German securities community gathers to discuss T2S, Compliance and Innovation
SWIFT Securities Day in Frankfurt brings together more than 180 securities professionals from across Germany.
Securities business experts from all over Germany were invited to attend this year’s SWIFT Securities Day on 23 March 2017 in Frankfurt. More than 180 participants from German banks and Asset Managers gathered at Commerzbank’s “Lateral Towers” to catch up on current securities business trends, discuss new developments and evolving technological innovation, and network with peers and partner organisations.
Michael Formann, Head of SWIFT Germany & Central Europe, thanked Commerzbank and especially Roland Kipper for kindly hosting the event and introduced the agenda. The morning sessions featured a panel discussion on T2S business developments today and tomorrow, an update on SWIFT’s growing portfolio of financial crime compliance services and a presentation on the Customer Security Programme (CSP), a focused effort to support the financial industry in the fight against cyber-attacks. The afternoon sessions were dedicated to innovation and included presentations on Distributed Ledger Technology (DLT) and block chain use cases and a panel discussion on what it will take for these technologies to be ready for wider implementation in the existing securities world.
T2S Development Today and Tomorrow
In his keynote speech, Dirk Schrade of Deutsche Bundesbank reviewed the development of T2S since July 2006. Transaction numbers have doubled following the migration of the 4th wave in February 2017. After this migration, which included the migration of the German securities market, T2S reached an average settlement value of almost 700bn Euros per day with 18 Central Securities Depositories (CSDs) and 175 DCAs participating. After the last wave goes live in September 2017, there will be 23 CSDs connected to the platform. In 2018, Denmark will be joining and with this the first non-Euro currency. Future improvements will include the usage of T2S multi-currency capabilities, the update of ISO 20022 standards and provision of money-policy only via CSDs, further harmonizing of the European emission process and increasing T2S cyber-resilience. The Eurosystem’s “Vision 2020” aims to achieve Target2/ T2S synergies, a European instant payments solution and a harmonized collateral management system.
In the panel discussion that followed Schrade’s speech, Katharina Tobiasch (Bundesbank), Britta Woernle (Deutsche Bank), Daniel Schäfer (HSBC Trinkaus), Guido Wille (Clearstream), Uwe Dreger (BNP Paribas), and Thomas Redelberger (SWIFT, Moderator) discussed the impact of the 4th T2S migration wave on the development of T2S business models and reflected on the changes to be expected in the back-office landscape. All panellists agreed that the migration process of wave 4 went very smoothly with only minor problems which were solved on the basis of experiences from previous waves. What still proves to be problematic is cross-border settlement. Improvement is expected to come from further harmonizing different business processes. Regarding the cash side, liquidity pooling into one DCA is seen as a great success bringing big advantages to the banks. T2S has brought greater alignment of the cash and securities side. But as costs have been rising generally, in addition to implementation costs, a lot of work remains to be done on harmonization issues to eliminate specialties that still exist in many markets. With regard to business models, partners in custody and settlement are looking for strategic possibilities, and banks are becoming increasingly flexible in developing and offering new service models around previously fragmented but now centralized processes.
SWIFT’s Financial Crime Compliance Utility and CSP
In the next presentation, Alexandra Raskin (SWIFT) introduced SWIFT’s community-inspired financial crime compliance solutions consolidated in three utilities, Screening, KYC, and Analytics/ AML which will be inter-connected towards an integrated Financial Crime Compliance Utility providing services across the customer life cycle. The Screening Utility comprises Sanctions & Name Screening, List Distribution and Sanctions Testing, while the KYC Utility consists of The KYC Registry and the RMA & RMA+ tool, which help clients to select counterparties and message types for their data exchange. The Analytics/AML Utility includes Compliance Analytics to enhance management of financial crime-related risk, the Payments Data Quality FATF16 tool supports banks in identifying originator and beneficiary field quality, and the new Daily Validation Reports tool provides secondary control for improved visibility on payment activity and fraud risks.
Christian Kothe (SWIFT) outlined SWIFT’s Customer Security Programme (CSP), which was announced in May 2016, and introduced following a security breach in a customer’s local environment. While SWIFT’s network and core messaging services have not been compromised to date, attackers managed to introduce malware into the banks’ environment in a well-organised and sophisticated way. As all SWIFT customers are individually responsible for the security of their own environments, SWIFT has set up the CSP to help customers reinforce the security of their SWIFT-related infrastructure in an industry-wide effort. The CSP Security Controls and Assurance Framework is applicable to all customers and the full end-to-end transaction chain beyond the SWIFT local infrastructure, comprising mandatory and advisory controls complemented by a self-attestation of customers to inform SWIFT of their compliance status. Independent third party inspection provides validation that the security requirements are met. Additional community support is secured via SWIFT CSP specialists and local experts as well as third-party providers.
Innovation – From Sandbox to Reality
The Innovation sessions in the afternoon were introduced by the presentation of Tobias Widmer and Sandro Schmidlin of Swiss based OnePM, a service provider offering a portfolio management system to any type of asset management institution. As the first SWIFT Alliance Lite 2 for Business Application Partner in the area of Portfolio Management Systems (PMS), OnePM introduced their all-in-one platform providing a managed SWIFT solution. Key features of their platform are not only a scalable solution (independent on the number of custodians) but also the highest possible automation in the front and back office as well as risk management and sophisticated reporting capabilities. One PM has clients based in EMEA as well as Asia Pacific. The panel discussion that followed was opened by three DLT & block chain use case presentations. A joint project of Bundesbank and Deutsche Börse, presented by Steffen Bruns (Bundesbank): “Delivery vs. Payment – transferring the existing securities processes into a Distributed Ledger Technology-World” is exploring a DLT prototype to fulfil all regulatory requirements and to find out about performance, scalability and costs of block chain-based applications as processing of several hundred transactions via block chain is unknown. Jonathan Ehrenfeld (SWIFT) presented SWIFT’s DLT Proof of Concept (PoC) project: “Bond life cycle on DLT”, working on ISO 20022-based transactions, i.e. “standardized SWIFT messages without sending a message” which can also be translated into small contracts, exploring different steps with different banks at various locations around the world. The project “Utility settlement coin (USC): What could this new digital cash mean for payments and settlements of securities in financial markets?” that has been initiated by the 4 leading banks UBS, Deutsche Bank, Santander and BNY Mellon was introduced by Edward Budd (Deutsche Bank). USC is envisaged as a series of digital cash instruments for major currencies, while the significant aspects of its design are focused on legal and market structuring of the digital cash instrument rather than technology.
Panellists Stefan Teis (Deutsche Börse), Steffen Bruns (Bundesbank), Edward Budd (Deutsche Bank), Jonathan Ehrenfeld (SWIFT), and Roland Kipper (Commerzbank, Moderator) had a lively discussion on the question: Why use it, and why should we go for DLT? They all agreed that “we always mean real money, no crypto-currencies.” Saving time, resources and budget on reconciliation seems to be the main driver, but processing has to be paid which will not make it less costly, though transparency could reduce frictional costs. A major improvement would also be that no big system has to be implemented with the new DLT technology but it does not liberate users from complying with the remaining regulatory framework - e.g. KYC - which means that developers must be aware of existing rules when designing DLT solutions, which is best achieved by having the regulators participate as partners within the sandbox. The change process could then be very similar to the T2S migration. When discussing business model change, one of the panellists reminded participants that possibly bigger things than DLT should not be missed out but also focused on, such as robo advice, artificial intelligence and others.
The last presentation of the day was “Innovation by Cooperation” by Matthias Lais of Main Incubator, a 100% Commerzbank Group subsidiary describing itself as an external power house that thinks and acts like a FinTech, a VC, and a company builder by “identifying, accompanying, and shaping trends”. The company’s activities as a trend-scout include promoting promising business ideas and financing start-ups, investing share capital and providing infrastructural support and access to new customers which in turn gives Commerzbank a broad overview of new market trends, quick access to innovative banking services and new solutions. Start-ups benefit from an existing network, share capital, expert know-how and leveraged business success which proved to be very helpful to a number of new technology companies in financial services since the inception of Main Incubator in 2014.
In his closing remarks, Christian Kothe thanked speakers and panellists for their contributions to a series of very interesting and informative sessions. With special regard to innovation, he mentioned that half of last year’s 13,9bn FinTech investments worldwide were made in China, counting on hundreds of millions of new clients. The final get-together offered a great networking opportunity which was welcomed by the guests of this year’s SWIFT Germany Securities Day.