Cyber security, compliance and cross-border payments top agenda at Business Forum Switzerland
Swiss financial community gathers to discuss and shape the future of our industry
Over 200 members of the Swiss financial community gathered on the morning of 7 March 2017 at the Papiersaal in Sihlcity, Zurich for the SWIFT Business Forum Switzerland. The programme for the event looked at the disruption and rejuvenation of correspondent banking, financial crime compliance, the Swiss Fintech landscape, progress made with distributed ledger technology (DLT) and the challenges posed by cyber threats.
Opening the event, Cristina Rigo, Head of SWIFT Switzerland, welcomed the audience to the biggest Business Forum Switzerland to date, and talked about the changes that have taken place in our industry over the last year, the most prominent of which is a noticeable move “from talking to doing.” After running through the programme for the day, Rigo encouraged participants to make the most of the event to share information, experiences and progress with their peers and the industry experts present. She then went on to introduce the first two speakers of the day, Alain Raes, Chief Executive, Asia Pacific and EMEA, SWIFT and Ulrich Stritzke, Managing Director, Credit Suisse, Switzerland and SWIFT board member.
Securing the future of our industry
In a panel discussion moderated by Rigo, Raes and Stritzke looked at the series of disruptive forces that our industry continues to grapple with and discussed how SWIFT is adapting to this new environment and supporting its customers as they face today’s challenges and build for the future. Stritzke stated that increased regulation is clearly an ongoing trend, with compliance-driven initiatives seeking to protect the environment that we operate in. Technology is both a help and a hindrance in this context, he said. On one side, technological evolution helps the banks become more efficient and reduces operational costs, whilst on the other hand, cybercrime is on the rise and we need to protect our firms and customers from the ever present threat posed by cyber criminals. One area that has seen a lot of progress, he said, is the fintech scene, where we now see start- ups working in partnership with banks rather than seeking to compete with them. “We need the speedboats,” stated Stritzke. “We need the fast moving fintech firms to look at opportunities, then each bank needs to look at its own business model, see what fits and which partnerships could make sense.”
We need the fast moving fintech firms to look at opportunities, then each bank needs to look at its own business model, see what fits and which partnerships could make sense.
Ulrich Stritzke, Managing Director, Credit Suisse, Switzerland and SWIFT board member
Picking up on the points made by Stritzke on regulation, Raes spoke about the development of SWIFT’s Financial Crime Compliance portfolio and how it addresses an industry need. “SWIFT is at its best when working on collaborative solutions to common challenges,” he stated. “Financial crime compliance is clearly a challenge for the banks but the baseline for compliance is largely the same across the board. So we looked at where SWIFT could play a role, and where a utility that covers 212 countries and over 11,000 institutions could help.” Raes went on to say that solutions developed by the community, for the community also deliver great benefits in emerging markets, where a community can leapfrog to a best in class utility solution that has become an industry standard. Stritzke added that another major benefit of this approach is the fairness of it. “When you use a SWIFT utility, you pay for your part and your usage,“ he said. “You don’t have to pay for building your own.”
SWIFT is at its best when working on collaborative solutions to common challenges. Financial crime compliance is clearly a common challenge for banks.
Alain Raes, Chief Executive, Asia Pacific and EMEA, SWIFT
Lastly, Raes and Strizke discussed the challenges posed by cyber threats and the steps that SWIFT is taking to increase cyber security across the industry through the Customer Security Programme, which will set a single security standard for all institutions across the globe wishing to access the SWIFT network.
Reinforcing the security of the global banking system
Picking up where Raes left off, Christian Kothe, Head of Central and Eastern Europe, SWIFT delivered a presentation on SWIFT’s Customer Security Programme (CSP), the objective of which is to set a single security standard for the SWIFT community worldwide, improve information sharing throughout the community, enhance SWIFT-related tools for customers and provide audit frameworks. “While all SWIFT customers are individually responsible for the security of their own environments, a concerted, industry-wide effort is required to strengthen end-point security,” said Kothe. He went on to explain that SWIFT is further strengthening security requirements for interfaces, tools and software (including those from third-parties) to better protect local environments and continue efforts to harden SWIFT-provided products. Having already issued a number of enhancements over the past year, further enhancements will be implemented in Access release 7.2 and AMH 3.6, both of which will be available in Q2 2017. The cooperative is also focusing on the enforcement of mandatory updates.
While all SWIFT customers are individually responsible for the security of their own environments, a concerted, industry-wide effort is required to strengthen end-point security.
Christian Kothe, Head of Central and Eastern Europe, SWIFT
The CSP is articulated around three mutually reinforcing areas. Customers first need to secure and protect their local environment (You), prevent and detect fraud in their commercial relationships (Your counterparts) and continuously share information and prepare against future cyber threats in collaboration with others (Your community). Actions on the programme include the introduction of mandatory security controls, new services to help prevent and detect fraudulent activity, and community-wide information sharing initiatives. Currently the security controls are being fine-tuned based on community feedback and the Security Control Framework will be formally introduced in April 2017. The mandatory security controls will apply to all SWIFT customers, and all customers must self-attest their level of compliance with the mandatory controls by end of 2017.
Throughout 2017, SWIFT will be inviting customers to join dedicated customer security work sessions in their local markets hosted by SWIFT to help support and prepare customers for this process. On 20 February, an information session was held in Liechtenstein, followed by an information session for Service Bureaus on 13 March. The CSP Roadshow Geneva is scheduled to take place on 18 May, whilst the CSP Roadshow Zürich will be held on 30 May. “Please send the right people to these roadshows,” encouraged Kothe.
Financial Crime Compliance – coping with today’s challenges
Next on the agenda was a session on financial crime compliance. Remaining compliant with ever-changing financial crime regulation is challenging and expensive and is not an easy task. You have to comply promptly and accurately with challenging regulatory requirements across multiple jurisdictions. As a result, compliance-related costs are increasing and require more internal resources. You’re charged with detecting illicit activity wherever it occurs. But you also have to keep control of costs and deliver unparalleled customer service. In this session, we heard from Ian Horobin, Head of Compliance Innovation & Services, SWIFT and Daniel Fernandez, MLaw, VP FCC, Global Sanctions Programs, Credit Suisse AG, about the compliance challenges that banks face today, and how they are preparing for the future. The two discussed the changes that have come about in the compliance area over the past five to ten years, and the extent to which the challenge has changed.
Collaboration is the future but we do not yet have the infrastructure yet for enabling firms to profit from shared information.
Daniel Fernandez, MLaw, VP FCC, Global Sanctions Programs, Credit Suisse AG
When asked whether the raising of the bar is likely to carry on, Fernandez replied that he is not sure if compliance can get any more complex than it is now. He went on to explain that the transformation of IT systems is a major challenge that also brings high risks. So whilst banks need to be able to do business cheaper and more efficiently, with more effective controls, the journey to get there is not an easy one and the risks involved in system changes are high. Sanctions screening has nonetheless been highlighted by banks as one key area where technology can help. As part of their research and development for the future, Fernandez explained that Credit Suisse is looking at machine learning, robotics and artificial intelligence and how they can help us to define patterns in payments. He also stressed the case for more collaboration between banks. “Collaboration is the future but we do not yet have the infrastructure yet for enabling firms to profit from shared information,” he concluded.
Fostering innovation through collaboration
To talk about what is going on in the Swiss Fintech scene today and what lies in store for the future was Andrea Iten, Managing Director SIX, CIO Financial Information & Corporate Functions and Co-Founder and Board Member of F10 FinTech Incubator & Accelerator. Iten delivered a highly engaging and dynamic presentation that started with an explanation of what fintech is, the areas that it seeks to address and the types of new technology that are emerging. He went on to say that whilst Switzerland is ranked as a world leader in innovation, with great capabilities for invention, world-class research institutes, high investment by multinationals and highly skilled employees, the enterpreneurial conditions in Switzerland are not paying off and the country is far from first place in fintech. This can be attributed, said Iten, to the fact that the Swiss fintech ecosystem is growing too slowly, and too many initiatives are fighting regulatory constraints but do not foster real innovation.
To address these challenges, SIX group has set itself the target of strengthening the FinTech scene in Switzerland and, in doing so, helping the financial center continue to move forward. “SIX recognizes relevant technologies and makes them usable as quickly as possible. We develop innovative solutions in collaboration with our clients,” says the group in its fintech mission statement. In early March, the SIX Hackathon 2017 brought together coders, entrepreneurs and creative thinkers for a full weekend hackathon. Alongside PWC, Julius Bär, Generali, Baloise group and Eny Finance, SIX is also a corporate member of the F10 FinTech Incubator & Accelerator. F10’s ambition is to deliver ten promising start-ups that will benefit the future of the Swiss financial industry.
SWIFT’s Financial Crime Compliance portfolio and roadmap
SWIFT’s product portfolio for financial compliance was presented by Thomas Preston, Sanctions and AML Solutions Manager, SWIFT who described the series of solutions that SWIFT has developed to increase compliance standardisation and efficiency while better managing related cost and risk.
Starting with the Screening Solutions, Preston explained that Name Screening is SWIFT’s new on-line portal for checking individual names against sanctions, PEP and other lists, whilst Sanctions Screening is a hosted transaction screening solution for cost-effective compliance with sanctions regulations and Sanctions Testing offers customers a solution to maximise the effectiveness and efficiency of their sanctions environment. On the analytics front, SWIFT currently offers three solutions: Compliance Analytics, which Provides enhanced understanding & management of financial crime-related risk; Payments Data Quality, a post-fact reporting tool to help banks identify and address possible violations of FATF Recommendation 16 and Daily Validation Reports, a hosted solution providing secondary control for improved visibility on payment activity and fraud risks. Last but not least, came SWIFT’s KYC solution, The KYC Registry, a utility that allows financial institutions to exchange KYC information securely with their correspondent banks. SWIFT’s ambition in the financial crime compliance area, said Preston, is to further expand its financial crime compliance product portfolio to build a compliance utility that will help banks to meet their ever-growing compliance challenges.
Delivering the future of cross-border payments
The first panel session of the afternoon focused on SWIFT’s global payments innovation (gpi) initiative. To discuss the topic were Natalia Blatter, Product & Market Development, Corporate & Institutional Clients, UBS Switzerland AG, Paula Roels, Head of Market Infrastructure & Industry Initiatives, Institutional Cash Management, Deutsche Bank, Martin Schlageter, Head of Treasury Operations, Roche and Stanley Wachs, Head of Bank and Corporate engagement, SWIFT gpi, who moderated the discussion.
SWIFT gpi was launched in December 2015 to deliver a better customer payment experience. In the traditional correspondent banking model, payments are slow and can take multiple days. Furthermore, there is no transparency on costs, on time (when the payment will be received) and no confirmation of credit. SWIFT gpi aims to address all of these challenges and deliver same day use of funds, transparency of fees, end-to-end payments tracking and the transfer of unaltered remittance information.
Now, more than one year on, the initiative has close to 100 participating banks covering 224 countries and 12 banks currently live with payments across 60 country corridors. The first phase of SWIFT gpi, which is now live, focuses on business-to-business payments, helping corporates grow their international business, improve supplier relationships, and achieve greater treasury efficiencies. Thousands of cross-border payments are today being sent using this new standard, bringing immediate benefits to gpi banks and their corporate customers.
Speaking about the extent of the industry support for the initiative, Roels stated that it is the first time that she has seen such widespread support and such a sense of urgency. “Time to market is quick because we have a real problem with cross-border payments,” she stated. “We now have the pressure of corporates who want a better service, alternatives cropping up and regulators pushing for change. Sibos 2015 was a turning point. The banks decided that something had to be done. We want to deliver on our customers’ expectations and increase efficiency.” Adding to the points made by Roels, Blatter said that her bank didn’t feel that it could afford not to join. “And it was a very good decision,” she went on to say. “It has allowed us to help shape the initiative. It’s a change that is not only about technology but more fundamentally about how we do business and about changing market practices. We can see many opportunities down the line.”
Sibos 2015 was a turning point. The banks decided that something had to be done. We want to deliver on our customers’ expectations and increase efficiency.
Paula Roels, Head of Market Infrastructure & Industry Initiatives, Institutional Cash Management, Deutsche Bank
The service has been well received by corporates that have been long frustrated by the deficiencies in cross-border payments. Schlageter explained that “the cross-border payments process is like a black box. But these are more than just payments, they are an important part of the global supply chain. If that payment does not get through, the product does not get shipped.” Schlageter also stated that SWIFT gpi is a major improvement that meets the needs of corporates, who appreciate the partnership that they have with their banks and SWIFT and “won’t just jump on the next start-up to save some banking fees.”
It’s a change that is not only about technology but more fundamentally about how we do business and about changing market practices. We can see many opportunities down the line.
Natalia Blatter, Product & Market Development, Corporate & Institutional Clients, UBS Switzerland AG
Roels praised SWIFT for the extensive support that it has given the banks, through regular workshops and constant consultation. Lastly, Blatter stated that “each bank needs to think not about if they will join SWIFT gpi, but when.”
The second phase of SWIFT gpi will enable the digital transformation of cross-border payments, by allowing banks to immediately stop a payment, transfer rich payment data along with the payment, and use an international payment assistant to further increase the straight-through-processing rate of cross-border payments, at origination. For its third phase, SWIFT gpi is already exploring the potential of using new technologies such as distributed ledger technology, in the cross-border payments process.
We won’t just jump on the next start-up to save some banking fees.
Martin Schlageter, Head of Treasury Operations, Roche
SWIFT and Blockchain – threat or opportunity?
Damien Vanderveken, Head of R&D, Labs and UX, SWIFT talked to the audience about the work that SWIFT has been doing with Distributed Ledger Technology (DLT) and what the next steps are. While the potential of DLT is undeniable there is still some progress that needs to be made for the technology to be viable for financial institutions, said Vanderveken. He pointed to the need for more governance, an identity framework, compliance with anti-money laundering rules, scalability and cyber defence as some of the key requirements for DLT to be used over the SWIFT network.
While 2016 involved working with a number of SWIFT customers and start-ups on the viability of DLT, 2017 will be about developing proof of concepts via a cloud-based, DLT sandbox, he went on to explain. The first use case will be for gpi. “It is all about assessing new technology,” said Vanderveken. “It will be some time before the technology becomes available but it is important to start the process now.”
The SWIFT gpi DLT project is looking into the use of DLT for nostro reconciliation. The technology will be used to provide a real-time view on liquidity, rather than end-of-day, using a ledger shared between the bank owning the nostro account and the correspondent bank servicing it.
A PoC group composed of a few gpi member banks has already started work on how the service will be built and what will be stored on the ledger. Development will then start with the aim of having a PoC finished by September and written up in time to be launched at Sibos in October2017.
An update on international regulatory developments
In the last session of the day, Michael Manz, Deputy Head of Multilateral Affairs Division State Secretariat for International Financial Matters, delivered a presentation on the international regulatory landscape, with a focus on correspondent banking. He started by giving an overview of the various standard-setting and coordination bodies, before going on to explain the overarching trends and the current topics on the FSB agenda. Amongst these, he singled out correspondent banking and LEI, the Legal Entity Identifier. Manz explained the challenges that are posed by the de-risking trend in correspondent banking relationships, which has led to a decline in the number of correspondent banking relationships worldwide. In its role as coordinator of the G20 correspondent banking group, the FSB is responsible for four workstreams, covering data collection and analysis; clarifying regulatory expectations; domestic capacity-building in jurisdictions that are home to affected local banks and strengthening tools for due diligence by correspondent banks. As the last topic in his presentation, Manz talked about the uses for the LEI, namely in BIC-to-LEI mapping and for use on an optional basis in payment messages.
Wrapping it up
Closing the day, Rigo thanked speakers and delegates for their participation and contribution and invited everyone to a networking cocktail, during which the demo zone remained open and attendees could continue to browse the various SWIFT solutions on show.