With the 7,500 delegates from the Sibos 2013 trade show in Dubai, UAE, now back home and hopefully recovered from their exertions last week, Neil Ainger reviews some of the major themes and discussion points revealed by the bobsguide daily show report. This summary covers everything from the obvious anger at the regulatory burden being placed upon banks, to the related desire for more shared services collaboration to reduce operational costs and free up at least some budget for innovative technology investment. The TARGET2Securities (T2S) single euro securities settlement engine, due to start in Europe in 2015, was also a major theme at last week’s show alongside all the other market infrastructure changes that are underway across the payments, capital markets, clearing and other industry sectors.
Sometimes an oasis of hope can spring up from the desert or a port city on the edge of endless sands can take land back from the interior as Dubai in the United Arab Emirates (UAE) has done. Some of the 7,500 attendees at SWIFT’s Sibos 2013 trade show at the Dubai World Trade Centre (DWTC) venue last week were obviously hoping that they could escape the regulatory desert and find some technology investment money from somewhere to fight off the disintermediation threat and protect their ‘land’ from newcomer banks and tech firms such as PayPal.
Comments such as “we are a bank and we have to earn money”, and “it’s ridiculous, we’re here to do business and not regulate others … we are not gatekeepers” were heard during the question and answer session of the opening Compliance Forum debate at Sibos 2013 entitled ‘Regulatory evolution: Where are we today?’, which channelled a lot of anger and focused in on sanctions screening and anti-money laundering (AML) obligations, among much else. The lack of regulation against newcomers in the payments and banking world was a source of frustration for many of the bank employees in the room as it creates an unequal playing field, with more regulatory costs and obligations heaped on banks in comparison to newcomers. It’s the price the industry is paying, however, for its recklessness prior to the collapse of Lehman Brothers’ five years ago.
Some of those newcomers to the industry were present in the Innotribe stream at Sibos 2013 showcasing potentially disruptive technologies and business models to the financial services industry – exemplified by Klick Ex and Waratek, the respective winners of the Innotribe Startup and Innovator Challenge. Klick Ex is a peer-to-peer (P2P) currency exchange based out of New Zealand that is seeking to disrupt the market by utilising web-based technologies. Waratek is based in Dublin in Ireland and is a Java virtualisation innovator that is seeking to bring the infrastructure efficiencies and flexibility of the virtualised world to as many people as possible.
Of course, small start-ups such as this can be bought out and co-opted by traditional banks thereby negating the disintermediation threat. Bank-employed technologists, CIOs, CTOs and infrastructure managers have enough worries on their plate already in terms of ‘keeping the lights on’ operationally with sometimes old legacy systems that are expensive to run, especially when new regulatory reporting demands are being placed upon them – without having to worry about where future revenue streams are going to come from.
Sourcing future revenue streams cannot be ignored, however, and this was a topic much discussed at the excellent Technology Forum at Sibos 2013, which looked at big data, the cloud and other tech-related subjects in Dubai. As one of the keynote speakers, Suresh Kumar, chief information officer (CIO) at BNY Mellon, said: “Regulatory spend is increasing for us too … every year, though, BNY Mellon tries to shift 5% of our budget from ‘keeping the lights on’ to innovation projects.” He acknowledged the need for banks to cater for revolutionary technology, which consumers and clients used to Apple, Google and other innovative products have come to expect from their banks, and this is a growing realisation among banks.
Freeing up technology budget for innovation is helped by cutting the cost of running existing bank infrastructures and this can be achieved by hiving off non-proprietary unprofitable systems, such as sanctions screening and Know Your Customer (KYC) obligations, to a shared services platform. This need to cut costs by collaborating was another key theme at Sibos 2013 and the organisers SWIFT indicated a shared KYC platform from them could help. Not all of the exhibiting companies at the show would perhaps welcome this development, as there will be less business with each individual bank if such a platform exists – this was made plain in the concluding bobsguide Vox Pops from the exhibition floor final day report.
Nevertheless collaboration to reduce cost is a fact of life for the FS sector at the moment as the regulatory burden increases. This trend is only going to grow and grow.
According to Yawar Shah, SWIFT’s chair, addressing the Sibos 2013 opening plenary, last year’s shared sanctions screening service was only “a toe in the water” and the organisation has an “ambitious roadmap” to help out in the AML and KYC arenas. While acknowledging SWIFT has to be mindful of its member banks and remember its “true north” as a collective that must serve others, Shah still outlined a future whereby the organisation that was originally set up to automate cross-border payments messaging traffic, which has diversified into handling securities traffic, will in future handle compliance and regulatory reporting traffic.
Payments: Breakfast Briefing and World Payments Report
Messaging standardisation and payments are the foundation of SWIFT and still big topics at its Sibos trade show. The changing payments arena was illustrated by the World Payments Report 2013, which was released at the show and predicted that non-cash payment volumes will top 333bn transactions once last year’s data is fully assessed.
The growth in non-cash payments, still a minority of total payments, is being driven by traditional credit, debit and prepaid cards, although online and mobile payments are making an increasingly large contribution to transaction banking volumes. The mobile channel represents a future growth avenue for those banks that seize it. Barclays unveiled its latest Pingit apps at Sibos and is one player intent on seizing upon the opportunities in this space before other non-traditional players do so.
Matt Brown, Barclays’ head of payments processing, implicitly acknowledged the disintermediation threat, when telling the breakfast meeting arranged by the core banking technology vendor Temenos on Tuesday 17 September, that time to market is important. “Banks have to be quicker and more innovative,” he said. “In the past traditional non-browser based systems have been slow and inflexible, but this is going to change. We’re going to invest quite heavily to change it.”
The industry-wide investment in new real-time payments systems across various regions to meet the threat from new players, and offer new services to consumer and corporate clients, is another clear trend to emerge from Sibos 2013, as is the mobile investments of Barclays’ and others.
As Peter Stuit, vice president of T24 payments at ABN Amro [with his title showing his close relationship with the organisers of the breakfast briefing Temenos -Ed.], said in Dubai: “We are very keen to keep systems flexible so we can comply with new regulations and launch new product more easily and quickly.”
T2S Infrastructure Overhaul Hoves Into View
The TARGET2Securities (T2S) single euro securities settlement engine, due to start in Europe in 2015, was also a major theme at last week’s show alongside all the other Market Infrastructure Forum changes that were discussed at Sibos 2013. The move towards a centralised repository, clearing, and common legal entity identifiers (LEIs) for the changing over-the-counter (OTC) derivatives sector and other financial markets was a key talking point at the DWTC venue, alongside the European securities settlement harmonisation project.
T2S threatens to be the largest technology and business harmonisation change in Europe since the single euro payments area (SEPA) revolutionised the payments landscape. That long-running project is at last due to come to fruition on 1 February 2014 when the migration end date hits and, interestingly, it was not much discussed at this year’s Sibos. Perhaps everyone, including corporates, is ready for the start date - they should be - or perhaps attendees are just fed up talking about it after a decade of cross-border harmonisation discussions?
I once feared that T2S could take SEPA’s place as the next long-running European harmonisation row / project, but the initial reluctance of Euroclear, Clearstream and others has been overcome. Clear progress towards meeting the 2015 start date is now evident. It was also announced at the show that the international central securities depository (ICSD) operated by Clearstream would connect to T2S via SWIFT’s Value Added Network (VAN). Euroclear may well follow suit. Another ICSD SIX Securities Services announced its intention to use VAN at the show, following on from custody bank BNP Paribas’ earlier decision to do so, and the Portuguese ICSD Iberclear’s choice to use SWIFT for its T2S connectivity.
It had once been thought that big custody banks like BNP and ICSDs would offer their own direct connectivity option into the T2S single euro securities settlement engine, but the popularity of this idea is receding as the full cost of this model becomes clear. SWIFT’s VAN is therefore picking up customers and the rival 4-CentralBank-Network (4CBNet) operated by Colt and SIA will no doubt hope to do as well.
Conclusions: Sibos Trends
The key takeaways from the desert, evident from the Sibos 2013 presentations, debates and exhibition floor in Dubai can perhaps best be summed up as:
- Regulation: Anger over the regulatory burden now hitting FS providers, as the Pittsburgh G20 stipulations and tighter consumer and financial crime regulations come into effect.
- Collaboration: A trend towards shared services technology collaboration in order to meet regulatory obligations, such as KYC, at a cheaper cost is evident.
- Disintermediation: Collaboration in non-proprietary areas also reduces the threat of disintermediation as it potentially cuts operational costs for banks and allows them to free up budget to invest in new technologies and products before others do. The cloud and big data can also help banks cut costs and better understand their customer to fight off the growing disintermediation threat that was discussed at Sibos 2013.
- TARGET2Securities: T2S is coming and now the rows about its implementation are over, the time for delivery has arrived.
The next Sibos trade show will take place in Boston, US, on 29 September to 2 October 2014, at the Boston Convention and Exhibition Center, which has previously hosted the event. bobsguide looks forward to seeing you then and reporting on another stimulating show.
• The bobsguide daily show reports from Sibos 2013 in Dubai, UAE, 16-19 September, can be seen here – Day 1: Technology revolution or evolution; Day 2: Market Infrastructure Change and Corporate Forum; Day 3: Compliance Forum channels frustration at regulatory overload; Day 4: Africa and Middle-East focus, vox pops and tech winners. All preview material, subsequent interviews, blogs and opinions surrounding the show and other general technology trends can be seen via the bobsguide blog section, while the new bobsguide bloggers (aka contributing editors) is here.