September 2016

Sibos 2016 got underway in Geneva on September 26 with the conference’s theme, “Transforming the landscape” focused around the macro headwinds, regulatory and infrastructure changes that are shaping the transaction banking industry.

As ever, Deutsche Bank had a significant presence at the conference, with the Bank’s subject matter experts involved in all the key dialogue.

T2S – the untold story

In an interview with Finextra, Graham Ray, head of Product Management, Investor Services at Deutsche Bank, talked about the ‘untold story’ of TARGET2-Securities, the European Central Bank’s new settlement system that is harmonising securities settlement in Europe.

“In addition to settlement, the benefits are many - the most prominent being liquidity and collateral, and pooling collateral into single cash accounts,” he said.

Ray added that the client response been positive. “They are realising the benefits of harmonisation as regulation, digitalisation and market infrastructure disruption change their buying behavior and present them with an opportunity to review their post trade structures.”

Ray said there has been increased interest in asset segregation in response to regulatory requirements. He stressed the importance of leveraging technology and understanding how solutions benefit asset segregation in Europe and in Asia, where harmonised settlement is not possible across markets with different currencies.

Current issues

The changing world was highlighted in the opening plenary by Thomas Jordan, Chairman of the governing board of the Swiss National Bank (SNB), where he discussed Blockchain. He felt this new technology would not replace market infrastructures. “I don’t believe decentralisation will become the norm for all FMIs -  they are already competitive, low cost and the barriers to entry are high,” he said.

Jordan said 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. SNB is following this closely and is activity involved with other market participants  in exploring blockchain.”

Yawar Shah, chairman on the board of governors at SWIFT, talked about the infrastructures newly launched cyber security customer security programme. The  security of the network is paramount and core networking services have not been compromised. Cyber crime is a rapidly evolving threat and a game changer.” Shah added that a relationship management application will spend time on approving the sophistication of the SWIFT payment tools.

Gottfried Leibbrandt, Chief Executive Officer of SWIFT, reiterated the main challenges facing industry -  increasing costs due to complying with regulations and derisking -  adding that the  impact of cyber attacks will be felt right across the industry.

New correspondent banking?

Another area of change is the correspondent banking industry, which faces disruption from new entrants providing faster payments. The industry has responded with the global payments innovation (gpi) initiative which focuses on providing clients with faster payments, same-day use of funds, transparency around fees, end-to end payments tracking and remittance information

SWIFT’s Stanley Wachs said the value proposition for banks is to protect volumes and grow the customer base. They also see opportunities for costs savings and efficiencies in cross border payments, he said. So far gpi has secured  86 banks representing more than 80% of swift cross border payments to meet client demand for predictability of when a payment will happen.

It now has a pilot to test cross border payments among 20 banks and is set to report on what worked and what has been accomplished shortly.  The next step of gpi is to build a product road map that creates more value through a digitalised customer experience, help banks to reduce back office costs, reduce interbank coasts and bring new technologies into gpi including DLT.

Christian Westerhaus, head of Product & Strategy, Institutional Cash Management, Deutsche Bank, explained that the bank joined gpi last year because it addresses real market problems: the need for transparency and real time payments.  “It’s important that corridors, currencies and countries join the initiative on a ‘V1’ basis to answer real market needs. We can deliver V2 with more efficiencies next year. Banks that are exploring new technology want payments to work, to be realisable and to be safe and sound. Further versions with new technology can be rolled-out when we have full transparency through the corridors,” he insisted.

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