October 2016

From the land that brought us precision engineered watches, the world’s most powerful particle collider and an economic forum, Switzerland is an ideal place to debate transforming the landscape in financial services, this year's Sibos theme.

Much like the Large Hadron Collider, Geneva’s Palexpo centre accelerated the coming together of banks and Fintech firms for joined up thinking on game changing themes.  At this year’s Sibos, the disruptive forces of new technology met with a growing appreciation of the infrastructure and expertise of existing incumbents. At the same time, banks saw Fintechs’ through a fresh lens, one of agility, heralding much needed collaboration among participants to deal with 10 game changing themes.

Game changer #1 Cybersecurity

During the opening plenary of Sibos, Yawar Shah, chairman on the board of governors at SWIFT described cybercrime as “a rapidly evolving threat”, with SWIFT Chief Executive Officer’s Gottfried Leibbrandt adding that the impact of cyber attacks will be felt right across the industry. The market infrastructure has responded to the threat with a customer security programme. Industry participants are set to follow with ramped up investments in order to bullet proof their systems in-house and in collaboration with external technology partners.

Game changer #2 Blockchain

The industry is moving away from the hype and forward with analysis and testing to assess the potential of blockchain to boost efficiency and transparency across a number of sub-optimal processes. But governance and regulatory should be at the heart of the discussion. The opportunity in the already efficient payments space is limited, but there will be more opportunity for blockchain in the way securities are processed and settled.

Thomas Jordan, Chairman of the governing board of the Swiss National Bank (SNB) felt this new technology would not replace market infrastructures, adding that distributed ledger technology (DLT) had yet to outperform the safety levels guaranteed by existing market participants. “It is conceivable that we will see a hybrid system comprising securities settlement via DLT and payments could be facilitated through a payment system,” said Jordan at Sibos. 

Game changer #3 Compliance

The ever changing regulatory landscape and derisking are other significant challenges in transaction banking. While compliance is a significant player in shaping tomorrow’s markets, it should be aligned with customer needs and focused around faster payments and greater transparency. A panel said the industry needs to develop ideas and technology that will improve correspondent banking. 

In this vein, combating corruption either as individual organizations and collectively is a top priority. “We need to fight against terrorist financing and money laundering by improving visibility around payments and investing in technology such as SWIFT’s global payments innovation (gpi) initiative,” Deutsche Bank’s head of the Business Control Office for Global Transaction Banking’s Institutional Cash Management, Patricia Giangrande. “Understanding the transaction flows and the strength of our client’s AML/ BSA, sanctions and anti-bribery and corruption programmes is key to fighting terrorist financing and money laundering.” Tackling this challenge requires joined up thinking and collaboration between public (market infrastructures and regulators) and private sector in information sharing through better systems for that sharing and better technology. The cost of compliance is often a talking point, but the panel outlined that it can be made more affordable, to some extent, with new technology. New systems should be available to bring down the cost of compliance.

Game changer #4 Banks at an inflection point

Commenting on the risk of increased regulation for corporate clients, Michael Spiegel, Global Head of Trade Finance & Cash Management for Corporates, Deutsche Bank believes banks are at an inflection point in their response to regulatory shifts. In an interview with Finextra, he described three trends facing trade finance banks: a focus on safety and soundness and derisking, which causes a reduction of the number of players, and the harmonisation and streamlining of processes and partnerships to enhance deliverability. Click here to watch the video.

Game changer #5 Rethinking the correspondent banking model 

The key to security of financial payments and the efficiency of the industry as the new entrants disrupt the space lies in the reinvention of correspondent banking. With regulatory requirements growing and customer expectations, cyber threats and competition from Fintechs, it is important that the industry responds collaboratively. In a panel titled “Reinventing correspondent banking” the global payments innovation (gpi) initiative was highlighted as an example of collaboration. The SWIFT-led initiative takes banks’ API platforms and places them in the cloud to deliver faster payments and remittance information, transparency of fees, and a real-time view into where payments are in the chain.

Systems and technology will make this evolution simpler, creating an industry that is compliant and is aligned with faster, more open and transparent payments.

The industry needs to come forward with ideas and technology to continue to progress in correspondent banking overall.  Correspondent banks have the scale to achieve the greatest level of safety and security but each bank interprets things differently. “To truly address financial terrorism and money laundering the industry needs to come up with a mechanism to legally share information in an efficient way,” said Susan Skerritt, Chairwoman, CEO and President, Deutsche Bank Trust Company Americas, Global Head of Institutional Cash Management and Head of Global Transaction Banking Americas, Deutsche Bank. With gpi, when banks’ payment information becomes available in the cloud there will be an opportunity to conduct big data analysis and some pattern information on transactions.

Game changer #6 Transparency, financial inclusion and data

The availability of correspondent banking services across borders and currencies is key to creating the joined up approach that is required to fight financial terrorism with attention now focussed on derisking and to avoid the unintended consequences of financial exclusion of certain markets.

Data management is an essential part of transparency and producing information that is meaningful for clients’ clients. As an industry we’re seeing the power of working collectivity but we’re under pressure internally to manage the foundation of our data, said Graham Ray, Head of Product Management, Investor Services, Global Transaction Banking at Deutsche Bank. The importance of understanding the structure, relationships and the granularity of the data put forward is the number one priority.

Answering the data call to drive transparency is an important collaborative effort that needs to happen between regulators and the private sector. Trust on what data elements can be shared within banks and also in the industry is a key issue. “It’s important we have the mindset to help our own institutions be more efficient in how we handle data, leveraging our own data as well in partnership with the industry,” said Ray.

Game changer #7 Standardisation

The standardization of data, messaging and reporting to meet regulatory requirements leads to more efficiency and the potential to reduce operating risk.  The ISO 20022 standard was hailed as a tribute to the work done in making this the format for the future. But environment in the payments space is still fractured. “We need to think global as an industry and not as individual banks,” said Isabel Schmidt, Head of Institutional Cash Management Americas, Global Transaction Banking at Deutsche Bank. “There’s value to every bank across the globe in talking the same language. Simplifying the landscape is important. I’d rather spend on creating a common standard. The positive business case: eliminating cost and complexity.”

However, changing systems has the potential to introduce operational risk. The industry needs to acknowledge that it has a problem with data to address anti money laundering and the increasing risk of fraud. Banks need to address their own internal challenges with respect to data so that it can start running scenarios around AML. “We need to enrich the data so that we can perform the analysis internally.” Once that has happened, those banks can start to look at sharing that data with each other to eliminate those risks.

Game changer #8 Redefining securities services

In a video interview with Finextra at Sibos, Satvinder Singh, Head of Global Securities Services and Head of Global Transaction Banking EMEA (ex. Germany), Deutsche Bank discussed the exclusive findings of industry research, which identified three trends impacting securities services clients, and the how banks must respond to enable those clients to capture the upside. Click here to watch the video.

Game changer #9 Transaction banking makeover

Susan Skerritt also talked to Finextra about the evolution of transaction services amidst challenges such as new entrants, customer demands for better, faster and more transparent services and cyber threats. Click here to watch the video.

Agility is the key ingredient for transaction banking at a time of change, David Watson, Global Head of Product Development, Global Transaction Banking Deutsche Bank, told Finextra. In a video interview at Sibos, Watson outlined the changes the transaction services industry is facing today and how Fintechs can support the industry’s makeover. Click here to watch the video.

Game changer #10 The state of transaction banking in Asia

Lisa Robins, Head of Global Transaction Banking APAC & Vice-Chair Corporate and Investment Banking APAC, Deutsche Bank, spoke to Finextra about the changing transaction banking climate in Asia and how new entrants may create challenges. Click here to watch the video.

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