Sibos Day 2: Does regulation drive innovation?

By Nicole Miskelly | 30 September 2014

One of the biggest challenges facing the banking industry is regulatory compliance. At Sibos 2014, a key topic up for discussion is ISO 20022 (the standard for financial service messaging). Banks often find it difficult to keep up with and implement regulatory changes, and at Sibos the general attitude is either for or against regulation. Some financial experts believe that the pressure from regulation is destroying the industry and others believe that regulatory pressure is good because it is forcing innovation.

According to Wim Raymaekers (Head of Banking and Treasury Markets, SWIFT) banks are looking for collaborative solutions to regulatory demands and regulation is often not clear. Raymaekers believes that there are three main banking trends being discussed at Sibos; cyptocurrencies, cross-border payments and intraday liquidity. “Later in the week, there is a talk that provides insights into the growth of cross border payments in both developed economies and emerging markets. Emerging markets are growing a lot faster that developed economies and the EMEA and North America still has the strongest growth in terms of payment volumes. When it come intraday liquidity, there is a huge opportunity for banks to provide liquidity services to their customers. SWIFT provides business intelligence and analytics tools that banks can use to compare themselves against the rest of the market. We also provide peer bench marketing to show banks how they fair against competitors.”

Are new entrants disrupting the financial services industry? According to Raymaekers, this discussion at the beginning of Sibos highlighted the impact that new entrants and new developments are having on the banking sector. He also questions whether new entrants are competitors or whether banks could collaborate with new entrants. Innotribe was launched by SWIFT in 2009, to bring together global innovators, investors, financial industry executives, strategists, banks’ operations and technology leaders willing to drive change in the financial service industry. On Wednesday 1st October at Sibos, Innotribe will be announcing their Start-up Challenge winner. According to Kevin Johnson (Innotribe Startup Challenge Manager at SWIFT) they are trying to find the best in fintech innovation and are looking for start-ups that can work collaboratively with banks. The Start-up challenge is a global competition which brings start-ups from all over the world. During Sibos there has been a lot of discussion about the need for financial institutions to focus on back office solutions and this year, Innotribe have received a lot of back office, cross-border payment and risk management solutions from start-ups. Johnson believes that Innotribe can help the industry to find common solutions to their problems. “We take start-ups through coaching sessions so that they can work with banks and many realise that they can provide solutions that banks can’t and this provides a great opportunity for innovation.”

Many banks have their own funds to invest in fintech innovation and on Thursday 2nd October at Sibos, Innotribe are asking six major banks (Citi, Santander, HSBS, Barclays, BVBA and Sparebank) what is motivating their desire for innovation, what they are looking for and what can they bring to the table. Johnson also states that they are noticing a shift towards core banking and wants to get the message across that innovation is no longer for just risk takers, everybody can benefit from innovation. Innotribe want to work more closely with the banking industry to provide solutions to the challenges they are facing.

David Hennah (Head of Trade Finance, Misys) believes that there are some market trends that are challenging the financial sector, which include regulatory compliance and globalisation. 

  • Regulatory compliance: Some people believe that regulation is having a negative impact on the industry because it is increasing costs of compliance, whereas others would argue that it is having a positive effect because it is serving to accelerate innovation, the demand for and the development of next generation supply chain or bank assisted open account solutions for risk mitigation and finance.
     
  • Globalisation: There has been an enormous growth in volume and value of world trade and 33 trillion dollars is estimated by 2020. We are now seeing the emergence of new trade relationships and emerging economies are now trading more with each other.

According to Hennah, Misys is focusing on providing solutions based on industry issues and today, Misys announced their alliance with FircoSoft (leading global provider of watch list filtering solutions) which will give banks greater consistency and control over the management and analysis of trade finance transactions to indentify financial crime and maintain compliance with new sanctions and regulatory mandates. “Misys is the trade finance market leader for regulatory compliance and FircoSoft is the Know Your Customer (KYC) market leader. Our partnership with FircoSoft allows KYC and compliance to be a key differentiator for trade banks as corporate clients increasingly rely on their banking partners to take care of it.”

Hennah believes that Misys provide a channel to automate messaging formats between the corporate and the bank. One of the criticisms of the bank payment obligation is that there is no defining standard for corporate-to-bank communication and the ISO 20 022 standards are specifically for bank-to-bank communications.

Banks are under pressure from both customers and corporates to provide better services and according to Bill Pappas, (Chief Information Officer for Global Wholesale Banking and Head of the Global Delivery Center of Expertise, BofAML) Bank of America Merill Lynch (BofAML) have been on a transformation journey over the last five years to simplify and modernise their infrastructure. BofAML have gone through a multi-million dollar journey to re-tool, replace and integrate their capabilities. According to Pappas, the bank wanted a more flexible infrastructure, with the ability to introduce products and services a lot quicker than anyone else in the market. The bank took a strategic approach to this transformation and according to Pappas, went through two phases. The first phase was to intensify and improve the customer experience and the second, to replace, integrate and collapse our payment, liquidity and DDA capabilities. “Once we took the complexities away from the client we knew that there were a lot more complexities in the back end. We had very specific goals during phase two; these were to develop consistent, global and capable platforms that allow for the adaptability when you need it from a regional perspective.”  

BofAML also announced the launch of Digital Disbursements today, a new payment solution that enables companies to make payments to their customers digitally, eliminating the need to issue a check. The payments are directly routed to the bank account of the individual payee’s choosing using either a mobile phone number or email address as the identifier. The solution leverages the technology behind person-to-person payments, a capability currently available to individual customers of Bank of America’s consumer business. According to Pappas, the global bank source innovation through their Innovation Summit every year and through their client advisory groups and vendors who they now see as strategic partners. The focus for BofAML over the next few years is the migration of payments and liquidity, and all of the new improvements and products show the lengths that BofAML is willing to undertake in order innovate and to better serve their clients.

Regulation is one of the biggest themes at Sibos and both banks and solution providers seem to be working on the how to implement and keep up with changing regulations. Does regulation drive innovation? According to Thomas Kindler (Head Clearing Services, Six Securities Services) everyone in the industry is working on complying with regulation at the moment and this leaves little room for them to do anything else. “Regulation is very resource intense and takes a large majority of the budget available which doesn’t leave much room for investing in innovation, however regulation triggers structural change and mandatory clearing helps to regulate and consolidate risk.” According to Wolfgang Hubel, (Director, Digitec) regulation does drive innovation and their D3 Audit product provides a regulatory solution in Germany and enables banks to meet pricing regulatory demands. 

 

By Nicole Miskelly, bobsguide Lead Journalist

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