By Abhishek Chatterjee for Finextra
Last year SIBOS was an inflection point for transaction bankers and FinTech, but this year in Geneva we saw a very measured response to key Industry challenges faced across the globe, starting from Cyber Security, Compliance to Robotic Advising, Industry Utilities, E2E Payment Traceability & interoperability and Blockchain.
The opening Plenary from SWIFT chairman and CEO set the tone of the event by highlighting key areas of focus:-
1. SWIFT emphasis on Customer security program (CSP)outlining 3 objectives.
- Secure environment – Segregate critical systems, Reduce attack of known, vulnerability, Physical security
- Know and limit access – Prevent compromise of credential, Manage identity and access of local infrastructure
- Detect and respond – Detect anomalous activities on system and transaction records, Plan for incident response and share information
2. Global payment initiative – enabling end to end treatability of payments
3. Financial crime compliance – Engage with each other through RMA and share data to reduce fraud, cybercrime, AML, Ops risks etc
4. Cost due to compliance (KYC, sanction, AML etc) through central Registry & analytics
Here are summary of topics discussed and debated extensively in the event:-
Cybersecurity: Catching the bad guy
Cyber-attacks are moving away from just shutting down servers or stealing identities to more damaging consequences like overriding financial information and copying of financial data. Cyber risk is becoming as important as credit risk, ops risk which need to me monitored and control on daily basis.
Key to prevent cybercrime is to collaborate and share information with FS community through SWIFT customer security program Or cyber defence alliance among bands; through law enforcement agencies like Europol; through central bank by making information sharing mandatory, creation of CISO forum, and defining cyber security guidelines & checklist for self-assessment.
Utilities – Building momentum (KYC, AML and beyond)
In recent years the Utility adoption is fuelled by availability of shared infrastructure, urgency to collaborate to avoid financial fraud and crimes, reduction in cost due to sharing of FS resources. Trends show non-competitive areas for banks where sharing of information make sense are gaining traction (KYC, Transaction monitoring etc).
SWIFT has already launched KYC registry in 2014 to allow KYC data sharing in controlled environment. HSBC also working on building utility to manage their AML, KYC processes. In future, interoperability and linkage between different Utilities will drive greater benefits and adoption.
Regulator takes a positive approach to innovation
Regulators are showing signs of qualified enthusiasm. FCA has recently called for industry input on developing and adopting RegTech. RegTech can benefit Industry in 4 ways:-
- information sharing and reporting (CLOUD, Shared Utility, Open platforms etc)
- Drive Efficiency by bridging the gap between intention and interpretation (Semantic Tech, shared data ontologies, API etc)
- Simplify and enhance data management (big data, Visualization, AI)
- Regulation and compliance process (Blockchain, biometric and system monitoring)
R3 financial innovation firm with over 50 participant financial institutions started to see regulators becoming active members and run different experiments. Also, FCA (UK regulator), enabling consultation process for startups to approve their Business model using its sandbox.
Payments Interoperability and traceability
Payments infrastructure transformation is a key issue to resolve if we have to achieve cross border real time payment. Interoperability across payment settlement, liquidity risk platforms, complexity around multi-currency settlements are key challenges to be addressed. Moreover, with the PSD2 regulation around the corner there will be increased competition in Payments initiation servicers from non-banks.
End to end traceability of payments has been a challenge for the industry for long. To address this challenge, SWIFT launched Global Payment Initiative (GPI) where end to end traceability of payments will be managed with a unique payments identifier. But, critiques say GPI is an iteration of exactly what Swift provides today with a marginal increase in speed for availability of funds on, making antiquated infrastructure that makes real-time settlement a challenge. In the other hand, Ripple had a very different view of the solution and signed up multiple banks community to improve payments processing through distributed financial technology. Ripple also, introduced multi-sign feature on its consensus ledger to improve security.
Future of Money
Ubiquitous exchange of money will be driven by simpler customer experience. For example, Mastercard showed NFC payments use cases through health band, ring and car keys. At the back office, reconciliation of money will be done through robotic process automation. For example, robotic process automation can solve the problem of management of pension fund for a large corporate, which requires coordination with 200 fund managers and reconciling and giving end of data positions of the account in real time.
Some of the foundational pillar of digital money will be IoT, API, AI and security as we move to the future.
FinTech Hubs – organized innovation
This year, the hype has settled down. And we are beginning to see emergence of different FinTech hubs across the Globe. Depending on the region the FinTech hubs have different sweet spots. For example, Swiss Fintech thrives on Robo-advising due to presence of large number of Private banking and wealth management firms. It was also important to notice that Government and regulators proactively engaging with regulatory through sandbox, guidance to help them thrive. FinTechEMEA is dominated by London (driving 43% funding), followed by Netherlands (21%), but there are concerns how the power base will shift post Brexit.
E&Y published a report on how FinTech is disrupting the capital market domain and how best to engage with them to extract most value. Deloitte also published reports on FinTech hub across the globe and ranked them based on ease of doing business.
Cognitive business and the future of financial services
IBM CEO Ginni Rometty and UBS CEO Sergio P. Ermotti had an interesting discussion abt cognitive business. Sergio, highlighted the need of data driven decision making in the middle and back office. There are 40K regulation alerts every year for a global bank and it’s almost impossible to be 100% compliant. He also made an important point that, banks are not technology companies and they should find there sweet spot in the banking value chain.
IBM’s view of the future is very interesting, according to Ginni – Digital is foundation but not destination. Adding Digital intelligence to Digital business makes it a Cognitive business. Some of the use cases could achieve high benefits in AML improvement monitor, Payments/Credit card fraud detection improvement etc. She thinks, what blockchain will do to transaction, internet did to information. IBM is actively participating in open source initiatives like hyper ledger. She also highlighted some of the work IBM is doing around blockchain use cases – Fx settlement (CLS with 5 Trillion USD every day), smart contracts (bank of Mitsubishi), KYC, Trade finance (BoA streamline the process).
Automation and efficiency – Robo Advisor and Blockchain
Gamifications and robo-Advisors are infiltrating the space of Wealth management. Initially designed to provide automated low cost retirement plan, robo advisors are getting personal. In US pioneers like WiseBanyan and Wealthfront have got early success in simple retirement planning including portfolio rebalancing. All large FS institutions like Vanguard, Fidelity and Charles Schwab are also joining the bandwagon. Rob advisor’s asset under management is 50 B USD. Important thing to notice is European market is less mature (managing 5%) and near future industry will follow hybrid model and its estimated to grow to 16.3T USD over next 9 years (source FT).
Use for Blockchain and its adoption has not moved beyond hype and industry is slowly finding the sweet spots like retail payments and consumer lending etc. Blockchain-based new business models could also emerge in trade finance, corporate lending and reference data. But, the biggest concern for adoption of blockchain are regulation, immature technology and clear immediate return on investment.
In summary, the SIBOS Geneva was event highlighting the need for improving consumer and customer protection and reduce the risk of core business. See you all in Toronto next year!!
Disclaimer: this view shared in this article is my personal view and not necessarily the view of the organization I work.
First appeared at Finextra