross-
border transaction settlement service
SWIFT
that
operates
24/7/365.
Unaided,
infrastructure cannot displace local
markets as the ultimate source of
liquidity, but it is possible to foresee a
time when infrastructure can contribute
to the widening of pools of liquidity. In
fact, there are several portents of such
a future already. One is TARGET2Securities (T2S) in Europe. Its principal
aim is to increase the size and liquidity
of
European
capital
markets
by
bringing the cost of settling securities
transactions across European borders
down to the same level as domestic
transactions.
In effect, T2S can be seen as the
restrictions that have long divided the
FMIs have to change the way they
securities market equivalent of the
Chinese stock market between shares
work to ensure that market participants
Single Euro Payments Area (SEPA),
open to local investors and those
are not faced with an unenviable
which was designed to bring the cost of
available to international investors.
choice between settling trades within
cross-border cash movements within a
Tellingly, once it became clear that the
an exceptionally narrow window of
single currency area down to domestic
settlement process was an obstacle to
opportunity
levels, in line with the broader vision
trading activity via Stock Connect, Hong
of leaving a transaction unsettled
of an integrated European payments
Kong Exchanges and Clearing Limited
overnight.
market. In the short term, T2S is likely
(HKEx) modified its Central Clearing
to add costs as custodian banks pass
and Settlement System (CCASS) to
on the price of the additional services,
eliminate the problem.
Regulation as a catalyst of
change
Standards are not enough:
operational infrastructure and
practices have to change
Another hurdle FMIs can help their
but it will eventually lead to cost
or
assuming
the
risk
reductions, as it did with SEPA, even if
it took some time. Transaction costs will
fall as banks make savings on liquidity
and the domestic securities market
infrastructures are linked (and later
‘‘FMIs are not
the passive
instruments of
either users or
regulators, but
active agents of
change.’’
users surmount is regulatory obstacles
to cross-border flows. Though many
FMIs do not regard compliance support
SWIFT
consolidated) in the same way as their
The Stock Connect experience is a
as part of their remit, stock exchanges
payments counterparts. In payments,
reminder that links between trading
have long fulfilled regulatory duties on
the next step is already visible: the
infrastructures must be supported by
behalf of their members, and regulatory
European Central Bank (ECB) has
equally effective links between clearing
trade reporting and repository services
started work on defining its vision for
and settlement infrastructures if the
are supplied almost entirely by market
an integrated pan-European real-time
goals of tighter integration, lower costs
infrastructures.
payments system.
and greater liquidity are to be met. It
proves that the adoption of international
An obvious new opportunity in this
A similar pattern is emerging in
message standards such as ISO 20022
area for FMIs is to help their users
Asia, where the Financial Integration
is not enough. While they reduce an
meet Know Your Customer (KYC),
Framework (AFIF) developed by the
important part of the friction inherent
Anti-Money Laundering (AML) and
Association of Southeast Asian Nations
to linking domestic FMIs, changes
sanctions screening obligations. A
(ASEAN) aims to cut costs and foster
in operational practices will also be
repository of KYC, AML and sanctions
liquidity by making the links between
required. This need is especially acute
screening data, coupled with a service
FMIs more efficient. Similarly, the Stock
when FMIs are required to support
offering unique digital identifiers, is
Connect link between the Shanghai and
links between trading platforms across
natural territory for FMIs, because such
Hong Kong stock exchanges eroded
time-zones. In these circumstances,
a service would benefit everybody while
advantaging nobody. Fraud detection
and resolution is another opportunity of
a similar kind.
Want to find out more?
Market infrastructures
forum opening
FMIs have already shown that they
are prepared to be adventurous, by
exploring opportunities to inter-operate
across borders, provided this does
not compromise their primary duty
of building and maintaining robust
and scalable transaction processing
09.00-09.50 a.m.
Conference room 1
Moderator:
infrastructures. They are not the passive
Dominic Hobson
instruments of either their users or the
Founder, COOConnect
regulators, but active agents of change
in both the payments and securities
industries.
Ian Banks
They provide services which meet
regulatory
goals
(such
as
trade
reporting), create new opportunities for
users (such as servicing cross-border
trading and investment) and prompt
users to find innovative solutions to
competitive threats (such as overlay
services in RT-RPS). The boundaries
between FMIs and their users are not
blurring. They are ceasing to exist.
FMIs and banks, and the brokerdealers, fund managers, investors, and
corporates that are their clients, are
component parts of a boundary-less
network of mutually dependent market
participants.
Panelists:
Head of Securities Services
APAC, HSBC
A.P. Hota
Managing Director & CEO,
National Payments Corporation of
India
Paul LaHiff
Chairman, New Payments
Platform (NPP), Australia
Calvin Tai
Head of Global Clearing Asia,
Hong Kong Exchanges & Clearing
Ltd
The currency markets are substantial
gross settlement systems (RTGSs)
and
estimated
around the globe in order to facilitate the
MI FORUM
US$5 trillion changes hands every
timely exchange of payments required
SESSIONS
day, according to the latest triennial
for settlement each day.
highly
liquid.
An
survey by the Bank for International
The truly resilient
infrastructure is not
afraid to learn from
other industries
The size and influence of the $5 trillion a
day foreign exchange (FX) market makes
it a primary source of systemic risk in
the international financial system. To
mitigate that risk, the infrastructure of the
FX market has to operate to the highest
standards of operational resilience. To
ensure it never allows those standards to
slip, CLS is continuously exploring and
adapting risk management techniques
pioneered by other industries, says John
Hagon, head of global operations and
relationship management at CLS.
Settlements. Other financial markets,
If any component of the CLS eco-
ranging from equities to bonds, as
system were to fail or be temporarily
well as international corporations with
disrupted, liquidity and credit problems
exposure to global currencies, are
would spread rapidly through the global
heavily reliant on the foreign exchange
financial system. The primary role of
(FX) market to function effectively 24
CLS is to protect its members and its
hours a day.
18,000 active third parties (indirect
participants) from this risk.
To maintain trading volume of this
size
across
multiple
jurisdictions
continuously requires a stable, globally
dispersed infrastructure with minimized
operational risk. This is, ultimately,
Tools and techniques can be
learned from other missioncritical industries
managed by technology and people.
These two factors combined ensure
As financial markets and technology
the
underpinning
develops, participants and regulators
financial markets remains operational,
alike are continuously looking for
cutting-edge and resilient in all market
innovative risk management solutions,
conditions.
and CLS is no exception. Like any
infrastructure
forward-thinking financial organization,
CLS is one of those critical
market
CLS is casting the net wider towards
infrastructures. As the operator of a
other mission-critical industries as they
crucial
look for examples of best practice in
global currency settlement
system, CLS is one of a number of
operational risk management.
systemically important financial market
infrastructures considered essential to
It is now drawing best practice
the functioning of the global financial
lessons from other sectors. CLS has
system. It connects 62 member-banks
implemented
as direct participants and 17 real-time
concepts used by other industries to
models
built
around
‘‘There are many transferable lessons
and skills from other industries that the
financial services industry is adopting.’’
- John Hagon, CLS
help manage its operations and risk
Those in the aerospace industry, such
management in a more effective
as jet engine manufacturers, operate
manner.
a
world-class
global
monitoring
service, where data is turned into
There are many transferable lessons
credible information for engineers
and skills from other industries that
and
the financial services industry is
They achieve this by equipping their
adopting to stay at the forefront
engines with hundreds of sensors
of
operational
that provide information, monitored
excellence. Many institutions are
by a service team in real-time. If the
taking the lead from industries such as
data reports any errors or anomalies,
aerospace, air traffic control and the
the team is able to react swiftly,
military to gain insight into innovative
ensure
operational and monitoring models
parts are available and dispatch a
that can be applied to build resilience
specialized engineer to the right
and manage risk.
place at the right time.
technological
and
operational
the
risk
correct
managers.
replacement
‘‘A fresh set of eyes or a different
way of thinking can sometimes see
weakness in a plan, something that is
overlooked, or even a task that can be
simplified or streamlined.’’
Lessons from the military
It was during my time in the military that I learned the importance of
empowering subordinates and team-mates to make decisions and
question how we accomplish different tasks. A fresh set of eyes or
a different way of thinking can sometimes see weakness in a plan,
something that is overlooked, or even a task that can be simplified or
streamlined.
- Michael Enright, CLS
The army uses a process known as an After Action Review (AAR) to
learn from issues that arise in any situation and mitigate future risks. It
also has a solid forum for knowledge-sharing, where people can analyze
their experiences and learn the most up-to-date and best practices to
mitigate risk.
CLS is applying lessons from
the aerospace and energy
industries
activity and performance, meaning
issues
I draw on my military risk management experience every day as part
earlier, resulting in less disruption.
of my role in the operations function at CLS, where I am part of a team
The new model enables CLS to solve
responsible for continuously managing members’ liquidity risk. We
similar
many problems and mitigate risks
constantly monitor payments and set alerts for all members based
approach to data management in
before they impact critical business
on their historical pay-in times. This gives us a detailed oversight that
order to manage resiliency threats
deadlines. In the context of detecting
enables us to inform members of any potential issue before it occurs,
rapidly and effectively. It has systems
a cyber-threat or attack, monitoring for
thereby minimizing risk and improving the efficiency of our operations.
in place to analyze the data it
unusual activity can be very powerful.
CLS
has
introduced
a
they
catch
and
address
receives and turn it into valuable
Michael Enright, Associate, Operations at CLS business information, allowing the
Part of this undertaking included the
team to anticipate, and react more
installation of a huge information panel
quickly to any potential issues in
in the office of the global operations
the FX market before they occur.
team. Inspired in part by the energy
The team now compares the real-time
industry, where power station teams
activity of members with their “normal”
are able to monitor all activity from
solving workshops, has enabled CLS
to continually refine and improve its
‘‘Implementing innovative operational
risk management solutions inspired
by other industries is a credit to the
changing attitudes of the global FX
industry.’’
monitoring skills and processes.
It is no surprise that managing
resiliency threats is at the top of the
CLS agenda. This is compounded by
high-profile examples of technology
outages, which have had a severe
impact in other markets.
Resilience: lessons
learnt from other
industries
10.15-11.15 a.m.
Conference room 1
The emphasis now being placed on
- John Hagon, CLS
implementing innovative operational
risk management solutions inspired
by other industries is a credit to the
changing attitudes of the global FX
industry. Just like an air traffic controller,
or an aviation team responsible for a
Moderator:
Natasha de Terán
Head of corporate affairs, SWIFT
Panelists:
a single control panel, the “info-wall”
qualifications and standards on a
jet engine in a passenger airliner, the
Phillip Enness
ensures operations professionals are
continuous basis.
FX industry infrastructure enables the
Global lead, markets
able to holistically observe trading,
wider market to operate effectively
infrastructure, banking and
payment and settlement activity in
and efficiently. In short, failure is not
financial markets, IBM
real-time.
CLS
has
continuous
also
implemented
assessment
a
Resilient and reliable
infrastructure underpins the FX
market
and
an option.
John Hagon
Head of global operations and
relationship management, CLS
competency evaluation model based
The
on one used by air traffic control
operations team is now continuously
Hannah Nixon
services worldwide. In a mission-
assessed using a comprehensive
Managing director (head), UK
critical industry, where safety and
accreditation framework to ensure
Payments Systems Regulator
operational
is
the best-skilled people are running
(PSR)
paramount, it is essential that air traffic
the service. This, combined with an
controllers are able to prove their
operational excellence approach to
ability to meet the highest required
near-miss data analysis and problem
risk
management
competence
of
the
CLS
Retail payment systems encompass
other combination. These are the need
a
for better data and the need for speed.
wide
range
of
transactions.
MI FORUM
They
SESSIONS
consumer-to-consumer, peer-to-peer,
facilitate
corporate
payrolls,
government-to-business, business-tobusiness,
and
Safety and speed are
not alternatives
The payments industry is moving towards
real-time retail payments systems (RTRPS) that operate 24/7, 365 days a year. An
urgent question is whether there are any
boundaries to this apparently unstoppable
movement towards instantaneous payment,
around-the-clock. One concern is that
increased speed might be purchased at
the cost of either safety or regulatory
compliance, or both. Liz Oakes, associate
director at KPMG, argues that the
industry has no choice but to ensure
that its traditional checks and controls
keep pace with what consumers know is
technologically possible.
all
consumer-to-government
points
between
Safety and compliance depend
on speed and data
these
counterparties. Within these various
The requirement for speed and the
categories, volumes are changing and
requirement for data are tightly linked.
growing, creating familiar problems of
Retail transactions that are executed
volume and control.
quickly can easily become a focus of
activity for bad actors in the eco-system.
Payments are also shifting from the
Faster payment systems represent
traditional methods of cash and cheque
a new opportunity for criminals, and
to instantaneous payment via cards,
protecting their users from them is a
on-line services and mobile devices. As
fresh challenge for payments market
consumers and businesses become
infrastructures.
accustomed
to
instant
payments
by electronic means, these volumes
This is where data counts. The
are bound to rise, as both payers
management of the risk of wrongdoing
and payees appreciate the simplicity,
in retail payments has long concentrated
convenience and safety they offer.
on the client on-boarding process,
where success depends on Anti-Money
The
myriad
combinations
of
Laundering (AML), Know Your Customer
counterparties, and the burgeoning
(KYC) and (increasingly) Know Your
range of payment methods, have led
Customer’s Customer (KYCC) policies.
to differentiation and specialization in
In other words, payment processing
products as service providers seek to
is typically a rules-based environment,
meet the varying needs of participants
where numerous checks and controls
in the payments eco-system. But every
are required to protect the overall
combination of counterparties and
system from misuse.
payment methods has two undisputed
requirements in common with every
These checks and controls take time
to apply. It follows that faster payments
are made. This problem is more
complex when payments are made
across borders, and not only because
‘‘Credit risk decisions also have to be
managed in real-time. Paradoxically,
speed is not the principal obstacle to
meeting this challenge successfully.
The real problem is the checks to be
made in real-time on the volume of
payments as they are made.’’
The threat from new entrants
is shifting from channels to
disintermediation
disparate regulatory requirements in
different jurisdictions add complexity.
Payments are one of the most
Unlike domestic payments, payments
active targets of disruptive FinTech
across borders were not traditionally
companies around the world today.
processed in a fully automated fashion,
A confluence of new technological
so volume is already a problem. Cross-
capabilities centred on the wants and
border payments are easier to manage
needs of the individual consumer,
when they are credit-pushed rather
and an increased regulatory focus
than debit-based, but it is still difficult to
on the rights of consumers and the
implement controls when the volume of
benefits of competition, has created
payments is both high and continuous.
opportunity for new entrants into the
payments industry.
Legacy systems are part of the problem
- Liz Oakes, KPMG
of adaptation. The payments systems
Banks, as heavily regulated deposit-
at most organizations are designed to
taking financial institutions, tend to
necessitate faster access to the data to
useful both in detecting and reporting
distinguish between batch payments
perceive themselves as being at a
conduct the checks and implement the
potentially fraudulent transactions. But
and real-time gross payments. Finding
competitive
controls. In fact, identity management
the ideal answer is to invest in systems
space between these binary alternatives
contest to facilitate retail payments
and data security now have to be
that identify senders and beneficiaries
to conduct checks and apply controls is
transactions. Instant payments impose
managed in real-time. Where speed
correctly, and instantaneously, without
difficult. Creating an alternative instant
a real-time processing requirement on
cannot be slowed down to buy time
putting customer data at risk.
payments processing stream is not a
organizations that are used to batch
to make an assessment, credit risk
simple task within a legacy architecture
and even overnight processing. New
decisions also have to be managed in
whose components were not designed
entrants, by contrast, are offering
for such a purpose. But any institution
not only real-time payment but digital
which fails to adapt its systems to
offerings that incorporate richer data
the new requirements now faces an
and advanced analytics.
real-time.
In instant payments, the problem
is not speed but volume
To make decisions at the necessary
disadvantage
in
this
existential threat.
speed, a number of methods are
Paradoxically, speed is not the principal
available. An obvious one is transaction
obstacle to meeting this challenge
This is changing the nature of the
limits. Behaviour profiling is another, and
successfully.
competitive
it is already being used successfully to
the checks to be made in real-time
incumbents. Until now, competition
enhance decision-making. It has proved
on the volume of payments as they
has revolved around the channels
The
real
problem
is
threat
faced
by
the
across almost every aspect of customer
interaction, systems and processes.
‘‘Operating in an environment
defined by 24/7 real-time market
infrastructures necessitates change
across almost every aspect of
customer interaction, systems and
processes. ’’
Areas
affected
management,
include
product
customer
customer
notifications,
platforms,
credit
channels,
accounting
decisions,
fraud
systems, compliance and reporting,
funding, and technical integration into
platforms.
Conference room 1
Change on this scale is daunting. It
Moderator:
market
infrastructures
as
well
as
payments banks. Yet, for any institution
business, the risks involved in not
payment
any individual organization to prove.
services. As consumers shift to on-
While banks and financial institutions
demand services, with specific offers
have for many years offered 24/7
based on on-line and off-line profiling
products such as automated teller
and location, the challenge is to build
machine (ATM) services and Point of
networks capable of joining up both
Sale (PoS) card systems, these did
sides of every transaction in real-
not require payment systems to be
time. To meet it, innovation focused
available on-line and operating 24/7.
to
access
bank
on the inter-bank mechanisms for
retail payments. In the next phase of
innovation, there is a risk of banks
being disintermediated altogether.
Banks are alive to this threat. However,
the business case for investing in the
systems necessary to support realtime retail payments is a difficult one for
The scale of the changes
necessary is daunting but
unavoidable
09.00-09.45 a.m.
wishing to remain in the payments
used
Real-time: how fast is
too fast?
multiple 24/7 clearing and settlement
represents a step-change for payments
- Liz Oakes, KPMG
moving to real-time are clear. Equally,
Liz Oakes
Associate director, associate
director, KPMG
Panelists:
moving to instant payments across
Karin Flinspach
the entire global payments eco-system
Head of cash products,
creates fresh risks of its own, especially
transaction banking,
in terms of running checks and
Standard Chartered Bank
implementing controls while managing
heavy volumes of payments at high
Hays Littlejohn
speed. Working out how to manage
CEO, EBA CLEARING
the risk of shifting an organization to
real-time, and then managing the risk
Craig Tillotson
of operating in real-time, is the principal
CEO, Faster Payments Scheme
challenge facing banks and market
Limited
infrastructures active in the payments
industry today.
Ather Williams
Operating in an environment defined by
Head of global transaction
24/7 real-time market infrastructures,
services, Bank of America
by
Merrill Lynch
contrast,
necessitates
change
financial
market
Commissions (CPSS-IOSCO) in April
(FMIs)
sounds
2012, the CPSS has re-emphasized
MI FORUM
incongruous. After all, FMIs are meant
its mandate to promote the safety
SESSIONS
to be the secure, resilient, permanent
of FMIs by changing its name to the
and stable components of the financial
Committee on Payments and Market
services industry. They are not start-ups
Infrastructures (CPMI). Over the last
ambitious to disrupt the status quo. In
three years, national regulators have
fact, a disruptive FMI is a phenomenon
also turned the principles into concrete
no one in the market wants to see.
rules FMIs are expected to follow.
Innovation
by
infrastructures
Blockchain has the
power to resolve
the paradox of
infrastructural
innovation
Financial markets infrastructures (FMIs)
are not designed to be innovative. The
expansion of their role since the financial
crisis has also created regulatory
pressure to enhance safety, pre-empting
resources and decreasing the scope for
experimentation. Yet there are ample
opportunities to innovate with emerging
market infrastructures leading the way,
and pressures to innovate to survive,
especially in Europe. But the biggest driver
of innovation in FMIs, says Virginie O’Shea,
senior analyst at Aite Group, might well be
blockchain.
Nevertheless, the innovative use of
technology is scarcely alien to the
development of FMIs in recent years,
and they ignore it at their peril in the
Innovation competes for
resources with compliance
future too.
The rules insist FMIs take legal, credit,
Innovation can help FMIs alleviate
liquidity and operational risks into
pressure on operational and financial
account; formulate detailed recovery
resources,
and
which
they
have
felt
resolution
plans;
and
meet
as acutely as their users since the
enhanced
financial crisis of 2007-08. They too
Naturally, meeting these obligations
face an increasingly onerous burden of
forces FMIs to take a measured and
compliance with regulatory obligations.
cautious approach to technological
The introduction of the concept of
innovation. Coupled with the rising
systemically important financial market
profile of cyber-security, it is not
utilities (SIFMUs) has arguably put
surprising that most FMI managers
FMIs under even greater pressure than
tend to treat newer technologies as an
banks to enhance their resilience and
unwelcome distraction.
disclosure
requirements.
risk management procedures.
FMIs also face competing demands
Since the Principles for Financial
for
Market Infrastructures were published
depositories (CSDs) and international
by the Committee on Payment and
CSDs (ICSDs) in Europe, for example,
Settlement Systems (CPSS) and the
are investing to adapt to their platforms
International Organization of Securities
to TARGET2-Securities (T2S) and the
resources.
Central
securities
‘‘European FMIs have little choice
but to change, if they are to survive.
The question is where to focus their
attention.’’
- Virginie O’Shea, Aite Group
to automate all corporate pension
says 85 percent of communications
processes.
Clear,
with account-holders are now purely
the new service – scheduled to start
electronic, including electronic trade
in October 2015 – will underpin
confirmations to institutional investors,
government
and text-based notifications to owners
Called
Pension
pension
reforms
by
becoming an information hub for its
of mobile telephones.
348 participants. While PensionClear
beyond
Of course, CSDs and ICSDs in
the traditional realm of the CSD, it
developed markets are focusing on
nevertheless builds on the existing
fostering
FundNet system for mutual funds.
The Depository Trust and Clearing
represents
a
bold
step
innovative
services
too.
Corporation (DTCC) has taken full
Pension Clear was itself inspired by the
ownership of the Omgeo electronic
SuperStream project in Australia, which
trade
seeks to automate the payment of
established a solutions business to
pension contributions in Australia. The
deliver new information-based services
KSD believes the new service will create
to its users, including the management
savings for corporate pension plan
of client on-boarding and legal entity
confirmation
service,
and
accompanying regulation on settlement
operate. In tandem, these measures
sponsors of around US$67 million a
identifier (LEI) checks. In conjunction
and Central Securities Depositories
can scarcely be described as an
year. Once Pension Clear is established,
with Euroclear, DTCC is also developing
(CSDR). Though these measures are
environment conducive to innovation.
the depository plans to extend the
a transatlantic collateral management
far from fast-paced - T2S dates back
Yet they also mean European FMIs
concept to the wealth management,
service.
nearly a decade, and CSDR has missed
have little choice but to change, if they
individual pension scheme, insurance,
its 2015 implementation deadline - they
are to survive. The question is where to
and savings account markets.
are having a major impact on European
focus their attention.
The National Securities Depository
FMIs.
Blockchain is rich in
revolutionary potential for FMIs
Limited (NSDL) in India is another
CSDs are being forced to cede
their core settlement function to a
Emerging markets show FMIs
how to innovate
centralized, pan-euro - and, eventually,
emerging market CSD to invest in an
And FMIs everywhere are considering
imaginative extension of its remit. It
the potential impact on their current
now enables 13.7 million investors
business of blockchain technology.
pan-European - infrastructure operated
Their
emerging
to hold all of their financial assets in
The distributed ledger system, which
by the European Central Bank (ECB).
markets offer some inspiration. The
paperless form in a single segregated
underlies digital currencies such as
Simultaneously, restrictions are being
Korean Securities Depository (KSD),
account, and compute the value of
Bitcoin, operates in a different manner
imposed on how a CSD in Europe should
for example, has built a platform
their portfolios in real-time. NSDL
to the methods currently used in the
counterparts
in
and sanctions screening obligations
can be met.
‘‘Multiple applications of blockchain
are now being discussed, including
the securities clearing and settlement
functions currently performed by FMIs
and custodian banks.’’
and some are actively investigating the
Securities MI
innovation: the next
frontier
technology. Responses to the April
However, the potential benefits of
blockchain are acknowledged by FMIs,
2015 invitation from the European
Securities
and
Markets
Authority
(ESMA) for evidence on how blockchain
could be used in the securities industry
were of mixed quality, but there was
- Virginie O’Shea, Aite Group
10.15-11.15 a.m.
Conference room 1
Moderator:
consensus that distributed ledger
Virginie O’Shea
technology poses opportunities as well
Senior analyst, Aite Group
as threats, including to FMIs.
Panelists:
securities industry.
It is public and
data
centre
are
operators
(dubbed
granted
bitcoins
distributed, instead of private and
“miners”)
centralized. Anyone can download a
in exchange for their computing
copy of the transactions it facilitates,
resources.
but end-user identities are protected
Multiple applications of blockchain
by encryption.
are now being discussed, including
This means blockchain technologies
the securities clearing and settlement
are fully transparent about where
functions currently performed by
assets (such as Bitcoins) are held,
FMIs and custodian banks. But
and about who has owned them since
the technology is not yet ready to
the first transaction was initiated.
displace incumbents. In its present
Units of value are transferred from
form, for example, it can process just
one party to another as part of a new
seven transactions a second. There
“block” of transactions added to the
are also multiple legal, operational,
existing chain. In the case of Bitcoin,
and regulatory concerns, especially
the
through
around how Know Your Customer
distributed co-operation, whereby
(KYC), Anti-Money Laundering (AML)
technology
scales
In principle, blockchain technologies
could lead to significant reductions
in the costs and risks of securities
settlement
and
asset-servicing
processes, such as corporate actions.
They could also diminish systemic
risk, because the distributed nature
of blockchain eliminates single points
of failure, with obvious implications
for SIFMUs subject to the CPMIIOSCO
Principles.
Implemented
effectively – and that is a big ‘if’ at
the moment – blockchain could open
FMIs up to much greater competition
by disrupting long-established vertical
silos. Perhaps FMIs and innovation are
not incongruent after all.
Michael Bodson
President and CEO, DTCC
Tom Casteleyn
Executive committee member,
BNY Mellon
Tim Howell
CEO, Euroclear
G.V. Nageswara Rao
CEO, NSDL
Jaehoon Yoo
Chairman and CEO, KSD
MI FORUM SESSIONS
Monday 12 October
Tuesday 13 October
Market Infrastructures Forum Opening
Real-time: how fast is too fast?
Speakers:
Speakers:
Ian Banks
Head of Securities
Services APAC,
HSBC
09:00-09:50 | Conference Room 1
A.P. Hota
Managing Director
& CEO, National
Payments
Corporation of
India
Paul LaHiff
Chairman, New
Payments Platform
Australia
Calvin Tai
Head of Global
Clearing Asia,
Hong Kong
Exchanges &
Clearing Ltd
Dominic Hobson
Founder,
COOConnect
(moderator)
Karin Flinspach
Head Of Cash
Products,
Transaction
Banking , Standard
Chartered
Hays Littlejohn
CEO, EBA
CLEARING
Craig Tillotson
CEO, Faster
Payments Scheme
Ltd
Ather Williams
Head of Global
Transaction
Services, Bank of
America Merrill
Lynch
Liz Oakes
Associate Director,
KPMG (moderator)
Resilience: lessons learnt from other industries
Securities market infrastructure innovation: the next frontier
Speakers:
Speakers:
Natasha de Terán
Head of Corporate
Affairs, SWIFT
(moderator)
Michael Bodson
President & CEO,
DTCC
Philip Enness
Global Lead,
Markets
Infrastructure,
Banking and
Financial Markets,
IBM
John Hagon
Head of Global
Operations and
Relationship
Management, CLS
Hannah Nixon
Managing Director
(Head), UK
Payments Systems
Regulator
Tom Casteleyn
Head of Product
Management for
Custody, Cash &
Foreign Exchange,
BNY Mellon
Tim Howell
CEO &
Chairman of the
Management
Committee,
Euroclear
G.V. Nageswara
Rao
Managing Director
& CEO, NSD Ltd
Jaehoon Yoo
Chairman & CEO,
Korean Securities
Depository
Come and discuss real-time payments with us…
In conversation with Yves Mersch, European Central Bank
Speakers:
Speakers:
Alessandro
Baroni
Chief Market
Officer, Equens SE
Nigel Dobson
General Manager
Group Payments
Management, ANZ
Peter Gordon
Senior Vice
President,
Payment Strategy,
FIS
Robert Kauffman
Professor of
Information
Systems,
Associate
Dean (Faculty),
Singapore
Management
University
Shuji
Kobayakawa
Associate DirectorGeneral, Payment
and Settlement
Systems
Department, Bank
of Japan
A future for CSDs?
Philippe Laurensy
Deputy-Head
Commercial
Division, Euroclear
Yves Mersch
Executive Board
Member, European
Central Bank
Gottfried
Leibbrandt
CEO, SWIFT
Driving the industry towards a truly global ISO 20022 standard
Speakers:
Maria Ivanova
Vice President,
Development &
Client Relations,
NSD
Kevin Brown
Senior Advisor,
KPMG (moderator)
Virginie O’Shea
Senior Analyst,
Aite Group
(moderator)
Medhi Manaa
Head of Market
Infrastructure
Development
Division, ECB
Mathias
Papenfuss
Head of
Operations,
Clearstream
Angus Fletcher
Director, Global
Head of Market
Advocacy,
Deutsche Bank
(moderator)
Speakers:
Richard Dzina
Executive Vice
President &
Wholesale Product
Office Director,
Federal Reserve
Bank New York
David Renault
Head of STEP2
Services, EBA
CLEARING
Thomas Sakaris
Managing Director
& General Manager
of Equity Clearing
Services, DTCC
Angus Scott
Director, Product
Strategy, Euroclear
Karen Webb
Manager,
Settlement
Services, ASX
Paula Roels
Director, Market
Management,
Deutsche Bank
(moderator)

How to survive and thrive in a real-time world

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