Ukranian SWIFT community gathers for first business forum in Kiev
The first SWIFT Business Forum in Kiev took place at the Fairmont Hotel on 19 May 2016. The event brought together 120 participants from Ukraine’s financial sector under the theme “Building a future-proof Ukrainian financial market based on international standards” and was organised together with UkrSWIFT, the SWIFT national member and user group for Ukraine. Welcoming customers to the forum, Ilona Pouna, Regional Manager, CEE, SWIFT, thanked UkrSWIFT and SWIFT’s local partner, Profix for their support and cooperation in organizing the event and went on to state some of the reasons for holding a business forum in Kiev. One of these is that that Ukraine is a large market with huge potential. With a population of over 42 million people, 53% of whom hold a banking account, the country has 111 banks with total capital cost of 51.3 billion EUR. Following a period of economic uncertainty and sharp drops in consumption and investments, it is expected that the Ukranian economy will recover this year and get back on the path to growth. The International Monetary Fund (IMF) has forecast that Ukraine's economy will grow only slightly in 2016, at 1.5%, with further growth expected in 2017 (2.5%) and greater improvements to growth rates thereafter. Also, the implementation of free trade, which is part of an agreement on Ukraine's integration into the EU, signed in 2014, is expected to start in late 2016 and Ukraine and the EU are seeking closer relations including gradual economic integration. Already today, the EU is Ukraine's largest trading partner and is responsible for over a third of trade. In addition, the EU is the main source of direct foreign investments in Ukraine.
“Looking at the relationship between the Ukrainian financial sector and SWIFT, despite the difficult situation faced over the past couple of years, things are now looking up and we are working together on a number of initiatives aimed at supporting the banking community in Ukraine,” said Pouna. One recent example is the active dialogue with the National Bank and Securities Commission on implementation of ISO 20022 standards both for domestic payments and securities. The introduction of such standards would improve the efficiency of data processing, satisfy the growing needs of bank customers and make UA financial infrastructure more open and accessible for foreign investors. Pouna also pointed out that despite the huge political and economic challenges faced in recent years, the country’s banking sector has achieved significant progress in implementing reforms and building the foundation for a more secure future. Market participants are now looking forward to the next stage of transformation, which will include deeper market penetration, improved risk management, increased productivity and automation. Against this backdrop, the objective of the forum was to provide a platform for information exchange and a discussion on how SWIFT, as a proven partner of financial institutions on both on an international and a national level, can support the market in this process.
Next to welcome the participants was Yuri Vlasenko, President, UkrSWIFT and Board Member, National Depository of Ukraine. Vlasenko mentioned that UkrSWIFT had celebrated 12 years of operation just the day before the event and went on to explain the community role that UkrSWIFT plays. He was also proud to announce that the Ukrainian IBAN structure has now been registered, representing a first and very important step towards joining the Single European Payments Area (SEPA).
Following Vlasenko, Søren Haugaard, SWIFT Board Member, welcomed the audience on behalf of the SWIFT board and explained the cooperative’s corporate values, namely Excellence, Communities and Innovation. These values guide the company’s activities and ensure that it adheres to the highest standards; understands and delivers the needs of its users; and drives efficiencies across the industry. He went on to explain the governance and ownership structure and how the involvement of local communities & expert groups fosters collaborative innovation and is a fundamental part of how SWIFT functions, before running through the cornerstones of the SWIFT2020 strategy. SWIFT2020 (‘Grow the core, build the future’) has been shaped to respond effectively to the external challenges and drivers, as well as to build on the success of previous strategies. As in previous strategic cycles, the principal area of focus is on our core: delivering operational excellence, increasing ‘many-to-many’ message volume growth, and returning the benefits of economies of scale back to customers through targeted price reductions. In addition, SWIFT plans ambitious strategic measures to support market infrastructures and their communities through the changing period that lies ahead; and measures to support the financial industry in addressing the challenge of financial crime compliance. Lastly, Haugaard spoke about the benefits of being part of an organisation such as the European SWIFT Alliance (ESA). Established in 2001, ESA currently comprises the SWIFT national communities from over 30 countries and provides a venue for co-operation and collaboration and the ongoing sharing of experiences and information regarding SWIFT solutions and infrastructure, but also about the problems and projects of the banking communities in the region.
Opening plenary – the future of Ukraine’s financial system
The opening plenary focused on developments in the Ukrainian financial system in the context of strategy 2020. First to address the audience was Jakiv Smoliy, Vice Governor, the National Bank of Ukraine, who thanked SWIFT and UkrSWIFT for having organized the event, stating that the business forum is the second major banking event this year in Kiev, and a very welcome addition to the yearly business calendar. Smoliy was proud to announce the registration of the Ukranian IBAN structure in January this year, which, as also mentioned by Vlasenko, represents a first major step towards future participation in SEPA. The rest of his speech focused on the development of the Ukranian payment systems, which are going through a series of phased migrations and are aligning step-by-step with European and international payment schemes. As part of its commitment to driving stronger automation, Ukraine has decided to join the ISO20022 Harmonisation Charter. The objective of the charter is to bring about an MT-like discipline in the use of ISO 20022 around the world, helping to make things simpler and leading to more value for money. As part of the ISO 20022 harmonisation framework, publication of standards will happen on MyStandards, in a consistent framework. Furthermore, there is a commitment to a release cycle on the same day, as is already the case for the FIN standards release process. This will lead to increased consistency, alignment, transparency, predictability and greater standardization overall.
Following Smoliy’s speech, Timur Khromaev, Chairman, the National Securities and Stock Market Commission gave the securities market perspective, explaining that Ukraine is looking at Poland as a leading example of how to build for the future. Having built robust and efficient market infrastructures, Poland is now playing at much increased role in the European market. Ukraine has the same ambition and the full support of the EBRD, he said, but it still has a long and bumpy road ahead, before it can be considered an attractive market for international investors. Khromaev acknowledged the need for adoption of international standards like ISO20022, with particular reference to how well the ISO 20022 xml standard can deal with more complex markets such as the derivatives market. Ending his speech on a positive note, he touched on blockchain and distributed ledger technology (DLT), giving an optimistic view on how the technology may bring benefits to the financial sector in the future. Following Khromaev’s speech, came a signature ceremony in which both the National Bank of Ukraine and the National Securities and Stock Market Commission confirmed their endorsement of the ISO20022 Harmonisation Charter.
SWIFT2020 - Grow the core, build the future
Next on the agenda was a presentation on the SWIFT2020 strategy by Christian Kothe, Head of CEE, SWIFT. Kothe opened his presentation by describing SWIFT as the circulatory system of the financial industry and went on to draw a number of parallels between SWIFT’s 2020 Strategy and Ukraine’s 2020 ambitions. Kothe explaining the process that was followed to come up with SWIFT’s strategy, from the start of the development process at a Board offsite in March 2014, to the launch of an Information Report in June 2014 and local and global consultation between June and December that entailed 70 consultation meetings worldwide, involving 500+ community representatives drawn from 200+ financial institutions in order to capture a broad range of perspectives on SWIFT’s future. The outcomes of this consultation and a proposed strategic direction were published in a Discussion Paper ‘Towards SWIFT2020’ in December 2014. Following further community discussion and fine-tuning, the final strategy, ‘SWIFT2020, Grow the Core, Build the Future’ was approved by the SWIFT Board in June 2015 SWIFT2020 has been shaped to respond effectively to the external challenges and drivers, as well as to build on the success of previous strategies.
“As in previous strategic cycles our principal area of focus is on our core,” said Kothe, “delivering operational excellence, increasing ‘many-to-many’ message volume growth, and returning the benefits of economies of scale back to customers through targeted price reductions. In addition, we plan ambitious strategic measures to support market infrastructures and their communities through the changing period that lies ahead; and measures to support the financial industry in addressing the challenge of financial crime compliance.” On the core, the plan is to even further increase SWIFT’s investments in technology, to reduce time to market and ensure that the platform is even more secure, reliable and scalable for the future. There will also be a focus on adding new capabilities to the platform, both in terms of connectivity and also to extend the breadth of services. On market infrastructures, SWIFT will drive adoption of our messaging services among Real Time Gross Settlement (RTGS) (as has been the case for Sorbnet2 in Poland), deliver on the commitment to build a real-time payments platform for the Australian market, support Central Securities Depositories (CSDs) and continue to build the portfolio of resilience services. “ISO 20022 is a major focus,” reported Kothe, “and we see it is a transversal across all 3 areas of our business.” In addition to all of the above SWIFT will continue to develop its software and connectivity offering, with a focus on AMH, Lite2 and Integration services, and its shared services offering, with a specific focus on financial crime compliance as well as on products such as SWIFTRef and Business Intelligence (BI).
After Kothe’s presentation, he was joined on stage by Pouna, for a conversation on how SWIFT’s strategy aligns Ukraine’s ambitions for the development of its financial market, and how SWIFT can support it in this process. Specific areas explored in this context were: the security, stability and resiliency of the core platform; the constant evolution of SWIFT’s offering for corporates; the focus on supporting market infrastructures as a key segment, especially with regards to ISO 20022; the compliance services roadmap; the global payments innovation initiative (gpii) that aims to significantly improve correspondent banking service levels and SWIFT’s exploratory work with distributed ledger technology (DLT).
The community case for adopting the ISO 20022 standard
With more than 200 ISO 20022 initiatives underway around the world, momentum is strong and there is great appetite for more information on how the benefits being harnessed by payments and securities market infrastructures, what tools are required to migrate to 20022, and what the challenges are of ensuring harmonised implementation and industry-wide interoperability. To brief participants on this topic were Volodymyr Nagornjuk, Head of IT, National Bank of Ukraine, Anastasiia Sushchenko, Custody Sales & Relationship Management, Raiffeisen Bank Aval and Yuri Vlasenko, Board Member, National Depository of Ukraine, who each presented their viewpoint on ISO 20022 and then participated in a panel discussion moderated by Patrik Neutjens, ISO 20022 Program Director, SWIFT. The panelists discussed adoption trends and the main drivers behind implementation, namely MIs, regulation and corporates. The latest “new joiner” announced Neutjens, is FED/CHIPS, which will be migrating from its legacy format to ISO20022 for high-value payments.
Nagorjuk talked about the legacy of 20 years of SEP & SEP2, the future implementation of SEP3 and explained how the National Bank of Ukraine is looking at the applicability of ISO 20022 and what the related impact and benefits could be for the community. He compared the implementation of ISO 20022 with the implementation at the time of the IP/Protocol as a common basis for international communication and said that given the size of the project, implementation is expected to take 3-5 years. Sushenko gave the viewpoint of a custodian and talked about ISO 20022 as one of the tools needed to make the market place relevant for international investors and hence increase the increase number of transactions on the market, with a focus on STP and on eliminating the risks that are inherent to manual processing.
Vlasenko confirmed the low levels of market activity in Ukraine and explained that work is underway to pave the way for standardization via the Securities Market Practice Group (SMPG), on the back of new settlement system. He also stressed the importance of tolls such as MyStandards to manage the complexity that can arise from having of different versions of the same standard, for example. Neutjens explained that the business case for ISO 20022 is difficult to see if you only look at it as like-for-like but that the standard does offer vast opportunities. With regards to migration concerns, he mentioned that the choice of whether to go for a “big bang” approach or an incremental, phased implementation is always a big question and that what is essential to the success of any ISO 20022 implementation is that there is a community approach and that impacted parties are involved in the project from the outset. Fragmentation is another area of concern, and one that has arisen as ISO 200022 has gained momentum and the number of projects has increased. The consequence is the creation of the harmonization charter that Ukraine has also signed and that will encourage best practice.
In the panel discussion that ensued, Nagorjuk expressed the view that awareness and the buy-in of the community is key, but that the community can build on the high levels of education and the talent of “programmers that can make magic happen.” There is also a need to prepare the community to leave their comfort zone and become happy travelers on the ISO 20022 journey, he said. Sushchenko stressed the need for additional contributors to the discussion at the SMPG, in which only 6 banks are currently involved. “You cannot create a masterpiece without gifted artists willing to contribute to its creation,” he said. In closing, Vlasenko encouraged the market to engage, get behind the standard and adopt a community approach to its implementation. “Let’s not spend 7 years on this like we did for introducing the IBAN,” he concluded.
New opportunities with SWIFT in the corporate to bank space
To speak about SWIFT’s offering for Corporates, was Sebastian Niemeyer, Senior Sales Manager Corporates, SWIFT. Niemeyer explained that Corporates have had access to SWIFT since 1998, and its tailored services for corporates have expanded ever since. SWIFT supports Corporate Treasurers and CFOs in their efforts to improve the security, reliability and efficiency of all of their financial operations. Corporates’ financial activities are affected by a range of growing challenges – not least, tighter bank capital regulations which are making funding more expensive and liquidity increasingly precious. They are also increasingly focused on the security of their financial operations. SWIFT provides an attractive, cost effective, standardised, bank and vendor-agnostic capability to help drive down costs; our solutions give treasurers global visibility on their cash and liquidity, and increase corporate control and security, whilst streamlining day-to-day treasury and trade operations.
Today SWIFT is proud to have nearly 1600 corporate groups on its network, communicating with over 2600 banks worldwide. “These companies are not all large players,” stated Niemeyer. “We have 400 corporates, representing approximately 255 of the corporates on SWIFT, with turnovers of less than 500 million USD p.a.” The reason for this is that much lowered entry barriers with Lite 2 and Lite 2 for Business Applications have enabled wide-spread penetration of ISO20022 beyond SEPA and the Common Global Implementation group. Alliance Lite2 connects corporates to their banks via the SWIFT Community Cloud. It is aimed at those who want all the benefits of a cloud-based solution and prefer a direct SWIFT connection to their counterparties – whether that’s for processing 10,000 messages a day or a few transactions per month. Alliance Lite2 for Business Applications (L2BA) is a cloud solution enabling treasury software providers to combine their own software with SWIFT connectivity in a single package. L2BA can therefore offer corporates bank-agnostic solutions, enabling connectivity to thousands of financial institutions around the world.
As a result of the above developments, the adoption rate of new corporates being connected to SWIFT has gone from 12 p.a. to around 60 per quarter. With the Bank Readiness Programme, banks can also promote their capabilities for corporates. With regards to the specific requirements and legislation in Ukraine, Niemeyer explained that local requirements can be fully accommodated with both FileAct and Alliance Lite2. So there are no longer any barriers to entry for Ukranian corporates, there is a full portfolio of products and services at affordable price waiting for them and now, all that is needed is for the first Ukranian corporate to connect.
SWIFT in Compliance
The last topic on the day’s agenda was SWIFT’s solutions for financial crime compliance, presented by Julien Laurent, Head of Compliance Solutions CEE, SWIFT. Laurent started off by explaining why investing in financial crime compliance solutions is important to SWIFT. “It is relevant to every single SWIFT member,” he stated. “There is no single user that is not impacted. It’s a truly universal topic that costs a lot of money but gives no competitive advantage. So there’s a lot of duplication for what are universal challenges and there is a huge opportunity to build economies of scale. It’s a community issue calling for a universal solution.” He went over the main concerns that SWIFT hears from regulators and banks, and the reasons why, in a world in which financial crime is on the increase, where the costs of compliance are becoming prohibitive, complexity is growing, and regulators are becoming more and more demanding, a paradigm shift is needed. A shift that significantly increases efficiency and lowers costs, but not at the price of increased risk. This tipping point for utilities, said Laurent, is also recognised by the regulators, who seem to be open to such an approach.
After going over the main features, benefits and adoption levels for each of SWIFT’s current financial crime compliance solutions – Sanctions Screening, Sanctions Testing, The KYC Registry and Compliance Analytics – he explained that the objective is to build three central utilities that offer a comprehensive service offering for all SWIFT users, both large and small. The aim is for the systems talk to each other and learn from each other, by design. As he drew his presentation to a close, Laurent gave a brief overview of the three new services that will be launched in 2016. List Management, due to be launched in September, will offer a sanctions list distribution and management service, also allowing banks to manage sanctions, PEP and private lists. Payments Data Quality, an advanced reporting and data analytics service to help financial institutions comply with new international requirements for originator and beneficiary information in payments messages (FATF 16) will also be launched in September. Lastly, in December, SWIFT will launch Name Screening, an online portal for checking individual names against sanctions and PEP lists.
In his closing remarks, Michael Formann, Head of Central Europe, SWIFT, gave a summary of the day and went on to say a few words about SWIFT’s Corporate Social Responsibility (CSR) programme, within the framework of which, SWIFT sponsors a cause for each EMEA event. For the SWIFT Business Forum 2016 in Kiev, a EUR 3,000 donation was made to the SOS Children’s Village Luhansk. Closing the day, Formann and Pouna thanked everybody for their attendance, participation and contribution and expressed the hope that this business forum in Kiev was the first of many.