In his welcome address Jürgen Marstatt, Head of SWIFT Germany, heralded a dual first for the German SWIFT Community: the first SWIFT Business Forum taking place in Frankfurt and the first time that the SWIFT Germany AGM has been combined with a Business Forum.
Around 150 participants met at Commerzbank's Auditorium in Frankfurt on 30 April 2014, under the theme "Germany's financial landscape: Transforming regulatory challenges into opportunities," to discuss how the financial community can capitalise on the current wave of change and realize opportunities in the new regulatory landscape. Parallel to the one-hour AGM for invitees only, the remaining audience took the opportunity to hear, through short 15 minute presentations, about SWIFT's growing suite of Compliance Services, the SWIFTRef portfolio, the Consulting Services offering and MyStandards.
In his opening speech, our host Stephan Müller, Chair NMG SWIFT Germany and CIO, Commerzbank, highlighted last year's global economic developments which were characterised by a growth rate of 2.9%. Currently drivers are shifting to the Western economies, while former growth engine China now looks choked after exuberant investment, he said. Following the fading of national debt crises, the European economy is now on its way to recovery, and Germany is expected to increase its economic growth to 2% in 2014.
In Müller's view, the SEPA-Migration happened without friction, yet extending the transition period has been a wise decision, especially for the corporate community. Supported by the Bundesbank's SEPA Clearer and EBA STEP2 Clearing, the German SWIFT community contributed to a remarkable 50% increase in FileAct messaging last year thanks primarily to the decision to migrate the "garagen clearing" business on to EBA STEP2. Looking at the securities landscape, he commented that with T2S representing a major step in the right direction, market participants should now aim at establishing best practices prior to its go-live. Regarding EMIR, Müller mentioned various difficulties with the introduction of the LEI System but said that he expects positive effects through consistent global use. He expressed his appreciation for SWIFT's role in supporting its users, who are confronted with the challenges of continuously increasing regulatory demands. Drawing his presentation to a close, Müller showed SWIFT statistics that demonstrated, amongst other things, that Germany once again ranks #4 in global FIN traffic.
Next on the agenda was an update on SWIFT's latest achievements and current developments. To cover the topic were Gottfried Leibbrandt, CEO, SWIFT, Stephen Lomas, Managing Director, Head of Market Policy Global Transaction Banking, Deutsche Bank and SWIFT Board Member and Sabine Reifenberger, Editor of German "Finance" magazine who moderated the lively discussion. Opening the discussion, Lomas talked about the impact of the trends that have driven the banking business in the last year, highlighting the overwhelming amount of new European regulation coming into force that needs to be complied with (SEPA, T2S, EMIR, AIFMD, Basel 3...), all whilst data security and cybercrime remain at the top of the list of challenges globally. Leibbrandt took the opportunity to highlight SWIFT's business results in 2013 and its performance in the light of these trends: 2013 was "a very good year" regarding traffic & operations, he stated. FIN traffic grew by over 10%, closing just above the 5bn messages mark and SWIFT was once again able to implement a 20% price reduction. On the topic of renewed discussions around data privacy following the Snowden publications, he stated that SWIFT has no evidence of unauthorized access to its network. "Data protection is core to what we do and cyber security is part of our DNA," he went on to say.
Lomas nominated the SEPA migration as his bank's favorite project in 2013/2014, as 90% of all clients had been SEPA-ready in time. He commented that SEPA also exposed unexpected gaps in its journey to transform the market, but now stands as the "most modern and efficient payments system in Europe". According to Leibbrandt, one of the key achievements for SWIFT in 2013 was the widespread market endorsement for SWIFT's T2S VAN offering, which has so far captured a market share of approximately 85%, with further customers still signing sign up in 2014.
Responding to a question about how SWIFT is responding to the needs of its community in Germany, Lomas listed price reductions, easier access via Lite2 and a number of other cloud services and more which make the footprint of SWIFT infrastructure on customer premises lighter. He confirmed that SWIFT is making life a lot easier for customers with new targeted services such as MyStandards and SWIFTRef and is also helping them comply with regulation to lighten the burden.
Picking up on the compliance topic, Leibbrandt explained how SWIFT has responded to the global regulatory challenge that its customers face with the creation of a new compliance services business unit. Compliance Analytics, a new business intelligence tool in its compliance services suite, will help banks monitor and address financial crime risk, complementing SWIFT's existing Sanctions Screening and Sanctions Testing services as well as the KYC Registry that is expected to go live at the end of this year.
Lastly, the panel addressed the topics of the global economic shift from West to East and the challenges posed by operating in a world that has become more and more digital, and mobile - what has come to be known as industrial revolution 3.0. In his response, Leibbrandt confirmed that SWIFT's strategy reflects this shift with a major thrust into the Asia-Pacific region, ensuring that SWIFT captures opportunities in the East and keeps up with the growing business of its customers both Eastern and Western, in that region, all whilst never losing sight of the many other needs of its customers in the West. He also pointed out that SWIFT's traffic growth in 2013 was actually consistent across regions rather than depictive of a "shift," as such. Moving on to new technologies, he said that these are immensely beneficial to SWIFT and a key performance enabler, but that one must always be very wary of their key vulnerabilities, which must be identified and addressed, preferably in a collaborative rather than individual way.
The afternoon sessions kicked off with a panel discussion entitled "Regulation & Compliance - are we there yet?" To address the matter, Hubertus Kraehe, SWIFT, who moderated the panel, was joined on stage by Udo Braun, Bereichsvorstand Compliance, Commerzbank, Ulrich L. Göres, Global Head of AML & Financial Crime, Deutsche Bank, and Kai-Hendrik Friese, Global Head, Compliance Office, DZ Bank. The discussion started with an agreement on the fact that there is no common definition of the term "compliance" across financial institutions as of yet, but that a wide range of activities is covered by the respective officers, something that what also reflected in the various functional titles of the panelists. Originating from the need for staff to comply with the likes of insider trading regulations in the early 90s, securities and AML regulation compliance started as a service function of Legal departments and developed from being a mediator between law and compliance to becoming a "compliance framework department. " As Göres put it, a "city of 100,000" like Deutsche Bank, employs 1,000 people for compliance alone. As a consequence, given the massive increase in the cost of compliance, it is most likely that compliance solutions will increasingly be sourced elsewhere, rather than developed in-house. The sometimes controversial discussion closed with some interesting thoughts about ethical and cultural changes, asking for a definition of "our values" - offering the opinion that banks are still expected to deliver on performance expectations, but asking at which point high returns start to be considered as indecent.
The next following panel, entitled "Payment services beyond regulation" focused on the SEPA migration experience again and was addressed Martin Bellin, CEO, BELLIN, Markus Jörg, Director Cash Management, Hessische Landesbank, Michael Steinbach, CEO, Equens, Christian Westerhaus, Managing Director, Deutsche Bank, with and Matthias Schmudde, Head of Payment System Policy, Deutsche Bundesbank moderating the session. All panelists agreed that by the first end-date of 1 February 2014, the SEPA Migration had worked well despite minor problems, and most were of the view that the further extension of the transition period was not needed. Christian Westerhaus of Deutsche Bank claimed that more than 90% of eligible payments had been migrated, with 20 million SEPA transactions on one day showing very low return rates. Some of the panelists mentioned major difficulties with return processes, especially in some other EU countries that have run further behind in their SEPA preparations and are expected to need another couple of years to catch up. Rising costs due to parallel processing of SEPA and non-SEPA formats caused by the delays were also mentioned. An interesting fact contributed by one panelist was the current practice of major French banks, some of which get German banks to process their SEPA payments. Martin Bellin, as an advisor and service provider to many mid-market firms, shared his insights and experience with family entrepreneurs who had declared that they would not be joining because they saw no benefit and high costs. Among his clients now there is 90% consent that the extension period was absolutely necessary. Drawing the session to a close, one final statement made the point that SEPA is an evolutionary, not a revolutionary, development.
The last panel discussion of the day tackled the topic of "Recent developments in the German securities landscape - what do they mean for you, and how should you be preparing?" Panelists Roland Kipper, Director, Head of Section Transaction Services, Commerzbank, Dirk Loscher, Director, Securities Country Manager Germany, Citigroup, Götz Röhr, Direktor, Chief Administrative Officer, HSBC Trinkaus, Guido Wille, Executive VP Client Relations Europe & Americas, Clearstream, and Jochen Metzger, Director, Head of the Department Payments and Settlement Systems, Deutsche Bundesbank who moderated the discussion, went through the major changes TARGET2-Securities (T2S) will bring to the German market. T2S promises many improvements, including in areas such as liquidity and collateral management, but concerns were expressed that only the big market participants will benefit at the cost of smaller ones. Panelists agreed that the cash leg of securities settlement via the T2S dedicated cash account (DCA) will be a huge advantage as commercial money is much more expensive than central bank money. Furthermore, cost reduction through standardisation and harmonisation are expected from T2S, given that, like SEPA, it is an integration project. A further topic that cropped up in the course of the discussion included the future development of the securities market up until 2020. Panelists said that they expect "domestic sub-custody to be dead" while a regional "Euro Custody System" will be established. They also said that larger CSDs will "try to climb up the value chain" into global custody by taking over smaller ones but there will be no pan-European CSD until 2022/25.
In his final remarks Christian Kothe, Head of Central and Eastern Europe, SWIFT, described the first German Business Forum "a cool event", creating something new out of a regular AGM and making it a real community experience by including many more participants in the discussion of current topics and issues. At the end of the session, a donation of 5,000 Euros was handed over to the German SOS Children's Village Pfalz within the framework of the SWIFT Corporate Social Responsibility program where SWIFT sponsors a local charity for each event.
The day closed with networking drinks, also kindly offered by our hosts Commerzbank who made us all feel very welcome throughout the day and whose support was greatly appreciated by all.