Thursday, 13 June 2024

What can FIs expect at Sibos 2019?

5 min read

By Foo Boon Ping

We look at some of the critical issues and developments confronting financial institutions (FIs) that will be discussed at SWIFT’s annual conference in London, United Kingdom, this year

  • Faisal Ameen, Arnon Goldstein, Nancy So, Lisa Robins, and Heidi Toribio were invited to assess the most pressing issues that financial institutions face this year
  • Country-specific measures issued by local regulators and central banks, macro trends and challenges of compliance, business strategy and cybersecurity are some of the issues that FIs and corporate clients face today
  • To tackle cyber fraud across payment rails, banks such as Deutsche Bank and Bank of America Merrill Lynch use SWIFT’s CSP

Trade tensions between China and the US have over the past twelve months worsened instead of abating. They have in fact erupted into open warfare with the imposition of increasingly severe unilateral and retaliatory tariffs. With global economic growth already at its slowest since the last financial crisis, the World Bank has warned that the continuing impasse between the two trade giants could well tip the world economy into recession.

The continuing uncertainty over the outcome of Brexit has also dented business and investor confidence. Many European and Asian economies are now teetering on the edge of recession. With interest rates at historical low levels there is little that central banks can do to stimulate growth.

Add to this, banks’ balance sheets are under increasing stress from the burden of regulatory and compliance requirements while margins continue to be compressed by competition from traditional and new digital players.

The adoption of new “real-time” and “distributed” financial markets infrastructures has also exposed the industry to new demands and threats.

How will all these developments impact the flow of trade and commerce globally and what collateral impact will it have on businesses and companies, including financial services providers and banks?

We invited Faisal Ameen, Head of Asia Pacific Global Transaction Services, Bank of America Merrill Lynch; Arnon Goldstein, Global Head of Trade Finance Product and Portfolio Management, BNY Mellon Treasury Services; Nancy So, Head of Institutional Cash Sales and Client Management, Asia Pacific, Deutsche Bank;  Lisa Robins, Head of Transaction Banking, and Heidi Toribio, Head of Financial Institutions, Standard Chartered Bank; to share their views on how recent developments are expected to impact FIs in Asia Pacific.

What are some of the new challenges and risks that your financial institution (FI) and corporate clients face today?

Faisal Ameen (FA): Regional and large local financial institutions operating in Asia Pacific are often expected to adhere to country-specific measures issued by local regulators and central banks. Usually these are instituted to support local economy and business environment. This will likely add stress to banks’ balance sheets and margins. As a result, we are likely to see a period of tightening currency support in most Asia Pacific markets and declining yields across US dollar (USD) and local currencies. But banks with strong balance sheet and capital buffers are likely to fare better than some others.

Inverted USD yield curves will change how clients manage USD balances. Corporate clients may re-evaluate the use of USD as their functional transaction currency or consider using other currencies (e.g. EUR, JPY, CNH). Previously, with a rising rate environment, companies with significant USD balances have considered USD yield as a (treasury) income flow and have modified their treasury funding model accordingly. However, with the reversal in interest rates, companies now need to change their funding model quickly.

Arnon Goldstein (AG): Technology is enabling a transformation of the marketplace, and many in the industry see new and existing competitors innovating business models in response. All that comes on top of ongoing challenges of compliance, business strategy, cybersecurity and moral hazard risks.

Nancy So (NS): We see how clients are concerned about macro trends, for example, the negative interest environment in Europe, especially in connection with Basel III requirements still requires financial institution clients to closely monitor their balances and invest its surplus cash in other more yielding currencies. The expectation of conducting business and processing payments faster and in “real time” is imbedded in the “anytime, anywhere” demand from the new-age consumer. This started on the retail side, but those expectations are now clearly evident in the business-to-business space. As a result, banks and key payment market infrastructures (PMIs) are investing in technology, systems and infrastructure to accommodate those needs.

Heidi Toribio (HT): For global financial institutions, regulations are becoming increasingly locally subsidiarised, increasing the cost of doing business in an extremely cost-sensitive environment. The competition (fintechs, virtual banks, payment services providers), however, are able attract volume as they provide focused, seamless transactional services, with improved cost effectiveness. They are able to build on banks’ existing KYC/CDD (know your customer/customer due diligence) infrastructure while using new technology to keep marginal transaction cost low. The rise of open banking makes this challenge even more acute. Today, our corporate clients have unprecedented access to new technology and choice of financial services and payment providers. Their challenge is to dynamically assess counterparty risk, across all suppliers, even payment providers and banks; while simultaneously working with partners with appropriate local regulatory and market expertise. This is critical as anti-globalisation sentiments affect their supply chains negatively and all providers may not have relevant scale across their markets and supply-chains.

To what extent does changing geopolitical dynamics such as the on-going US-China trade conflict impact your clients businesses

NS: Currently, the US-China trade war concerns are high on the agenda when it comes to future investments. However, looking at underlying SWIFT data, there are no indications as yet that the payment corridor US-China has been significantly impacted in both volumes and values.

FA: Amid the current US-China trade conflict, businesses may have to consider alternative manufacturing sites outside of China. ASEAN countries such as Thailand, Vietnam and Indonesia are currently being looked at favourably. If supply chain model is changed, that may affect cash and trade flow. The conflict is also affecting general investor confidence, leading to a slowdown in business activities, lower sales turnover and reduced investments in some markets. We’re starting to see lower growth rates in some Asian economies such as China, India, Australia, Hong Kong and Singapore.


 How are you leveraging new market infrastructures and enhancing digital ecosystems to better meet needs of your clients? 

AG: In the US, we originated the financial industry’s first real-time payment on The Clearing House’s (TCH) Real-Time Payments (RTP) network. We have been working closely with TCH to design and develop the RTP infrastructure, which is the new core US payments infrastructure since the ACH network was built over 40 years ago. It allows consumers and businesses to send and receive funds and messages in real time, 24/7/365, directly from their bank accounts. It supports complex digital commerce services with integrated messaging that allows issuing and paying of e-invoices, e-bills, and requests for payment. It provides rich remittance data, confirmation of delivery, and requests for information or return of funds as well.

Lisa Robins (LR): We’re helping buyers and suppliers become more connected to each other. Our role as a connector has never been as strong. But having more options has made it harder for companies to make decisions. They increasingly connect to multiple platforms to meet their various needs: connecting to procure-to-pay platforms to manage different aspects of their procurement; to multiple banks to manage payments to, and financing for, suppliers; and to fintechs to run dynamic discounting and even supply chain financing programmes. So, as well as developing proprietary platforms to solve clients’ financing challenges, we’re seeing a new generation of partnerships and industry consortia. Our SAP Ariba collaboration is one example of how we’re bringing all these elements together to create more value for our clients, enabling them to manage procurement, payments, financing, and foreign exchange through a single network.

NS: We are well invested in Instant Payment Schemes to offer that possibility to our client base, for example by facilitating direct access to the Single Euro Payments Area (SEPA) - Instant Schemes from/to the corporates’ SAP systems. Additionally, we are exploring the option for our customers to transact with e-wallets. From a financial markets infrastructure perspective, we believe that the ISO20022 migration will be the biggest payment market game changer since the advent of SEPA. We are fully investing in it and will be ISO compliant well before migration deadlines. The move to ISO and the subsequent move from SWIFT MT to MX message standards will not only be beneficial from a risk and compliance perspective, but will also be from a corporate client service perspective with better and innovative payment and advisory solutions.

FA: Connectivity with integrated financial ecosystem delivers a simplified user experience, including real-time information, cross-border capabilities, and APIs (application programming interface). The growth of cross-border, cross-currency flows has allowed us to expand our cross-currency ACH (automated clearing house) footprint, embed FX (foreign exchange) risk management solutions within traditional payment services e.g. guaranteed FX rates, provide document digitisation and workflow tools for restricted currency markets, link to multicurrency netting and cash concentration platforms as well as deliver ‘last mile’ and digital wallet solutions. Leveraging SWIFT gpi to support clients’ cross-border payments. Offering API connectivity with lower cost compared to the traditional host-to-host channel. And, smart solutions such as Intelligent Receivables with AI driven data capture and analytics, and customisable matching rules and multi-source processing.


How do you ensure the safety of transaction whilst maintaining speed across many parties as the industry gravitates towards real-time payment systems?

NS: This is a real industry challenge and the risk is threefold. One is operational (velocity of liquidity, irrevocability of payments). The second is regulatory compliance related to anti-money laundering (AML) and transaction monitoring. We will have to move from a post-transaction batch-based analysis and reporting model to a contextual, early warning-based preventive framework. The third is cyber fraud. However, cyber fraud is not specific to real-time payments. It is also a risk to non-real-time payments and therefore we are tackling cyber fraud across payment rails. As cyber fraud is a risk to the entire industry, we are firm supporters of industry initiatives such as the CSP.

FA: Through a risk-based review of SWIFT’s Customer Security Programme (CSP) attestations of all ‘higher risk’ of clients, we play a proactive role in implementing controls where necessary, such as additional monitoring, daylight overdraft limit reduction and additional client controls, same day amend and cancel or time lien solutions. Augmentation of our existing risk framework with CSP information provides support for other lines of businesses (LOBs), in delivering improved LOB client selection, new relationship management application (RMA) requests and risk monitoring routines. With a keen emphasis on cybercrime, our eCommerce security strategy is two-fold – with a layered security offering using best-in-class security tools, and a strong client security education.

AG: We recently established a Cyber Technology Operations Center (CTOC), located in our New York headquarters building, that provides real-time key performance data and information across our technology infrastructure, applications, business transaction flows and security threats.

LR: As payments and processes are being digitised, we are very conscious of the rising threat of cyber fraud. We have a long history of working in regulated environments across dozens of jurisdictions, with substantial investment in KYC and CDD, and continue to focus on keeping transaction security – and indeed all customer data security – deeply embedded in the development of real time payments.


What do you expect out of Sibos 2019?

FA: We expect to gain greater perspectives on the future of banking, with open business models, APIs and fintechs as enablers for interactions across industries. The rise of new business models, such as virtual banks and subscription businesses also opens up new opportunities that banks can capitalise on. With all these trends and where we are heading, industry players are becoming more connected in how we operate. With increasing potential of partnerships between organisations, we hope to hear from industry experts on leveraging the technology that each has, to bring innovations to the next level.

LR: Sibos 2019 is a unique opportunity for many different players in the ecosystem to connect, to have conversations that will deepen existing relationships and forge new ones. Together, we create new solutions and ensure that we work towards countering risks inherent in a cyber-connected world.

NS: The enhanced acceptance of ongoing industry collaboration in initiatives such as CSP and gpi. The future of interoperability, especially of clearing systems, with the advent of the ISO 20022 roll out in major financial markets infrastructure. Banks showcasing that ‘platformification’ of industries is reaching into banking, with banks building platforms and ecosystems of their own.

AG: Among specific things I would look for in the service provider space would be seeing cloud come to reality within messaging platforms, and an increase in partnerships and collaboration to take advantage of the unique abilities of different players.   

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