27 July 2010
The Committee of European Banking Supervisors (CEBS) released its summary report on the results of the EU-wide stress test exercise, which revealed that just seven out 91 European banks would have insufficient reserves to maintain a Tier 1 capital ratio of at least 6% in the event of a 'worse case' scenario, such as a recession and a sovereign debt crisis. Many critics are arguing that the evaluations were too easy.
The CEBS was mandated by the ECOFIN to conduct, in co-operation with the European Central Bank (ECB), the European Commission (EC) and the EU national supervisory authorities, a second EU-wide stress testing exercise. Germany's Hypo Real Estate Holding, the Agricultural Bank of Greece and five Spanish savings banks have failed the resiliency test. These banks will have to raise €3.5bn in total to boost their capital buffers.
The 91 banks represent 65% of the European market in terms of total assets. The threshold of 6% was used as a benchmark for the purpose of this stress test exercise only. This threshold is not a regulatory minimum - all banks that are supervised in the EU need to have at least a regulatory minimum of 4% Tier 1 capital.
Unsurprisingly, the banking industry welcomed the results of the stress tests as attestation that the majority of banks adequately meet the legal and market requirements in terms of solvency. The British Bankers' Association (BBA) released a statement which said: "UK banks have already put in the work to rebuild their businesses and put more money aside against future financial problems. It is no surprise to find they have exceeded the standards set out by CEBS to ensure banks across Europe are well placed to weather any future financial problems."
Yet, many in the industry believe that the stress tests were too easy. Christophe Nijdam, bank analyst at independent equity research firm AlphaValue, said: "The market wanted blood on the wall but it got Spanish ketchup on the carpet instead. Seven institutions pinned down out of 91 European banks resulting in a failure rate of less than 8%. The American tests had a 53% failure rate with 10 out of 19 US banks at the time."
Gerard Fitzpatrick, global fixed income portfolio manager at Russell Investments, was also critical. "The EU has missed an excellent opportunity to materially boost confidence to the liquidity and capital providers for EU banks by limiting these tests to only 'worse case' stress tests, rather than a perceivable 'worst case' stress test, where ultimate concerns of bank failure risk would have been addressed," he said.
"The more rigorous a test is, the more reliable its pass mark is. In the wake of the global financial crisis, capital providers to EU banking want to be assured that all EU banks would be adequately capitalised against a perceivable 'worst case' test. Such a test would have considered a severe economic shock akin to the crisis and to also consider a sovereign default," he added, urging the EU and CEBS to engage with the market to address questions emanating from these tests and to enhance the stress test already done to capture a 'worst case' scenario.
However, Leigh Bates, head of financial services practice, SAS, believes that the long-term purpose of stress testing has been overlooked. "While the tests will enable regulators to determine necessary capital ratios, the longer term aim is surely to help 'future-proof' the industry. Ultimately, banks need to see for themselves what changes are required in terms of risk management procedure so that they can be confident in their own ability to deal with whatever events the future may hold. All the talk about inconsistency in the assessment at a European level is arguably overlooking the internal issues banks must address individually and which will dictate whether or not a bank will fail," Bates said.
First published on www.gtnews.com
About Me
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- Joy Macknight
- Freelancer of the Year at Aviva Investors Sustainability Media Awards 2025. I am a former editor of The Banker, a Financial Times publication. I joined the publication in August 2015 as transaction banking and technology editor, was promoted to deputy editor in September 2016 and then to managing editor in April 2019. The crowning glory was my appointment as editor in March 2021, the first female editor in the publication's history. Previously I was features editor at Profit&Loss, editorial director of Treasury Today and editor of gtnews.com. I also worked on Banking Technology, Computer Weekly and IBM Computer Today. I have a BSc from the University of Victoria, Canada.
Thursday, 2 December 2010
Impending Regulatory Changes Dominate BBA Conference
20 July 2010
On the eve of the US Senate passing "the most comprehensive financial regulation reforms we have seen since the 1930s", in the words of US Ambassador and ex-banker Louis Susman, and the European Council's meeting to update its progress on a reform package for the supervision of the European financial system, it is no wonder that the British Bankers' Association (BBA) International Conference on 13 July 2010 in London focused mainly on impending regulatory changes.
The predominant discussions were around remuneration, bank taxes and levies, Basel III and Capital Requirements Directive (CRD) III and IV, and, of course, the 'too big to fail' debate resurfaced again this year.
The title of the conference was the question: evolution or revolution? Angela Knight, chief executive officer (CEO) of the BBA, was quite clear in her opening speech that evolution was the way forward for the industry. "Many changes have already been made. What happens next, though, will affect many parts - our functions, our operating costs, and the supply and price of credit to the economy," she said. "We therefore need a sensible, well thought-out evolutionary process from where we are to where we need to be, undertaken in co-ordination with our policy makers."
On all issues, the big push from the banking industry is for a co-ordinated global-level response that would tie all countries into a relatively uniform roll out of financial reforms in order to protect competition. But that is looking less and less likely.
As Knight said: "The G20 began well in pulling these initiatives together. But what looked coherent some 18 months ago looks much less so today. It is one of the tasks of the BBA to engage not just with the UK reform agenda but the EU agenda and those of the international standard setters."
Stephen Green, group chairman, HSBC, also weighed into this debate, highlighting the possibility of an arbitrage effect if regulations are implemented unevenly across the globe. "The European Parliament's proposal on remuneration is a very clear example that raises questions about international co-ordination. It is a broadly sensible proposal, although aspects of it are still unclear. But if very different regulations prevail in the US, Switzerland and Asia, for example, then it risks providing real incentives for a mobile population to arbitrage the rules to London's - and therefore the UK's - disadvantage.
"Then there is the question of taxes and levies. The current array of proposals is striking in its lack of consistency in terms of amounts, duration, basis of calculation and ostensible purposes. In the absence of global co-ordination, banks face distortions and could end up facing overlapping national and regional requirements that could result in double taxation," he added.
President and chief executive officer (CEO) of Royal Bank of Canada, Gordon Nixon, opened his speech by describing why Canadian banks have proven to be more resilient during the financial crisis, while attempting to dispel the myth that it was the conservative, boring nature of Canada's banks.
He argued that proper risk capital allocation against trading businesses would automatically restrict higher risk activities and at same time allow banks to make their own decisions around business strategy and capital allocation - but that Basel III is not the way forward.
"Basel III's proposed rules are supposed to be a starting point for discussion. Ironically, these proposed rules, for all their good intentions, will negatively impact even the healthiest bank's balance sheets in terms of capital, leverage ratios and liquidity and compromise economic growth. The proposals are so complex and onerous that we run the risk of an agreement that lacks transparency and integrity, or one that results in non-uniform implementation," said Nixon. "Canadian banks, as an example, would be lifted from their position as well-capitalised, liquid financial institutions and recast as undercapitalised. Banks that passed the 'real life' stress test may fail the theoretical one - a pretty good indication of flawed methodology."
The 'too big to fail' debate was tackled by Andrew Bailey, executive director for banking services and chief cashier at the Bank of England (BoE). "As the recent record shows, large banks currently cannot safely be put into insolvency and so public money has had to be used ahead of losses being absorbed by so-called capital instruments. That is wrong," he said. "This brings us to the issue of whether banks should be restructured to facilitate the end of the too big/important to fail issue."
He argued for a significantly different method to resolve the issue, one based on the London Approach where a debt restructuring is undertaken for a non-bank company. Typically, creditors agree to restructure the debt of the company on the basis that it offers better value than an insolvency, but this can take weeks or months and much haggling. "The reason I mention the elapsed time is that with a non-bank that is possible - the creditors usually cannot run. But, of course, with a bank this is not possible. A loss of confidence in the bank causes the creditors to run very quickly. So with banks everything has to happen very quickly, over no more than a weekend. I call it speed M&A - and it is not good for the nerves," he said.
The non-bank solution has the advantage of being a market solution, according to Bailey. The idea for bailing in banks, or creditor re-capitalisation, seeks to achieve bank recapitalisation using speeded up non-bank tools. "We need something to give us a credible chance of covering the losses and most likely recapitalising a big bank. Such an event should avoid the use of public money. The idea is that the whole of the capital structure could be written down if necessary, and beyond that it would be possible either to haircut a portion of unsecured creditors, or carry out a partial debt equity swap. It sounds radical, but it isn't in the non-bank world," he said.
First published on www.gtnews.com
On the eve of the US Senate passing "the most comprehensive financial regulation reforms we have seen since the 1930s", in the words of US Ambassador and ex-banker Louis Susman, and the European Council's meeting to update its progress on a reform package for the supervision of the European financial system, it is no wonder that the British Bankers' Association (BBA) International Conference on 13 July 2010 in London focused mainly on impending regulatory changes.
The predominant discussions were around remuneration, bank taxes and levies, Basel III and Capital Requirements Directive (CRD) III and IV, and, of course, the 'too big to fail' debate resurfaced again this year.
The title of the conference was the question: evolution or revolution? Angela Knight, chief executive officer (CEO) of the BBA, was quite clear in her opening speech that evolution was the way forward for the industry. "Many changes have already been made. What happens next, though, will affect many parts - our functions, our operating costs, and the supply and price of credit to the economy," she said. "We therefore need a sensible, well thought-out evolutionary process from where we are to where we need to be, undertaken in co-ordination with our policy makers."
On all issues, the big push from the banking industry is for a co-ordinated global-level response that would tie all countries into a relatively uniform roll out of financial reforms in order to protect competition. But that is looking less and less likely.
As Knight said: "The G20 began well in pulling these initiatives together. But what looked coherent some 18 months ago looks much less so today. It is one of the tasks of the BBA to engage not just with the UK reform agenda but the EU agenda and those of the international standard setters."
Stephen Green, group chairman, HSBC, also weighed into this debate, highlighting the possibility of an arbitrage effect if regulations are implemented unevenly across the globe. "The European Parliament's proposal on remuneration is a very clear example that raises questions about international co-ordination. It is a broadly sensible proposal, although aspects of it are still unclear. But if very different regulations prevail in the US, Switzerland and Asia, for example, then it risks providing real incentives for a mobile population to arbitrage the rules to London's - and therefore the UK's - disadvantage.
"Then there is the question of taxes and levies. The current array of proposals is striking in its lack of consistency in terms of amounts, duration, basis of calculation and ostensible purposes. In the absence of global co-ordination, banks face distortions and could end up facing overlapping national and regional requirements that could result in double taxation," he added.
President and chief executive officer (CEO) of Royal Bank of Canada, Gordon Nixon, opened his speech by describing why Canadian banks have proven to be more resilient during the financial crisis, while attempting to dispel the myth that it was the conservative, boring nature of Canada's banks.
He argued that proper risk capital allocation against trading businesses would automatically restrict higher risk activities and at same time allow banks to make their own decisions around business strategy and capital allocation - but that Basel III is not the way forward.
"Basel III's proposed rules are supposed to be a starting point for discussion. Ironically, these proposed rules, for all their good intentions, will negatively impact even the healthiest bank's balance sheets in terms of capital, leverage ratios and liquidity and compromise economic growth. The proposals are so complex and onerous that we run the risk of an agreement that lacks transparency and integrity, or one that results in non-uniform implementation," said Nixon. "Canadian banks, as an example, would be lifted from their position as well-capitalised, liquid financial institutions and recast as undercapitalised. Banks that passed the 'real life' stress test may fail the theoretical one - a pretty good indication of flawed methodology."
The 'too big to fail' debate was tackled by Andrew Bailey, executive director for banking services and chief cashier at the Bank of England (BoE). "As the recent record shows, large banks currently cannot safely be put into insolvency and so public money has had to be used ahead of losses being absorbed by so-called capital instruments. That is wrong," he said. "This brings us to the issue of whether banks should be restructured to facilitate the end of the too big/important to fail issue."
He argued for a significantly different method to resolve the issue, one based on the London Approach where a debt restructuring is undertaken for a non-bank company. Typically, creditors agree to restructure the debt of the company on the basis that it offers better value than an insolvency, but this can take weeks or months and much haggling. "The reason I mention the elapsed time is that with a non-bank that is possible - the creditors usually cannot run. But, of course, with a bank this is not possible. A loss of confidence in the bank causes the creditors to run very quickly. So with banks everything has to happen very quickly, over no more than a weekend. I call it speed M&A - and it is not good for the nerves," he said.
The non-bank solution has the advantage of being a market solution, according to Bailey. The idea for bailing in banks, or creditor re-capitalisation, seeks to achieve bank recapitalisation using speeded up non-bank tools. "We need something to give us a credible chance of covering the losses and most likely recapitalising a big bank. Such an event should avoid the use of public money. The idea is that the whole of the capital structure could be written down if necessary, and beyond that it would be possible either to haircut a portion of unsecured creditors, or carry out a partial debt equity swap. It sounds radical, but it isn't in the non-bank world," he said.
First published on www.gtnews.com
Saturday, 14 August 2010
SWIFT Service Bureau Q&A with Ben Schol, Unilever
13 July 2010
In this Q&A, Ben Schol, project manager at Unilever, explains why the company decided to switch to SWIFT connectivity.
Unilever uses Fundtech's ServiceBureau for SWIFTNet connectivity. It migrated its inhouse solution in the shared service centre (SSC) to Fundtech's ServiceBureau in October 2009 in less than three months.
Q (gtnews): What made you decide to switch to SWIFT connectivity?
A (Ben Schol, Unilever): Each bank provides its own platform for connectivity, with its own protocol and file formats. This adds complexity when interfacing your back-end systems with these platforms. SWIFT removes a lot of this complexity. In addition, adding another bank becomes a breeze.
Q (gtnews): What method did you use to connect: Standardised Corporate Environment (SCORE), Member Administered Closed User Group (MA-CUG) or Alliance Lite?
A (Schol): At the moment we decided to use SWIFT, the only available method for connecting was through a MA-CUG. We had a look at SCORE when it came available, but didn’t see any advantage in switching. If we were starting now, we would definitely go for SCORE because the administration is much easier.
Q (gtnews): Why did you outsource the connectivity to a service bureau?
A (Schol): Maintaining and supporting a SWIFT environment requires highly trained and skilled personnel. After running the environment in-house for two years it became clear we were not able to build up these skills and thus started to look for alternatives, i.e. outsourcing maintenance and support or outsourcing the entire environment. Given the internal policies around remote access for maintenance and support, outsourcing the entire environment seemed to be the best solution.
Q (gtnews): Were there specific hurdles that had to be overcome?
A (Schol): First of all, of course, you will have to specify your requirements - both from a technical and business perspective. Next you will have to find a partner who best fits these requirements and your company culture.
Q (gtnews): Are there plans in the pipeline to expand your use of SWIFT?
A (Schol): Unilever currently uses the FIN, FileAct and Accord services. There currently are no plans to expand this.
First published on www.gtnews.com
In this Q&A, Ben Schol, project manager at Unilever, explains why the company decided to switch to SWIFT connectivity.
Unilever uses Fundtech's ServiceBureau for SWIFTNet connectivity. It migrated its inhouse solution in the shared service centre (SSC) to Fundtech's ServiceBureau in October 2009 in less than three months.
Q (gtnews): What made you decide to switch to SWIFT connectivity?
A (Ben Schol, Unilever): Each bank provides its own platform for connectivity, with its own protocol and file formats. This adds complexity when interfacing your back-end systems with these platforms. SWIFT removes a lot of this complexity. In addition, adding another bank becomes a breeze.
Q (gtnews): What method did you use to connect: Standardised Corporate Environment (SCORE), Member Administered Closed User Group (MA-CUG) or Alliance Lite?
A (Schol): At the moment we decided to use SWIFT, the only available method for connecting was through a MA-CUG. We had a look at SCORE when it came available, but didn’t see any advantage in switching. If we were starting now, we would definitely go for SCORE because the administration is much easier.
Q (gtnews): Why did you outsource the connectivity to a service bureau?
A (Schol): Maintaining and supporting a SWIFT environment requires highly trained and skilled personnel. After running the environment in-house for two years it became clear we were not able to build up these skills and thus started to look for alternatives, i.e. outsourcing maintenance and support or outsourcing the entire environment. Given the internal policies around remote access for maintenance and support, outsourcing the entire environment seemed to be the best solution.
Q (gtnews): Were there specific hurdles that had to be overcome?
A (Schol): First of all, of course, you will have to specify your requirements - both from a technical and business perspective. Next you will have to find a partner who best fits these requirements and your company culture.
Q (gtnews): Are there plans in the pipeline to expand your use of SWIFT?
A (Schol): Unilever currently uses the FIN, FileAct and Accord services. There currently are no plans to expand this.
First published on www.gtnews.com
Financial Professionals Lack Confidence in Risk and Performance Metrics
6 August 2010
A recent survey found that the vast majority (85%) of financial services and IT professionals do not have performance management systems completely integrated with risk analysis systems, according to Oracle's 'European Confidence Report'. In addition, 41% of those that do not currently assess risk and performance together are not seeking to actively incorporate risk into decision-making. This means that decision-makers will continue to make critical business choices without accounting for the all challenges that their business face.
In an interview with gtnews, Nazif Mohammed, vice president Europe, Middle East and Africa (EMEA), finances services, Oracle said: "We are living through incredible times - [the crisis] is probably the most expensive training exercise in bank performance measurement. Even the layperson on the street is now aware of stress testing. The aim of the survey was to understand the 'new normal' and see if the banks are actively incorporating risk into their day-to-day decision-making."
The research, conducted by Vanson Bourne, surveyed 228 financial services professionals and 222 IT professionals in financial institutions across Europe, including the UK and Ireland, France, Germany, Italy, Belgium, the Netherlands, Luxembourg and Switzerland.
The survey's key findings include:
•Almost half of all participating banks were not confident of the accuracy of their risk and counterparty related data. Alarmingly, more than one in seven (14%) admitted they are unable to monitor and respond to changing risk scenarios.
•Financial institutions are not leveraging integrated risk information in decision-making: 41% of financial institutions surveyed do not currently assess risk and performance together, and only 18% of respondents reported an ability to deliver performance and risk information to the business in real-time.
•Existing IT systems are unable to deliver what the business needs to react immediately to external events: only 26% of respondents are confident that their existing IT system is capable of using stored data to provide a full risk analysis across all business units.
•Almost two-thirds (64%) do not have confidence that IT is able to provide a 360-degree view of the entire business. For example, only 32% of the participating banks claimed they had access to vital data like counterparty information and 25% of the participating UK banks couldn't even produce this information.
Mohammed said: "Financial institutions understand how important it is to assess risk and performance management together, but have great difficulty in doing so for various reasons, such as data silos or legacy banking systems. The problem is also in the way businesses are structured, with a finance team that looks at profitability and a risk management team that solely looks at risk, and those shall not come together. Many times at our customer meetings these professionals exchange cards because they are meeting for the first time."
Across EMEA, only 24% see risk assessment and performance management as being tightly dependent, where both aspects are continuously assessed and reported on. Despite this, almost a third (29%) of respondents have an element of their remuneration package based on the accuracy of their information and in next three to five years, 58% will see risk actively be built into the process of pricing products. With these considerations it is surprising that more banks are not actively incorporating risk into business performance already.
Meeting the Compliance Challenge
The current business climate also means that financial institutions will continue to be subject to more regulations, making the need for integrated systems even more critical. Eighty six percent expect to see some or high levels of changes in the regulatory load on their organisation or in the financial services market. Compounding this problem is the fact that 40% believe that increasing compliance coupled with tougher deadlines will continue to hinder data accuracy.
"Financial institutions take regulatory pressures very seriously, but the challenge is in the approach," said Mohammed. "Do they add yet another system and continue trying to patch the holes to meet the requirements? This is a common approach - put a reporting system in place for liquidity management, another for pulling data for stress testing, etc. But this is done with very little co-ordination across the group. Financial institutions need to take a different approach where these systems are seen are part of an overall architecture of addressing the data, the transaction and the reporting capabilities."
First published on www.gtnews.com
A recent survey found that the vast majority (85%) of financial services and IT professionals do not have performance management systems completely integrated with risk analysis systems, according to Oracle's 'European Confidence Report'. In addition, 41% of those that do not currently assess risk and performance together are not seeking to actively incorporate risk into decision-making. This means that decision-makers will continue to make critical business choices without accounting for the all challenges that their business face.
In an interview with gtnews, Nazif Mohammed, vice president Europe, Middle East and Africa (EMEA), finances services, Oracle said: "We are living through incredible times - [the crisis] is probably the most expensive training exercise in bank performance measurement. Even the layperson on the street is now aware of stress testing. The aim of the survey was to understand the 'new normal' and see if the banks are actively incorporating risk into their day-to-day decision-making."
The research, conducted by Vanson Bourne, surveyed 228 financial services professionals and 222 IT professionals in financial institutions across Europe, including the UK and Ireland, France, Germany, Italy, Belgium, the Netherlands, Luxembourg and Switzerland.
The survey's key findings include:
•Almost half of all participating banks were not confident of the accuracy of their risk and counterparty related data. Alarmingly, more than one in seven (14%) admitted they are unable to monitor and respond to changing risk scenarios.
•Financial institutions are not leveraging integrated risk information in decision-making: 41% of financial institutions surveyed do not currently assess risk and performance together, and only 18% of respondents reported an ability to deliver performance and risk information to the business in real-time.
•Existing IT systems are unable to deliver what the business needs to react immediately to external events: only 26% of respondents are confident that their existing IT system is capable of using stored data to provide a full risk analysis across all business units.
•Almost two-thirds (64%) do not have confidence that IT is able to provide a 360-degree view of the entire business. For example, only 32% of the participating banks claimed they had access to vital data like counterparty information and 25% of the participating UK banks couldn't even produce this information.
Mohammed said: "Financial institutions understand how important it is to assess risk and performance management together, but have great difficulty in doing so for various reasons, such as data silos or legacy banking systems. The problem is also in the way businesses are structured, with a finance team that looks at profitability and a risk management team that solely looks at risk, and those shall not come together. Many times at our customer meetings these professionals exchange cards because they are meeting for the first time."
Across EMEA, only 24% see risk assessment and performance management as being tightly dependent, where both aspects are continuously assessed and reported on. Despite this, almost a third (29%) of respondents have an element of their remuneration package based on the accuracy of their information and in next three to five years, 58% will see risk actively be built into the process of pricing products. With these considerations it is surprising that more banks are not actively incorporating risk into business performance already.
Meeting the Compliance Challenge
The current business climate also means that financial institutions will continue to be subject to more regulations, making the need for integrated systems even more critical. Eighty six percent expect to see some or high levels of changes in the regulatory load on their organisation or in the financial services market. Compounding this problem is the fact that 40% believe that increasing compliance coupled with tougher deadlines will continue to hinder data accuracy.
"Financial institutions take regulatory pressures very seriously, but the challenge is in the approach," said Mohammed. "Do they add yet another system and continue trying to patch the holes to meet the requirements? This is a common approach - put a reporting system in place for liquidity management, another for pulling data for stress testing, etc. But this is done with very little co-ordination across the group. Financial institutions need to take a different approach where these systems are seen are part of an overall architecture of addressing the data, the transaction and the reporting capabilities."
First published on www.gtnews.com
Choosing a SWIFT service bureau
Before SWIFT service bureaus came along, the only way that a corporate could connect was by going direct. There are still reasons why a corporate would choose to host SWIFTNet connectivity in-house, such as the desire for full control or to avoid the risk of an intermediary between themselves and their bank.
But even for corporates with sizable IT departments, maintaining SWIFT-specific expertise in-house would entail training up their own IT personnel and security officers, as well as sending them on SWIFT courses just to maintain the system, which are all costly and time consuming.
“When we set up our service bureau, we certainly thought that it was going to be for the smaller end of the market - those companies that couldn’t justify the expense of the direct route. But what we quickly learned that it was more down to company culture,” says John Ballantyne, UK sales manager at SMA Financial. “Very large corporates have made the decision to outsource the infrastructure simply because they didn’t want the hassle and expense of running it inhouse.”
He says that less than 5% of the corporate implementations that SMA Financial has done over the past two to three years have been direct implementations. SWIFT service bureaus fulfil an important role by offering SWIFT connectivity without major and recurring investment in technology, infrastructure and specialist personnel.
Differentiating Between Service Bureaus
Not all service bureaus are alike: some solely provide the connectivity while others offer a fully-managed outsourced solution, which includes hosting the infrastructure and supporting technical operations. This reduces the cost because corporates are linking into a shared environment across multiple clients.
In addition, many service bureaus are developing value-add services, such as cash reporting, funds transfer, electronic bank account management (eBAM), reconciliation, payment exceptions and investigations (E&I), anti-money laundering (AML) filtering, etc.
When selecting a service bureau, the most important part is to ensure that the link is not weaker than SWIFT itself - does the service bureau meet the same parameters as SWIFT in terms of availability, security, resilience, nonrepudiation, and guaranteed message deliveries?
Ballantyne says that the first port of call is SWIFT certification. SWIFT lists in which areas the service bureaus are accredited, as well as the certification level of the consultant teams, etc.
Elie Lasker, head of corporate market, SWIFT, says that a service bureau should exhibit corporate-specific experience and expertise. “What we see now is that many service bureaus have gained more experience with corporates - and clearly some service bureaus are more specialised in the corporate market. One of the typical questions that a corporate should ask is how many corporates does the service bureau already work with?” In addition, ensuring that the service bureau has a disaster recovery site is critical to maintaining the 99.995% reliability and resiliency that SWIFT pledges.
“Corporates should also ask about the service they provide in terms of onboarding banks. The process involves both technical and administrative aspects for which a corporate doesn’t always have the bandwidth. Therefore, it is usually better that a third party provides this kind of assistance. It will simply make onboarding faster,” says Lasker.
Franklin Van Weezendonk, senior vice president, Axletree Solutions, adds that a corporate should check if the service bureau uses SWIFT products. “For example, SWIFT has a product called SWIFT Alliance Integrator, which a service bureau will pay a fee to use. Some service bureaus have developed an integration solution in-house - a proprietary product - which makes it cheaper.
“But when SWIFT makes a major or minor upgrade - let alone a whole new SWIFT release - are those proprietary products going to meet the new requirements? Whereas if a service bureau uses SWIFT-approved products, then you don’t run that risk,” he says.
Lastly, service bureaus distinguish themselves through value-added options, in terms of data enrichment, transformation, reporting, or light treasury applications to overlap with existing systems in the treasury back office to provide an overall solution.
Ballantyne believes that although corporate treasurers like to hear about sophisticated additional options that a service bureau can provide, fundamentally they select their bureau based on the core function of simply connecting them to SWIFT.
“Most treasurers already have this value-add within their trading applications and internal treasury products, and so I think it is a bit of a red herring, actually,” he says. “What the corporate treasurer really wants is to feel very confident that a service bureau can provide the core services."
Factors to consider when selecting a SWIFT bureau service
1. Accredited resources.
2. Depth and breadth of experience.
3. Scale up or down.
4. Long-term client care.
5. Proven track record.
6. Value-added services.
7. Disaster recovery.
8. Independent partner.
9. Location.
10. Financial stability.
Source: SMA Financial
First published on www.gtnews.com
But even for corporates with sizable IT departments, maintaining SWIFT-specific expertise in-house would entail training up their own IT personnel and security officers, as well as sending them on SWIFT courses just to maintain the system, which are all costly and time consuming.
“When we set up our service bureau, we certainly thought that it was going to be for the smaller end of the market - those companies that couldn’t justify the expense of the direct route. But what we quickly learned that it was more down to company culture,” says John Ballantyne, UK sales manager at SMA Financial. “Very large corporates have made the decision to outsource the infrastructure simply because they didn’t want the hassle and expense of running it inhouse.”
He says that less than 5% of the corporate implementations that SMA Financial has done over the past two to three years have been direct implementations. SWIFT service bureaus fulfil an important role by offering SWIFT connectivity without major and recurring investment in technology, infrastructure and specialist personnel.
Differentiating Between Service Bureaus
Not all service bureaus are alike: some solely provide the connectivity while others offer a fully-managed outsourced solution, which includes hosting the infrastructure and supporting technical operations. This reduces the cost because corporates are linking into a shared environment across multiple clients.
In addition, many service bureaus are developing value-add services, such as cash reporting, funds transfer, electronic bank account management (eBAM), reconciliation, payment exceptions and investigations (E&I), anti-money laundering (AML) filtering, etc.
When selecting a service bureau, the most important part is to ensure that the link is not weaker than SWIFT itself - does the service bureau meet the same parameters as SWIFT in terms of availability, security, resilience, nonrepudiation, and guaranteed message deliveries?
Ballantyne says that the first port of call is SWIFT certification. SWIFT lists in which areas the service bureaus are accredited, as well as the certification level of the consultant teams, etc.
Elie Lasker, head of corporate market, SWIFT, says that a service bureau should exhibit corporate-specific experience and expertise. “What we see now is that many service bureaus have gained more experience with corporates - and clearly some service bureaus are more specialised in the corporate market. One of the typical questions that a corporate should ask is how many corporates does the service bureau already work with?” In addition, ensuring that the service bureau has a disaster recovery site is critical to maintaining the 99.995% reliability and resiliency that SWIFT pledges.
“Corporates should also ask about the service they provide in terms of onboarding banks. The process involves both technical and administrative aspects for which a corporate doesn’t always have the bandwidth. Therefore, it is usually better that a third party provides this kind of assistance. It will simply make onboarding faster,” says Lasker.
Franklin Van Weezendonk, senior vice president, Axletree Solutions, adds that a corporate should check if the service bureau uses SWIFT products. “For example, SWIFT has a product called SWIFT Alliance Integrator, which a service bureau will pay a fee to use. Some service bureaus have developed an integration solution in-house - a proprietary product - which makes it cheaper.
“But when SWIFT makes a major or minor upgrade - let alone a whole new SWIFT release - are those proprietary products going to meet the new requirements? Whereas if a service bureau uses SWIFT-approved products, then you don’t run that risk,” he says.
Lastly, service bureaus distinguish themselves through value-added options, in terms of data enrichment, transformation, reporting, or light treasury applications to overlap with existing systems in the treasury back office to provide an overall solution.
Ballantyne believes that although corporate treasurers like to hear about sophisticated additional options that a service bureau can provide, fundamentally they select their bureau based on the core function of simply connecting them to SWIFT.
“Most treasurers already have this value-add within their trading applications and internal treasury products, and so I think it is a bit of a red herring, actually,” he says. “What the corporate treasurer really wants is to feel very confident that a service bureau can provide the core services."
Factors to consider when selecting a SWIFT bureau service
1. Accredited resources.
2. Depth and breadth of experience.
3. Scale up or down.
4. Long-term client care.
5. Proven track record.
6. Value-added services.
7. Disaster recovery.
8. Independent partner.
9. Location.
10. Financial stability.
Source: SMA Financial
First published on www.gtnews.com
Moving to SWIFTNet
One of the most difficult hurdles corporate treasuries must overcome when planning a move to SWIFTNet is developing a solid business case, particularly in the current environment when infrastructure budgets are tight
When creating a business case, a SWIFT project should be part of an overall drive towards treasury centralisation. According to Elie Lasker, head of corporate market, SWIFT, the hardest part of the project is what comes before, for example centralising enterprise resource planning (ERP) systems or treasury management systems (TMS), or re-engineering treasury processes.
The ‘icing on the cake’ is then to be able to connect efficiently and easily to the different banks via SWIFT. “A treasurer doesn’t wake up one day and say ‘I want to connect to SWIFT’. There is no significant benefit for a corporate if there isn’t a project aimed at streamlining behind it,” says Lasker.
But once a centralisation project is in the pipeline, where does a treasurer start
when putting together a business case for SWIFT connectivity that stands up to budget pressures?
Developing the SWIFTNet Business Case
A business case should answer the following questions:
1. Which SWIFTNet schemes are available? Which is the most suitable for your business?
2. Will SWIFTNet meet the objectives of increased reliability, control and cash visibility?
3. What are the costs and benefits of the SWIFTNet schemes?
4. How do the SWIFTNet schemes (plus required middleware) fit in the contemplated treasury technology ecosystem, particularly in terms of integration?
5. What are the main risk factors of any SWIFTNet scheme?
6. What does a SWIFTNet scheme implementation plan contain: steps, duration and legal documents?
Let’s explore each question in more detail.
1. Connectivity options: SWIFTNet schemes
- Private infrastructure: a SWIFTNet connectivity infrastructure which is established, owned, operated and managed by a company’s own technical team.
- Shared infrastructure: a SWIFTNet connectivity infrastructure which is established by outsourcing to a third party vendor, commonly called a service bureau, who owns, operates and manages it on behalf of the company.
- Alliance Lite: a simplified, internet-based secure connectivity to SWIFTNet. It is a low-cost, low-volume solution but may not be optimum for central treasury but might be useful if a company wishes to give direct access to SWIFT to its smaller subsidiaries.
It is more usual for corporates to go down the shared infrastructure route, which has a number of advantages including:
- Technical interfacing issues are handled by the service bureau.
- Removes the complexity of managing SWIFTNet environment in-house, while saving costs on IT and SWIFT specific personnel.
- Future-proof access to SWIFTNet services.
Some companies will see disadvantages as well, including the fact that an additional external party adds an element of risk, particularly around the area of storing sensitive data. Reassurance from the service bureau around the handling of this data will be required.
2. Reliability, control and increased cash visibility
Many companies express concerns about the reliability of current electronic banking (ebanking) systems and the possibility of disruption in delivery of information. The SWIFTNet schemes are reliable and form a negligible risk: SWIFT publicly states its availability goal is 99.995%. In addition, SWIFT offers a guaranteed delivery mechanism for payments for messages once the sender has received an acknowledgement (known as an ACK) from SWIFT. They are also financially liable for non-delivered messages.
When using a service bureau, a company will be dependent on the middleware of the service bureau, which might also be seen as adding an element of risk. One of the major benefits of SWIFTNet is that central treasury can gain better control through having all banks report through SWIFTNet, thereby gaining global visibility of bank statements and information. In addition, payment authorisation can be left at a local level, with the possibility of adding a regional signature as required.
SWIFT enables corporate treasurers to achieve greater cash visibility by:
- Enabling them to collect balance and transaction data daily (and intraday) in a standardised form from a corporate’s various banks around the world.
- There is no need to log-on to separate e-banking portals.
- Central treasury receives this information directly from the banks in the regions rather than relying on the subsidiaries to report.
- Standardised data formats means cash balances can more easily be integrated into a TMS or ERP system to create a consolidated view.
- Adding or deleting banks from the list is made easier due to the bankindependent nature of SWIFTNet.
3. Cost/benefit analysis
Many companies are using SWIFTNet as part of a programme to centralise their treasury operations into one location. The main cost benefits will come from a reduction in staff numbers. They also want to improve reliability, gain greater cash visibility and introduce greater control within the treasury structure, which is more difficult to quantify.
4. System fit
For many companies, their TMS will become the gateway into SWIFT. Most or all data and associated security profiles will be stored in the TMS. The main issue is to ensure that there is an interface between both the TMS and SWIFT with flows both outbound for payments and inbound for balance and transactions statements.
Another issue that will need to be decided relates to payment processing. A company may wish to leave local payment processing in the local countries. However, central treasury may want to retain some control over the authorisation of local payments. There are many ways this can be achieved.
One way involves making the TMS the central conduit for all flows but this will require a link between the TMS and the local subsidiaries. This could be achieved by giving the subsidiaries limited access to the TMS payment input module.
Another approach would be to provide the local subsidiaries with SWIFTNet access through a product called Alliance Access. This is a view into SWIFT and allows users to input, verify and authorise payment instructions. These different processes can be physically performed in any location. This means, for example, that a subsidiary could input and verify a payment instruction and then central treasury could authorise it. One of the problems with this approach is that it is outside the TMS and so issues such as bank reconciliation need to be addressed differently.
5. Risks
When a company stops using its bank’s ebanking system, this may impact its relationship with that bank. It is advisable for companies considering a SWIFTNet approach to involve their main cash management banks in the process.
Although the method of receiving information the bank will change, the actual number of transactions being processed by the bank will not. Therefore, the risk is negligible. Many banks already have clients using SWIFTNet and are used to this approach.
6. A SWIFTNet implementation plan
There are then five main stages in planning and implementation:
1. Define the scope
- What services are needed - payments,balance and transaction reporting?
- What banks will be involved and are they SWIFTNet-compliant?
- What type of connectivity is required? Formats and messaging - FIN, FileAct, etc (see Message file formats box).
2. Contact the banks
- The company will need to let the banks know that it intends to use SWIFTNet. New bilateral agreements may need to be put in place with the banks involved.
- Agree service conditions.
- Get copies of legal template if available.
3. Software and connectivity
- Contact SWIFT and/or service bureau.
- Define schemes required.
4. Pilot period
- Join SWIFT.
- Install software and connect to SWIFT.
- Run test pilot.
5. Roll out - per bank
- Kick-off meeting.
- Setup and test live environment.
- Go live.
- Revisit and ensure that objectives have been met.
SWIFT estimates that a project of this size should take between three and six months to complete if a service bureau is used and six to nine months if a direct connection approach is chosen (see Implementing SWIFT box).
Box 1 Message file formats
FIN (individual messages)
● Typically used for single transactions, e.g. high-value payments, deal confirmations and reporting.
● Store and forward delivery of highly structured messages in strict SWIFT FIN (MT) format.
● Messages are validated by SWIFT on transmission.
FileAct (file transfer)
● Typically used for bulk payments (e.g. salaries, commercial payments, direct debits, etc) and reporting.
● Secure file transfer over SWIFTNet.
● Delivered in real time or store and forward mode.
● Files can be in any format - payments files, iDOC, ISO 20022 XML, domestic ACH formats, BAI, etc.
● Not validated by SWIFT.
Box 2 MA-CUG versus SCORE
A ‘very large’ UK corporate currently has more than 300 bank accounts with more than 20 banks. It currently uses in excess of 15 local electronic banking systems. Treasury has approximately 200 payments per day. This results in approximately 4000 payments per month. The number of payments done by the local entities is approximately double that per month.
Presently, payments are sent to the banks by the local entity. The company is currently centralising its payments into a payments factory. With such a large number of banks SWIFTNet is an ideal consideration. The company plans to use its TMS and ERP system in conjunction with SWIFTNet to create and transmit the payment files to its banks and then collect the bank information.
When comparing MA-CUG and SCORE, SCORE is seen as the preferred route for a company who is looking to perform payments and reporting through SWIFT. Given the multiple banks involved, the MA-CUG route would necessitate the establishment of connections with each of these banks separately. This in itself would be a time-consuming and onerous task. The SCORE approach on the other hand provides a single channel to multiple banks allowing the company to operate accounts payable (A/P), accounts receivable (A/R) and treasury-related activities (if required) through the SWIFT network. In this case the corporate used SCORE and a local SWIFT service bureau to connect because it did not feel it had sufficient in-house expertise to build the connection.
First published on www.gtnews.com
When creating a business case, a SWIFT project should be part of an overall drive towards treasury centralisation. According to Elie Lasker, head of corporate market, SWIFT, the hardest part of the project is what comes before, for example centralising enterprise resource planning (ERP) systems or treasury management systems (TMS), or re-engineering treasury processes.
The ‘icing on the cake’ is then to be able to connect efficiently and easily to the different banks via SWIFT. “A treasurer doesn’t wake up one day and say ‘I want to connect to SWIFT’. There is no significant benefit for a corporate if there isn’t a project aimed at streamlining behind it,” says Lasker.
But once a centralisation project is in the pipeline, where does a treasurer start
when putting together a business case for SWIFT connectivity that stands up to budget pressures?
Developing the SWIFTNet Business Case
A business case should answer the following questions:
1. Which SWIFTNet schemes are available? Which is the most suitable for your business?
2. Will SWIFTNet meet the objectives of increased reliability, control and cash visibility?
3. What are the costs and benefits of the SWIFTNet schemes?
4. How do the SWIFTNet schemes (plus required middleware) fit in the contemplated treasury technology ecosystem, particularly in terms of integration?
5. What are the main risk factors of any SWIFTNet scheme?
6. What does a SWIFTNet scheme implementation plan contain: steps, duration and legal documents?
Let’s explore each question in more detail.
1. Connectivity options: SWIFTNet schemes
- Private infrastructure: a SWIFTNet connectivity infrastructure which is established, owned, operated and managed by a company’s own technical team.
- Shared infrastructure: a SWIFTNet connectivity infrastructure which is established by outsourcing to a third party vendor, commonly called a service bureau, who owns, operates and manages it on behalf of the company.
- Alliance Lite: a simplified, internet-based secure connectivity to SWIFTNet. It is a low-cost, low-volume solution but may not be optimum for central treasury but might be useful if a company wishes to give direct access to SWIFT to its smaller subsidiaries.
It is more usual for corporates to go down the shared infrastructure route, which has a number of advantages including:
- Technical interfacing issues are handled by the service bureau.
- Removes the complexity of managing SWIFTNet environment in-house, while saving costs on IT and SWIFT specific personnel.
- Future-proof access to SWIFTNet services.
Some companies will see disadvantages as well, including the fact that an additional external party adds an element of risk, particularly around the area of storing sensitive data. Reassurance from the service bureau around the handling of this data will be required.
2. Reliability, control and increased cash visibility
Many companies express concerns about the reliability of current electronic banking (ebanking) systems and the possibility of disruption in delivery of information. The SWIFTNet schemes are reliable and form a negligible risk: SWIFT publicly states its availability goal is 99.995%. In addition, SWIFT offers a guaranteed delivery mechanism for payments for messages once the sender has received an acknowledgement (known as an ACK) from SWIFT. They are also financially liable for non-delivered messages.
When using a service bureau, a company will be dependent on the middleware of the service bureau, which might also be seen as adding an element of risk. One of the major benefits of SWIFTNet is that central treasury can gain better control through having all banks report through SWIFTNet, thereby gaining global visibility of bank statements and information. In addition, payment authorisation can be left at a local level, with the possibility of adding a regional signature as required.
SWIFT enables corporate treasurers to achieve greater cash visibility by:
- Enabling them to collect balance and transaction data daily (and intraday) in a standardised form from a corporate’s various banks around the world.
- There is no need to log-on to separate e-banking portals.
- Central treasury receives this information directly from the banks in the regions rather than relying on the subsidiaries to report.
- Standardised data formats means cash balances can more easily be integrated into a TMS or ERP system to create a consolidated view.
- Adding or deleting banks from the list is made easier due to the bankindependent nature of SWIFTNet.
3. Cost/benefit analysis
Many companies are using SWIFTNet as part of a programme to centralise their treasury operations into one location. The main cost benefits will come from a reduction in staff numbers. They also want to improve reliability, gain greater cash visibility and introduce greater control within the treasury structure, which is more difficult to quantify.
4. System fit
For many companies, their TMS will become the gateway into SWIFT. Most or all data and associated security profiles will be stored in the TMS. The main issue is to ensure that there is an interface between both the TMS and SWIFT with flows both outbound for payments and inbound for balance and transactions statements.
Another issue that will need to be decided relates to payment processing. A company may wish to leave local payment processing in the local countries. However, central treasury may want to retain some control over the authorisation of local payments. There are many ways this can be achieved.
One way involves making the TMS the central conduit for all flows but this will require a link between the TMS and the local subsidiaries. This could be achieved by giving the subsidiaries limited access to the TMS payment input module.
Another approach would be to provide the local subsidiaries with SWIFTNet access through a product called Alliance Access. This is a view into SWIFT and allows users to input, verify and authorise payment instructions. These different processes can be physically performed in any location. This means, for example, that a subsidiary could input and verify a payment instruction and then central treasury could authorise it. One of the problems with this approach is that it is outside the TMS and so issues such as bank reconciliation need to be addressed differently.
5. Risks
When a company stops using its bank’s ebanking system, this may impact its relationship with that bank. It is advisable for companies considering a SWIFTNet approach to involve their main cash management banks in the process.
Although the method of receiving information the bank will change, the actual number of transactions being processed by the bank will not. Therefore, the risk is negligible. Many banks already have clients using SWIFTNet and are used to this approach.
6. A SWIFTNet implementation plan
There are then five main stages in planning and implementation:
1. Define the scope
- What services are needed - payments,balance and transaction reporting?
- What banks will be involved and are they SWIFTNet-compliant?
- What type of connectivity is required? Formats and messaging - FIN, FileAct, etc (see Message file formats box).
2. Contact the banks
- The company will need to let the banks know that it intends to use SWIFTNet. New bilateral agreements may need to be put in place with the banks involved.
- Agree service conditions.
- Get copies of legal template if available.
3. Software and connectivity
- Contact SWIFT and/or service bureau.
- Define schemes required.
4. Pilot period
- Join SWIFT.
- Install software and connect to SWIFT.
- Run test pilot.
5. Roll out - per bank
- Kick-off meeting.
- Setup and test live environment.
- Go live.
- Revisit and ensure that objectives have been met.
SWIFT estimates that a project of this size should take between three and six months to complete if a service bureau is used and six to nine months if a direct connection approach is chosen (see Implementing SWIFT box).
Box 1 Message file formats
FIN (individual messages)
● Typically used for single transactions, e.g. high-value payments, deal confirmations and reporting.
● Store and forward delivery of highly structured messages in strict SWIFT FIN (MT) format.
● Messages are validated by SWIFT on transmission.
FileAct (file transfer)
● Typically used for bulk payments (e.g. salaries, commercial payments, direct debits, etc) and reporting.
● Secure file transfer over SWIFTNet.
● Delivered in real time or store and forward mode.
● Files can be in any format - payments files, iDOC, ISO 20022 XML, domestic ACH formats, BAI, etc.
● Not validated by SWIFT.
Box 2 MA-CUG versus SCORE
A ‘very large’ UK corporate currently has more than 300 bank accounts with more than 20 banks. It currently uses in excess of 15 local electronic banking systems. Treasury has approximately 200 payments per day. This results in approximately 4000 payments per month. The number of payments done by the local entities is approximately double that per month.
Presently, payments are sent to the banks by the local entity. The company is currently centralising its payments into a payments factory. With such a large number of banks SWIFTNet is an ideal consideration. The company plans to use its TMS and ERP system in conjunction with SWIFTNet to create and transmit the payment files to its banks and then collect the bank information.
When comparing MA-CUG and SCORE, SCORE is seen as the preferred route for a company who is looking to perform payments and reporting through SWIFT. Given the multiple banks involved, the MA-CUG route would necessitate the establishment of connections with each of these banks separately. This in itself would be a time-consuming and onerous task. The SCORE approach on the other hand provides a single channel to multiple banks allowing the company to operate accounts payable (A/P), accounts receivable (A/R) and treasury-related activities (if required) through the SWIFT network. In this case the corporate used SCORE and a local SWIFT service bureau to connect because it did not feel it had sufficient in-house expertise to build the connection.
First published on www.gtnews.com
Sunday, 11 July 2010
SEPA Council: A Sign of Political Commitment
09 Jul 10
Financial industry leaders see the creation of the single euro payments area (SEPA) Council, which met for the first time on 7 June and released a statement of intent, as a signal of a firm political commitment from the European Commission (EC) and the European Central Bank (ECB).
At a recent Financial Services Club meeting in London, two senior bankers closely involved in the SEPA and Payment Services Directive (PSD) process saw this development as a political step forward in giving a more public face to the European payments harmonisation initiative.
The new SEPA Council is composed of five high-level representatives from both the demand and supply sides of the market. Members from the demand side include consumers, retailers, businesses/corporates, small and medium-sized companies, and national public administrations. On the supply side it includes the European Payments Council (EPC), co-operative banks, saving banks, commercial banks, and payment institutions. In addition, four national central banks board members represent the eurosystem.
"This is a demonstration of endorsement from the ECB and EC and a tangible commitment to a political vision. Plus, there is buy-in from stakeholders," said one senior payments strategist. "Although the declaration is mainly symbolic, it is also a positive sign."
In addition to discussing other issues - such as the end date for legacy payment instruments, countries that have still to transpose the PSD and the possibility of a PSD II in 2012 - the Financial Services Club deliberated the entry of new competitors in the market via a PSD-created legal entity called a payment institution (PI). A PI is defined as "a legal person (i.e. must be incorporated - sole traders cannot be authorised) that has been granted authorisation in accordance with Article 10 of the Directive to provide and execute payment services throughout the European Community."
This development allows for non-bank entities that have traditionally played on the perimeter of the payments arena to compete with banks head-to-head. As of mid-March, five months after the PSD's launch, the number of entities that have been authorised as PIs is very patchy across European countries - for example, many countries have had just one application, while there has been close to 50 in the UK. "[The number] has a direct correlation to how mature the financial services market is in each country," said the other industry expert. Once a PI has been approved in one country, it can passport its services to other countries in Europe.
This is a space to watch in the near future as banks face new challenges to their old business models.
First published on www.gtnews.com
Financial industry leaders see the creation of the single euro payments area (SEPA) Council, which met for the first time on 7 June and released a statement of intent, as a signal of a firm political commitment from the European Commission (EC) and the European Central Bank (ECB).
At a recent Financial Services Club meeting in London, two senior bankers closely involved in the SEPA and Payment Services Directive (PSD) process saw this development as a political step forward in giving a more public face to the European payments harmonisation initiative.
The new SEPA Council is composed of five high-level representatives from both the demand and supply sides of the market. Members from the demand side include consumers, retailers, businesses/corporates, small and medium-sized companies, and national public administrations. On the supply side it includes the European Payments Council (EPC), co-operative banks, saving banks, commercial banks, and payment institutions. In addition, four national central banks board members represent the eurosystem.
"This is a demonstration of endorsement from the ECB and EC and a tangible commitment to a political vision. Plus, there is buy-in from stakeholders," said one senior payments strategist. "Although the declaration is mainly symbolic, it is also a positive sign."
In addition to discussing other issues - such as the end date for legacy payment instruments, countries that have still to transpose the PSD and the possibility of a PSD II in 2012 - the Financial Services Club deliberated the entry of new competitors in the market via a PSD-created legal entity called a payment institution (PI). A PI is defined as "a legal person (i.e. must be incorporated - sole traders cannot be authorised) that has been granted authorisation in accordance with Article 10 of the Directive to provide and execute payment services throughout the European Community."
This development allows for non-bank entities that have traditionally played on the perimeter of the payments arena to compete with banks head-to-head. As of mid-March, five months after the PSD's launch, the number of entities that have been authorised as PIs is very patchy across European countries - for example, many countries have had just one application, while there has been close to 50 in the UK. "[The number] has a direct correlation to how mature the financial services market is in each country," said the other industry expert. Once a PI has been approved in one country, it can passport its services to other countries in Europe.
This is a space to watch in the near future as banks face new challenges to their old business models.
First published on www.gtnews.com
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