Show Report: Future of London as a Finance Centre and Treasury Impact of Regs Debated at SWIFT Forum

By Neil Ainger | 1 May 2013

The parlous state of the UK’s relationship with the EU, following the decision to go for an ‘in/out’ referendum and its implications for the future of London as financial centre were debated at the SWIFT Business Forum in London on 30 April, with the ex-deputy head of the Bank of England (BoE), John Gieve, calling for “diplomacy”. The afternoon’s ‘Transaction Banking and Corporates’ conference stream meanwhile focused on the corporate impacts of the new Basel III intraday liquidity requirements and the treasurer at Dyson, Anne Coughlan, warned that “keeping abreast of regulatory changes” like Basel III and the single euro payments area (SEPA) was down to treasurers, while she outlined the corporation’s plans to overhaul its cash management system and banking relationships by 2014.

The financial sector has to be watchful and diplomatic if it wants to retain any say over how its future is shaped by regulation, warned Sir John Gieve, the chairman of VocaLink and ex-deputy governor of the BofE at the opening address of SWIFT’s Business Forum in London. “What is really striking when you talk to people at Westminster is the level of anger there still is [about the 2008 crash and its consequences],” he warned, while outlining the future shape of FS regulation.

According to Gieve the general shape of the new regulatory environment is plain, even if some aspects are still “foggy” - higher bank capital ratios will be necessary in the future, for instance, and over-the-counter (OTC) trading will effectively move ‘on exchange’ with central counterparty (CCP) clearing enforced. The threat is that political pressure, emanating from public anger, could still lead to more direct action such as breaking up banks or enacting minimum lending levels now that it has become clear that the UK government’s funding for lending scheme (FLS) has largely failed.

Addressing one of the themes of the day at the SWIFT London Forum, which was if the UK capital can remain the world’s preeminent FS centre, Gieve warned that the country’s relationship with the European Union (EU) would be key.

“The EU may develop in a way that is unhelpful and it could drive business outside of Europe,” he warned, citing the Financial Transaction Tax (FTT) as an example of this trend and as an instance of the waning of UK influence over EU banking policy, which could threaten London’s position in future. The UK, “desperately needs to focus on diplomacy, win friends and keep the EU in-line with the broader international agenda; this is not a time for irritating our European partners.”

Fragmentation among global regulators was another danger, but this threatens the global economy, continued Gieve as he said he already saw signs of the “usual US exceptionalism and of Europe making some concessions on capital levels”.

Four main issues, each inter-related and addressed by Gieve in his speech, confront the industry at present:

• Regulation.
• Politics.
• Economics.
• Technology.

The latter technological driving force for change is adding the threat of disintermediation to banks, said Gieve. This combined with the regulatory / political and generally poor economic situation in the ‘West’ could lead to significant changes. He cited the derivatives markets as a product of technology changes, and the advent of high frequency trading (HFT) as an example of technology’s power.

“Standardisation and commoditisation, particularly in the back office,” will be the next big technology shift continued Gieve, alluding to another theme of the SWIFT Business Forum in London which was the need for collaboration. This plays into the general consolidation and globalisation trend and is part of the “duller, safer, less profitable” future that faces the industry.

Basel III: Intraday Liquidity
Intraday liquidity under the Basel III capital adequacy regime was also a topic of conversation at SWIFT’s Business Forum in London on 30 April with a session dedicated to this at 1.30-2.30 under the ‘Transaction Banking and Corporates’ afternoon conference stream. A panel consisting of Peter Lightfoot, head of positioning and collateral management for money markets at RBS and Ruth Wandhofer, global head of regulatory and market strategy at Citi, among others, debated the final release of the Basel III liquidity management framework in April, which the moderator Gary Manning, an independent consultant, explained has a 1 January 2015 implementation deadline and features seven new monitoring and reporting obligations.

The impact on correspondent banking nostro accounts, the movement of money around the global financial system, and if banks can afford to keep expensive global trade finance networks in place under these new rules, especially as they could encourage national protectionism, were all debated.

“If you look at the paper most of the requirements will fall to the local regulator,” said RBS’ Lightfoot. “I feel the regulators have a missed a chance to introduce global intraday liquidity requirements and consistency and simply ticked a box and passed it on. I also wanted to see thresholds, so not all currency trades or nostro accounts have to be reported all the time, but rather those actions that carry systemic risk.”

Citi’s Wandhofer was equally underwhelmed by the latest missive from the Basel Committee, saying she felt: “Personally disappointed after all the industry feedback that we’ve just got this 15 page framework back, which essentially says ‘here you go: have fun with your national regulator.”

Treasurer Speaks Out
Anne Coghlan, Dyson’s head of group treasury, speaking about the same Basel III issue at the next ‘Transaction Banking and Corporates’ SWIFT session, said the intraday liquidity debate was all very well but it was too bank-focused. For her it is all about the value of data and at the moment she simply wasn’t getting enough functionally rich, timely data for it to be useful to her treasury at Dyson - never mind receiving it in real-time.

“I just want the ability to intelligently interrogate data and if I can do it intraday that’d be great, but honestly at present I’d just like to be able to get my hands on any timely data. I feel that banks have a long way to go on this. I am not getting the kind of quick value-added data that’d be useful. I also don’t want pdfs that need re-keying,” she added.

Turning to the issue of regulatory challenges in general, Coghlan, said: “As a corporate you have a responsibility to keep abreast of regulatory changes. You’d be foolish to expect your bank to tell you how new regulations will impact you specifically. I am happy to talk to banks [about the changing landscape] but ultimately the responsibility lies with us as treasurers.”

“Basel III will definitely impact pricing and my ability to get funding,” continued Coghlan. “It’s just a fact of the environment at the moment and you have to deal with it.”

SEPA
In regard to SEPA I think treasurers need to ask themselves how urgent it is, cautioned Coghlan. “Obviously it is now only months away to the [1 February 2014] deadline so has to be looked at now, but from Dyson’s point of view we’ve been SEPA-compliant since 2010. This is only because we did a euro cash management project at that time, however, so it made sense to do it then. Otherwise we might have left it [compliance] until it becomes urgent as the deadline nears.”

By moving early Dyson can of course get some of the SEPA compliance benefits such as cutting the number of bank accounts it has across Europe for instance, added fellow panellist Richard Martin, head of cash management products at Barclays Bank. As Coghlan frankly demonstrated, however, SEPA is not necessarily as top of mind for corporates as it is for banks and others as treasurers know they can achieve quick compliance by moving to a vendor or bank white labelled solution and worry about integration challenges for later. Other treasury projects have probably taken priority up until now ahead of achieving SEPA compliance but this is slowly changing as the clock ticks down to 1 February 2014.

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