Shifting gears

01 September 2007Features

Sibos, Swift’s annual event, hits the streets of Boston next month. How is Swift responding to the needs of its ever-growing user base?

If last year’s Sibos theme “raising ambitions” was Swift revving its engines, then “gaining momentum” in Boston is the shift into second gear as the Brussels-based financial messaging cooperative attempts to speed up the development and implementation of new services – looking to be better, faster and achieve “more, together”, as the tag-line puts it.

The new chief executive Lázaro Campos, who took over the wheel in April from the longest serving chief executive Leonard Schrank, has committed Swift to three Cs: compliance, customers and culture. A fourth could be change, perhaps?

As Swift’s corporate event, Sibos is a showcase for what the consortium has been focusing on in the past year. High on the agenda at Sibos Boston are three issues: corporate access, regulations and securities, with an emphasis on over-the-counter derivatives in the latter strand. The standards forum has been resurrected this year, plus a two day forum dedicated to corporates and another for the fund and investment management community.

Corporate access has taken a leap forward since Sydney in 2006, when the banks were openly challenged to overcome their hesitation in bringing their corporate customers into their negotiations. At the closing plenary last year, Mark Hodgkinson, general manager of Shell group treasury operations in Asia Pacific, encouraged banks to “remove the fear factor” and to draw their customers into the industry’s principal forum.

He added that he had heard a number of people claiming to speak on behalf of corporates, but few of them were actually from the corporate sector.

This year Swift has responded by giving corporates a place at the table to raise their issues: on the Wednesday morning Swift executive Johan Kestens will moderate the corporates plenary, with panellists from Citi, Hewlett-Packard, Virgin Atlantic and Microsoft debating how technology can fast-track efficiency in corporate financial services.

The open dialogue will need to address the problems that corporates face: the high cost involved in getting onto SwiftNet and the narrow range of services available, which are not economically efficient for a corporate. Plus the community of corporates is still small – until now Swift has succeeded in getting around 200 corporates on board, but all of them are very large, multinational firms that have relationships with a multitude of banks.

Chris Pickles, manager industry relations, BT Global Financial Services, points out some of the problems: “If a corporate’s business was about working with banks, then maybe Swift would be more attractive; but a corporate’s business is about doing business with other corporates and that community is on the internet and BT networks as well, not just Swift. >>Corporates look at it and say ‘I am not in the banking industry, so why do I need to use a banking network that costs so much when I can use other solutions that are a fraction of the price?’ Those 200 corporates are just a tiny drop in the ocean.”

Swift has also opened the doors to the regulators following a June 2007 board meeting that admitted them to the Swift community. Richard Young, market reform manager at Swift, said: “This enables [regulators] to receive reporting over Swift directly from investment firms or via intermediaries.”

But Pickles, for one, is not convinced. “[Swift] would very much like to be the network that interconnects regulators to allow them to exchange information. I believe that the regulators will actually be using the internet because, again, Swift costs money and regulators don’t have money.”

The issue of regulatory changes tops Boston’s agenda as a number of regulation deadlines, such as the Single Euro Payments Area, Target2 and the Markets in Financial Instruments Directive, are just around the corner. Swift has been working on a number of new initiatives this year to lay the groundwork for compliance. Although the regulations listed above are European many of the big US banks are all multi-purpose, multi-channel institutions that are major players in euroland and these changes will have an impact on their business.

With over 45% of participants at Sibos Sydney coming from the payments industry side, and a similar percentage expected in Boston, SEPA is getting a lot of airtime. Deutsche Bank says: “With the impending deadline for SEPA, clients are increasingly interested in practical measures that they can take to be fully prepared. Financial institutions and corporate clients are turning to credible sources for education on SEPA and are looking into testing opportunities around the new formats.

“Additionally, clients are looking for truly global solutions based on global platforms with worldwide interconnectivity. Control and transparency of information is in greater demand as clients continue to seek innovative real-time cash management solutions that unveil new treasury and cash management efficiencies. We anticipate a growing interest in Swift outsourcing, brought about by evolving corporate connectivity requirements, SwiftNet Funds, Target2 and business growth in general.”

Straight through processing, especially with regards to OTC derivatives, remains issue that the securities industry is tussling with. The Tuesday morning plenary focuses on the securities industry, with panellists from JPM organ Wo r l d w i d e Securities Services, Fidelity, State Street and ICAP, while the two day fund and in v est ment management forum will explore a number of issues in greater detail, such as the 21st century funds industry, investment performance, hedge fund evolution, prime brokerage, derivatives, collateral management, foreign exchange, corporate actions, new world economies, forward-looking securities trends, coping with regulation, data management, securities standards and market practice.

Hugh Daly, chief executive of Message Automation, a London-based derivatives processing specialist, says: “The key issues for financial firms trading OTC derivatives lie in how to combat the technology paradox currently dominating the market. There is a need for the industry to be using one standard messaging technology, such as FpML (Financial products Mark-up Language), both internally and for all external connectivity because while central services like DTCC and SwapsWire provide one piece of the jigsaw puzzle, they only allow you to communicate with other organisations connected to that service, and then only on the range of instruments the central service handles.

“Using one standard messaging technology such as FpML provides a key building block to help the industry start making real inroads into these issues. Take for example, the recent successful pilot routing FpML over SwiftNet. Direct bilateral messaging is already possible, but the industry needs to look strategically at putting in place accepted standards to ease the problems it is still experiencing.”

As Daly mentioned, Swift has piloted the use of FpML messages over the SwiftNet IP network infrastructure, and in July Barclays Global Investors and Brown Brothers Harriman were the first asset manager and custodian to exchange FpML-based Contract Notifications over SwiftNet. The move towards standardisation, and therefore automation, has been welcomed by industry players as a step forwards.

But above and beyond the issues, Sibos is recognised by participants, whether bankers, investment managers, broker-dealers, treasury specialists, or operations professionals, as one of the best networking events in the financial services industry – affecting the industry beyond its expected reach. And this is noticeable in the build up: by June the exhibition floor, which is 20% larger than in Sydney, was sold out, over 1,500 delegates were registered and 110 speakers confirmed. The organisers are expecting at least a 30% increase in the number of participants, up to 7000 compared with 5,300 last year.

QUESTIONS

What does the theme “gaining momentum”mean to you?	Do you think Swift is doing “more, together”as Sibos’ byline says?
Our industry faces major challenges such as infrastructure changes, SEPA, standards convergence and industry consolidation. Sibos provides a valuable forum each year to debate the issues and move forward together with solutions and innovations. At ABN Amro, we really value this opportunity to meet our clients, our partners and our industry peers in a global forum.	Yes. Swift brings together key banking and payments stakeholders – corporates are now increasingly important stakeholders. Industry players are making key strategic sourcing decisions, which in turn enable the industry as a whole to reduce costs, increase automation and manage sustainable payments volume growth.
“Gaining momentum” is about sustainability with a strong focus on meeting the needs of clients.	We are all doing “more, together” as there has been a realisation over the past few years that you don’t have to do everything, build everything yourself, but that by working with the right partners, be it Swift or other banks, you can more quickly “gain momentum” and move forward.
“Gaining momentum” marks the shift from concept to reality. It also signifies an ongoing process that has yet to achieve full speed. In the capital markets, for example, the work on harmonizing different market-rules and practices across Europe has attained momentum, but continued effort from the public and private sectors must make it reality.	Swift is certainly delivering more and involving the market in the process. Euroclear’s active involvement on multiple Swift task forces allows us to share our clients’ needs with a valued business partner to deliver common objectives. Our work to remove a key Giovannini Group barrier and plans for our Common Communications Interface using ISO 15022/20022 standards are two good examples.
Here at the Fed “gaining momentum” means helping our customers reap the benefits of a more contemporary and resilient infrastructure. It is a more modern and stronger payments system that supports flexibility and added capacity in order to improve the overall clearing systems in the US and abroad.	Swift and the industry are doing “more together” to improve the global financial community. Great examples are collaboration on industry challenges and development of standards. We also work with market infrastructures addressing resiliency needs. As a result, the industry does more together on business developments using new technology.
Speaking as a corporate we have seen Swift in recent years undertake enormous changes. Only recently were corporates allowed on the network as guests of the banks. Now we find ourselves not only in direct dialog with Swift, but participating in developing the Swift products. In the past year these changes have been at an ever faster pace.	We are now sitting at the table with Swift and the banks in defining future products and services. We find the relationships are more open. We feel that the end products and services will better meet the needs of the corporate/banking community. This is a win- win for all participants.
SEPA is definitely “gaining momentum” as the regulatory deadlines get closer for the different pan-European products. As SEPA becomes reality, Fortis is supporting our clients – retail, wholesale and institutional clients – to take full advantage of SEPA in terms of enhanced payment servicing at lower cost across all geographies.	Swift is one of the key infrastructure enablers that helps to bring together a critical mass of banks to ensure that the testing and deployment of SEPA is ensured industry- wide. With Sibos, and in terms of SEPA, Swift proves that it is an important cornerstone for bank-wide initiatives.

Do you think there has been a big change in the industry in the last year?	What do you think will be the big technology issue at Sibos 2007?	What/where is the best dish in Bean Town?
Consolidation, economic and regulatory factors, such as SEPA, continue to drive evolutionary change in the payments industry, putting increased emphasis on getting the correct strategic sourcing decisions made. The pace of change is likely to continue to ramp up and business competitiveness will depend on the institutions ability to remain agile and flexible.	The use of IP technology and XML standards is set to be a big talking point. This technology change provides the industry with a huge opportunity to standardise and optimise financial messaging.	For first time and returning visitors to Boston, no trip would be complete without sampling three of the local specialities. Lobster and clam chowder are firm favourites but a lighter alternative is Boston Scrod, a form of baby cod or haddock.
Our industry does not change rapidly, but evolves gradually. There are a lot of issues which have been raised, notably increased regulatory issues relating to know your customer/anti-money laundering on the risk side, and SEPA on the pricing and technology side, but these issues are not “new” – they have developed over time.	The tension between data accessibility/data usage and personal privacy concerns is an area of growing interest.	Hamersley’s in the South End is a personal favourite.
There have been significant changes in 2007, like the Markets in Financial Instruments Directive and the Code of Conduct. However, the merger between the New York Stock Exchange and Euronext was the landmark deal – a deal which will drive further consolidation of exchanges and will have a profound impact on cross-border clearing and settlement.	I hope the big issue at Sibos will not be about technology but rather a business issue. The potential leveraging of regional work on standards and market-practice harmonisation in the global marketplace are bound to be among the variety of business topics for discussion. Naturally, all business plans and initiatives fly or die with the technology that supports them.	It has been five or six years since I was last in Boston, so I have lost touch with the best places to eat. I must say that I am partial to seafood and I know that the New England coastline is famous for its crab and lobster. But I’m not fussy; I’m equally at home with a pint of Guinness and a pie, just like the many Irish that have made Boston a home.
Yes. In the past year a lot of key industry initiatives have gone live with great success and benefit to the global financial community. Contemporary technology is replacing legacy systems, and customers are very positive about the Fed’s new access channels: FedLine Advantage, FedLine Direct and FedLine Command.	Protection of customer data and information. The global financial community understands the connection between security and customer loyalty. The biggest risk is not tangible loss, but rather reputation loss, which ultimately damages bottom-line profits. Security as a strategy is winning the trust of customers and building key relationships.	My personal favourite for best dish in Bean Town is The Daily Catch, located at 323 Hanover Street. (www.dailycatch.com)
For us, the biggest changes have been cultural, a greater openness. The change of attitude from that of “the corporates are just the customer’s customer”. Now the attitude is that corporates can help take Swift to the next level, that they have a lot to contribute and the corporates have a vested interest in Swift’s success.	For us the big technology issue is the advancement of the ISO 20022 for corporate to bank communications and EnI for both corporates and banks. Together they have the potential to completely redefine the payment and reporting global environment.	My favourites are the pot roast or roast turkey at Durgin Park, Quincy Market. It’s not fancy, just plain New England cooking served by waitresses with attitude in a family friendly environment. And the Indian pudding is tops.
Consolidation and product extension by previously local clearers (e.g. Voca, Equens) to pan-European services show that SEPA is starting to re-shape the payment industry. Also, the strong merger and acquisition activity in the banking sector shows that further consolidation can be expected to create additional strong pan-European financial institutions.	I am interested in m-payments offerings, possibly combining all advantages of the existing cashless and debit/credit cards solutions into one handy and secure device. I also look forward to discussing the proposed workflow solutions to further optimise the monitoring and control of our payment services operations across multiple hubs.	I will let you know after Sibos where I sampled the best food and drink!