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SEPTEMBER 2012

banking

technology

S

EP

TE

MB

ER

2012

Speeding’s fine ...Thepositivesideofhighfrequencytrading

Turning JapaneseSibos2012Preview

The global challenge for mobile paymentsWorlddominationisalongwayoff

ViewpointsPayments,ring-fencesandtreasurers

Hotting up in the High Street

Back tothe streets

www.bankingtech.com I 1

ContentsSeptember 2012

■

In this issue

27

12

4

4 news

8 Cover focus: Hotting up in the High street Despite competition on all sides, the traditional

banks need to refocus on their branches as part of an omnichannel strategy that plays to their strengths.

12 Retail technology After years of speculation, there are signs that

the branch of the Future is about to become a reality – at least in North America.

Transactions & Payments

14 news 18 show preview: sibos 2012

Next month Sibos arrives in Osaka. We look at some of the highlights of the conference programme.

21 Vox Pop Sibos delegates tell us what they are looking

forward to – and what they are not.

Markets & Investments

24 news27 speeding’s fine ...

regulatory changes to rein in the use of High Frequency trading may ignore the benefits such strategies can have in creating a stable market.

Retail

30 news32 the global challenge for mobile payments

mobile banking and payments are taking off at last but they have a long way to go before they achieve the global acceptability of more traditional methods.

Risk & Regs

36 news

IT & OPS

38 news41 news Analysis

How Wells Fargo’s integrated approach to technology helps it cross-sell efficiently.

42 Appointments44 Comments52 out of office

outside back cover – neW – Regtech the first edition of a new collaboration between Banking Technology and regulatory think-tank JWG examines the impact of regulatory compliance.


eDITORIAL COMMeNTSeptember 2012

editor David Bannister,+44 207 017 [email protected]

Senior Staff Writer Elliott Holley,+44 207 017 [email protected]

Regular Contributors Dan Barnes, Sherree DeCovny, Alison Ebbage, Tom Groenfeldt, Eugene Grygo, Graham Jarvis, Heather McKenzie, Nicholas Pratt, Kristina West

Production Kosh Naran

Press Releases Send relevant releases to [email protected]

Publisher Tim Banham,+44 207 017 [email protected]

Senior Sales executive Leon Thomson, +44 203 377 3493 [email protected]

Marketing and Circulation Sophie Burdajewicz,+44 207 017 [email protected]

Subscriptions and Renewals John Browne,+44 207 017 [email protected]

For Reprints and Web Publishing RightsPlease contact Leon Thomson on+44 203 377 3493

©2012 Banking TechnologyAll rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electrical, mechanical, photocopying, recording, or otherwise without the prior written permission of the publisher.

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ISSN 0266-0865

an informa business

Alright, I was wrong. A bit, at least, possibly quite a lot ... though I’m not quite ready to say that everybody else was or is right. Not all of them. probably not even most of them, come to think of it.

For a while now I’ve taken the view that a lot of what is talked about on the subject of mobile banking and payments is nonsense. It may even be arrant nonsense, but I’ve never been entirely sure what arrant means.

the problem, it seems to me, is that there are a lot of interlocking and overlapping topics that are covered by the idea of mobile money – banking,

wallets, contactless, personal financial management, and point-of-sale terminals, for starters.

On top of that there are technical issues such as security, compatibility and ubiquity. the world being what it is, most of the people who beat a path to our door to tell us

about their particular offerings are dealing with but one of these issues, or perhaps a couple of them.

more often than not, they are also acting alone – they have invented the better mousetrap, and justifiably, want to let the world know about it.

And it is about there that over this summer I started to get an inkling that things may be about to change more rapidly than hitherto.

by the time you read this, we’ll know if Apple has added an NFC chip to its iphone 5. Does it matter? they are bound to eventually – it is more of a marketing and business decision than a technical issue.

more important will be the ability to use such devices in as wide a range of outlets as possible, and that is going to be a question for the retailers and the poS replacement cycles. It will also be a business decision – why would a high end electrical retailer install poS kit that can shorten a sub-£20 transaction by a few milliseconds? most of their transactions are going to be for several hundred pounds, and they probably want the customer to linger so that they can sell them a £50 HDmI cable with gold-plated contacts.

but I’ve made my first contactless payment, and I was happy: just as easy as cash and far better on the personal financial management level than leaving my card behind the bar as I might otherwise have done.

to be honest, I didnt even realise that my new debit card was contactless, or that the establishment accepted such payments till they asked if I wanted to pay that way.

Which is one of the main reasons that I think it will catch on quicker than I might have thought – it’ll just creep up on people. It’s all very well for us pundits to make this or that prediction, but this sort of thing is inexorable.

Now, where’s my eight-track tape machine? BT

David Bannister, editor

Giving ground


Go to www.bankingtech.com for the latest news and comment

US derivatives giant Cme Group’s plans to create a London-based derivatives exchange, the first step

in its european ambitions, will provide market participants with greater product choice in a sector that has traditionally been dominated by two large firms - but not directly increase competition, say observers.

Cme europe will begin trading foreign exchange futures products in mid-2013, if it succeeds in obtaining the necessary regulatory approval from the UK’s Financial Services Authority. robert ray, currently managing director, products and services at Cme Group, will become chief executive, of Cme europe. Cme Globex will be used as the electronic trading platform and Cme Clearing europe, which launched in may 2011, will provide central counterparty clearing services.

At first sight, the move represents

a potential threat to the position of the two dominant european derivatives exchanges, eurex, which is owned by Deutsche borse, and NYSe Liffe, which is owned by NYSe euronext. but drawing on the Cme Group’s focus on foreign exchange futures, as well as the lack of direct competition between many of the products listed on existing markets NYSe Liffe and eurex, some market participants suggest that the Cme’s new european market is unlikely to directly challenge the existing incumbent exchanges.

“this does not directly increase competition between europe’s derivatives exchanges,” said tony Freeman, executive director, industry relations and market growth, emeA at post-trade services provider Omgeo. “Instead, it opens up more product choice for market participants, by serving an area that was not completely covered by the existing

two markets.” Other market observers argue that

while the barriers to entry for a new market operator could be relatively high in terms of cost, especially in a head-to-head competition scenario, the Cme Group’s high-profile announcement belies the astute strategy behind the firm’s european platform.

“the truth is a lot more subtle than a simple ‘Cme takes on NYSe Liffe and eurex’ scenario,” said Steve Grob, director of european strategy at technology provider Fidessa “History shows the difficulty of capturing open interest liquidity from an incumbent exchange - many have tried and failed. but the Cme plan in europe is clever. It doesn’t tackle eurex and Liffe head on from day one. Instead, the Cme is focusing on currency futures, drawing on the firm’s strengths in one of its most liquid product areas.” BT

African focus as Barclays plans combined ops and Pingit extension

CME’s London move will increase choice – but not competition

Barclays is looking to combine its interests in several African countries with Absa, its South African partner, as part of a “strategy to operate as One bank in Africa”, initially floated last year.

At the same time, the bank announced plans to extend its pingit app-based money transfer service to 12 African countries by the end of this year, starting in Kenya.

barclays expects to combine interests in botswana, Ghana, Kenya, tanzania, Uganda, Zambia and the Indian Ocean with Absa, with barclays bank pLC remaining as the majority shareholder of the combined African operations. Subsidiaries in Kenya and botswana will retain their listing on their local exchanges.

“this proposed combination of the majority of the barclays Africa businesses with Absa is the next logical step in delivering our “One Africa” strategy. We have already consolidated the regional offices for Absa Africa and barclays Africa, as well as introduced a global product strategy for banking across the continent. this proposed combination of the businesses will mirror the managerial and operational structure we have already put in place,” said maria ramos, chief executive of Absa Group and barclays Africa. “We are tremendously excited by the opportunities for growth in Africa. We are wholeheartedly committed to our businesses across Africa and this proposed combination will help us to leverage the significant potential of these businesses. It will provide a platform for further growth that we firmly believe will be to the benefit of our colleagues, our customers and clients, our shareholders and the communities in which we operate.”

Africa is also the focus of an extension of the pingit service, through which UK customers can send up to £750 per day and customers of its barclays Hello money service in Kenya will be able to receive up to £5,000 a day.

barclays plans to make the service available for customers in botswana, South Africa, Zambia, tanzania, Ghana, Nigeria, egypt, Zimbabwe, Uganda, Seychelles and mauritius by the end of 2012. european countries will be added “in early 2013”.

retail customers will also be able to take advantage of wholesale currency exchange prices by linking the service to the bArX FX platform shortly after the launch. While the bank won’t be charging for international money transfers, customers will incur the wholesale costs of foreign currency exchange.

barclays launched pingit in the UK earlier this year, going it alone while its main High Street rivals and the UK payments Council develop a generic service that all will offer. BT

BSO Network Solutions, a specialist low latency infrastructure provider, has grown its global network with the addition of a number of new routes, including services to Moscow and Dubai. BSO Network Solutions’ London to Moscow data service now offers a 40ms round trip delay. The London to Dubai data service has a latency of sub 125ms RTD. A key driver in the financial services sector in particular is the move to T+3 settlements in the Russian securities markets later this year. The addition of the Moscow and Dubai routes is the latest phase of an extensive investment programme that BSO Network Solutions has undertaken to grow and improve its network. In the last year, it has added a new route to Madrid and improved the speed and service between London, Milan, Zurich, Singapore and Stockholm.

Electronic foreign exchange platform EBS is planning changes to its systems and policies that it says will offer better pricing granularity, more efficient quoting and better fill ratios. Following on from the publication of EBS' new dealing rules back in July, the main updates include a move to half pips and full pips in a selection of core pairs for pricing, revised quote and hit fill ratio targets to be set on a pair-by-pair basis, a new approach for enforcement of fill ratio policies, including cancellation of financial surcharges for non-compliance, and new quoting guidelines for Asian trading hours. EBS consulted with its buy- and sell-side users over a three-month period.

4 I www.bankingtech.com

September 2012

NEWS

As Apple prepares to launch the iphone 5, much speculation surrounds the question of whether it will have near-field communications capability, allowing it

to be used for contactless payments.Apple has already said that the next iteration of its iOS

operating system will have a wallet application for such items as airlines tickets and vouchers, but it is not clear if this will also function as a wallet linked to credit or debit cards and bank accounts.

Whatever the final spec of the first iphone since the death of Steve Jobs, the momentum behind mobile and contactless payments built up considerably over the summer, though the Olympic games in London do not seem to have had the effect on adoption that supporters were expecting.

In a move to ignite mobile payments in the UK, operator group everything everywhere, formed by the merger of the Orange and t-mobile brands in the country, has signed an exclusive, five-year partnership with payment processor masterCard. the two firms said that they plan to develop mobile and digital payment products and services for the operator’s 27 million-strong subscriber base, by combining their financial and technological assets.

masterCard and everything everywhere have already been working together for the past three years. Last year, they launched Orange’s NFC service Quicktap, and the Orange Cash pre-paid card. Further services are expected to be announced later this year. the companies have already announced one of the first products created as a result of the new partnership; a co-branded pre-paid solution for mobile devices that allows customers to make payments using Near Field Communications technology. the solution will enable ee’s customers to make contactless payments at more than 100,000 retailers in the UK. the pair said that they will expand the scope of their products over the course of the partnership into other areas, including person-to-person money transfers, loyalty rewards and digital payment services. “by moving our existing co-branded card offers onto mobile devices, we are closer to a world where our customers will be able to use their phone to pay for travel to work, pay for small purchases and take advantage of loyalty rewards from their favourite retail outlets,” commented Gerry mcQuade, chief marketing officer at everything everywhere.

In the US, mobile payment firm Square has received a $25 million investment from global coffee chain Starbucks, and the two firms have announced a partnership to accelerate usage of Square’s payment technology, which turns a smartphone into a credit card reader. Under the terms of their partnership, Starbucks customers will be able to pay for goods using pay with Square, the payment firm’s app that allows iphone and Android users to process transactions from their debit or credit card without the need for any additional hardware.

On the retailer front, a group of big US names announced plans to develop a mobile commerce platform backed by a mobile wallet designed to work across “virtually any” smartphone. the merchant Customer exchange was founded by 7-eleven; Alon brands; best buy; CVS/pharmacy; Darden restaurants; HmSHost; Hy-Vee; Lowe’s; michaels Stores; publix Super markets; Sears Holdings; Shell Oil products US; Sunoco; target and Wal-mart Stores. (See payments column, page 17) BT

Peterevans acquired by Equiniti

Mobile payments: no longer an optional channel for banks

Front- to back-office investment system supplier peterevans has been acquired by equiniti Group,

a financial and business services outsourcing provider created by a private equity purchase of Lloyds’ registrar Services five years ago.

equiniti is the UK’s largest provider of shareholder services to FtSe 100 companies with products such as its Shareview web-based portfolio management system.

John parker, managing director, shareholder solutions, equiniti, said that the company decided to move all its share dealing onto the peterevans platform and saw this as an opportunity to invest in the company in order to offer a wider range of services to its clients. “between the two businesses, we will be able to offer brokers a range of administration services from the equiniti side and trading from the peterevans side.”

this extended range of services will be offered to “current and prospective clients looking to outsource their services”, parker said.

mike Foley managing director of peterevans, said that the acquisition will allow it to benefit from the scale of the parent company – which has some 3,000 employees in 23 offices. “It will give us more resources to be able to accelerate developments in areas that we want to expand into,” Foley said.

“We have moved away from the traditional software licensing model to Software as a Service, and have been focussing on execution-only brokers,” he said. “We’ve built a very efficient platform for the execution-only market that we are widening to deal with full-service brokers, where we have implementations currently underway.”

parker declined to discuss the terms of the deal other than to say that it had an upfront element and an earn-out element. peterevans will continue to operate as an independent entity with its Cardiff and London office structure unchanged. BT

A flurry of activity in the mobile payments market over the summer increased the momentum in the market, with retailers, phone operators and new entrants forging alliances and launching services.



US derivatives giant Cme Group’s plans to create a London-based derivatives exchange, the first step

in its european ambitions, will provide market participants with greater product choice in a sector that has traditionally been dominated by two large firms - but not directly increase competition, say observers.

Cme europe will begin trading foreign exchange futures products in mid-2013, if it succeeds in obtaining the necessary regulatory approval from the UK’s Financial Services Authority. robert ray, currently managing director, products and services at Cme Group, will become chief executive, of Cme europe. Cme Globex will be used as the electronic trading platform and Cme Clearing europe, which launched in may 2011, will provide central counterparty clearing services.

At first sight, the move represents

a potential threat to the position of the two dominant european derivatives exchanges, eurex, which is owned by Deutsche borse, and NYSe Liffe, which is owned by NYSe euronext. but drawing on the Cme Group’s focus on foreign exchange futures, as well as the lack of direct competition between many of the products listed on existing markets NYSe Liffe and eurex, some market participants suggest that the Cme’s new european market is unlikely to directly challenge the existing incumbent exchanges.

“this does not directly increase competition between europe’s derivatives exchanges,” said tony Freeman, executive director, industry relations and market growth, emeA at post-trade services provider Omgeo. “Instead, it opens up more product choice for market participants, by serving an area that was not completely covered by the existing

two markets.” Other market observers argue that

while the barriers to entry for a new market operator could be relatively high in terms of cost, especially in a head-to-head competition scenario, the Cme Group’s high-profile announcement belies the astute strategy behind the firm’s european platform.

“the truth is a lot more subtle than a simple ‘Cme takes on NYSe Liffe and eurex’ scenario,” said Steve Grob, director of european strategy at technology provider Fidessa “History shows the difficulty of capturing open interest liquidity from an incumbent exchange - many have tried and failed. but the Cme plan in europe is clever. It doesn’t tackle eurex and Liffe head on from day one. Instead, the Cme is focusing on currency futures, drawing on the firm’s strengths in one of its most liquid product areas.” BT

African focus as Barclays plans combined ops and Pingit extension

CME’s London move will increase choice – but not competition

Barclays is looking to combine its interests in several African countries with Absa, its South African partner, as part of a “strategy to operate as One bank in Africa”, initially floated last year.

At the same time, the bank announced plans to extend its pingit app-based money transfer service to 12 African countries by the end of this year, starting in Kenya.

barclays expects to combine interests in botswana, Ghana, Kenya, tanzania, Uganda, Zambia and the Indian Ocean with Absa, with barclays bank pLC remaining as the majority shareholder of the combined African operations. Subsidiaries in Kenya and botswana will retain their listing on their local exchanges.

“this proposed combination of the majority of the barclays Africa businesses with Absa is the next logical step in delivering our “One Africa” strategy. We have already consolidated the regional offices for Absa Africa and barclays Africa, as well as introduced a global product strategy for banking across the continent. this proposed combination of the businesses will mirror the managerial and operational structure we have already put in place,” said maria ramos, chief executive of Absa Group and barclays Africa. “We are tremendously excited by the opportunities for growth in Africa. We are wholeheartedly committed to our businesses across Africa and this proposed combination will help us to leverage the significant potential of these businesses. It will provide a platform for further growth that we firmly believe will be to the benefit of our colleagues, our customers and clients, our shareholders and the communities in which we operate.”

Africa is also the focus of an extension of the pingit service, through which UK customers can send up to £750 per day and customers of its barclays Hello money service in Kenya will be able to receive up to £5,000 a day.

barclays plans to make the service available for customers in botswana, South Africa, Zambia, tanzania, Ghana, Nigeria, egypt, Zimbabwe, Uganda, Seychelles and mauritius by the end of 2012. european countries will be added “in early 2013”.

retail customers will also be able to take advantage of wholesale currency exchange prices by linking the service to the bArX FX platform shortly after the launch. While the bank won’t be charging for international money transfers, customers will incur the wholesale costs of foreign currency exchange.

barclays launched pingit in the UK earlier this year, going it alone while its main High Street rivals and the UK payments Council develop a generic service that all will offer. BT

BSO Network Solutions, a specialist low latency infrastructure provider, has grown its global network with the addition of a number of new routes, including services to Moscow and Dubai. BSO Network Solutions’ London to Moscow data service now offers a 40ms round trip delay. The London to Dubai data service has a latency of sub 125ms RTD. A key driver in the financial services sector in particular is the move to T+3 settlements in the Russian securities markets later this year. The addition of the Moscow and Dubai routes is the latest phase of an extensive investment programme that BSO Network Solutions has undertaken to grow and improve its network. In the last year, it has added a new route to Madrid and improved the speed and service between London, Milan, Zurich, Singapore and Stockholm.

Electronic foreign exchange platform EBS is planning changes to its systems and policies that it says will offer better pricing granularity, more efficient quoting and better fill ratios. Following on from the publication of EBS' new dealing rules back in July, the main updates include a move to half pips and full pips in a selection of core pairs for pricing, revised quote and hit fill ratio targets to be set on a pair-by-pair basis, a new approach for enforcement of fill ratio policies, including cancellation of financial surcharges for non-compliance, and new quoting guidelines for Asian trading hours. EBS consulted with its buy- and sell-side users over a three-month period.


Polish bank PKO Bank Polski is to implement the FastTrade trading platform developed by LIST, a provider of trading solutions, for direct market access to the warsaw Stock Exchange, ahead of the exchange’s migration onto a new technology platform later this year. The LIST platform includes market making tools such as pricing, auto-quoting, position keeping and risk management, and low-latency brokerage tools such as the order execution management system, smart order routing, algorithmic execution engine and middle office support.PKO Bank Polski hopes to use the LIST technology to merge its current market making activity and brokerage services into a single platform that covers multiple asset classes and trading venues.

Spanish exchange group Bolsas y Mercados Españoles will soon be accessible to trade from London, via a co-location service developed by the BME together with data centre service provider Interxion. Built for firms that want remote access to Spain’s equities and derivatives markets, the service provides latencies of less than 13.8 milliseconds between London and Madrid through three 1GB fibre-optic lines. Users can access the link from Interxion’s City of London data centre campus. Real time market data from the BME will also be provided.

Technology provider Kurtosys Systems has agreed with data provider Morningstar UK to redistribute the company’s market data, making Kurtosys the first third-party redistributor of Morningstar data on mobile and tablet apps in the UK. Morningstar UK is a subsidiary of Morningstar, the provider of investment research. The new relationship will see Kurtosys tools powered by Morningstar data. The company’s direct market data feeds are designed to reduce resource demands for asset managers, freeing up resources for other tasks.

Jeddah-based Islamic Development Bank Group has signed a service agreement with Misys to supply systems for its treasury and investment departments. Misys will provide various systems including Opics Plus, Opics Risk Plus, Sophis Value and Eagleye. By automating its internal processes and managing the treasury and investment operations on a single platform, the solutions will enable the bank to monitor and report risk exposure across the IDB Group and address its needs for straight-through processing across the entire operations, including analysis, trade execution and risk management.

BT is to expand its reach into Russia through a new network link with Rostelecom, Russia’s national telecoms operator, improving the opportunities for foreign institutional investors to access Russia’s markets through the BT Radianz Cloud. Rostelecom’s network spans Russia with 500,000 kilometres of backbone infrastructure, which reaches approximately 43 million residential and enterprise customers. Meanwhile, BT currently serves around 400 large organisations in Russia. The deal between the two firms encompasses the BT Connect portfolio of network services, which serves corporate customers and supports applications for financial services, as well as other industries including manufacturing, logistics, pharmaceutical and oil and gas industries.

The Singapore Exchange has allowed brokers to use their own clearing and settlement processing systems for the first time, prompting a consortium of four Singapore securities firms

to implement a post-trade processing solution called NOVA from Dion Global Solutions. Consisting of AmFraser Securities, CIMB Securities Singapore, DMG & Partners Securities and Lim & Tan Securities, the consortium members have signed a joint memorandum of understanding to use the NOVA solution, which will be customised, implemented, hosted and operated by Dion together with its partners NCS,a provider of ICT services, and BrokerEdge Systems Advisors, a Singapore-based consulting firm. Previously, brokers did not have any choice over their interaction with the securities depository, nor were they able to select their own post-trade processing tools. The four brokerages intend to release a series of new services over the coming months to enhance retail customer service and improve risk management abilities. The first development will be a new e-portal providing access to.

Thomson Reuters has entered into a solutions partner agreement with Q-Project, a Belgium-based management consulting firm, to help local and French speaking markets address internal audit and governance, risk and compliance issues. This alliance will combine Q-Project’s consulting and systems integration in markets such as Belgium, the Netherlands, Luxembourg, France, Switzerland and North, west and Central Africa with the audit, risk management and compliance-related software available via the Thomson Reuters Accelus suite of products.

NCC Group, a provider of software escrow and assurance services, has acquired US-based Intrepidus, a security research and testing services provider primarily focused in the mobile telecommunications sector, for £7.1 million. The acquisition gives NCC a range of services to detect security flaws in mobile devices, applications, systems and networks, and substantially increases its presence in New York.

Johannesburg-based Momentum Asset Management has selected Charles River to automate portfolio management, order and execution management and compliance monitoring across its equity, fixed income and derivatives operations. Momentum AM was formed in late 2011 through the merger of RMB Asset Management and Metropolitan Asset Managers. “Charles River was originally deployed by Metropolitan Asset Managers in 2005 and is now the system of choice throughout the new business", says Sibusiso Mabuza, chief executive. "with Charles River IMS, we have the ability to handle all asset classes and generate a complete audit trail by using one system."

Rule Financial says that a 15% year-on-year growth in its business has been fuelled by banks’ increased spending on regulatory compliance. The consultancy says that regulatory pressure is a key driver for projects that it is winning in capital markets; with the Dodd-Frank regulation in the US and EMIR in Europe requiring banks to completely overhaul OTC derivatives clearing systems. Chris Potts, chief executive, Rule Financial, said: “The wave of regulation which was triggered by the 2008 financial collapse is now being felt by the world’s financial institutions, which is in turn driving IT strategies.”

Interactive Data has enhanced the FINRA-Interactive Data Structured Trading Aggregate Reports available in its Vantage fixed income transparency service with a new Agency Hybrid ARMS trade reporting summary and more granular trading detailed tables. The additional details support the front office in identifying the most active segments of an opaque market. BT

NEwSSeptember 2012

www.bankingtech.com I 76 I www.bankingtech.com

Go to www.bankingtech.com for the latest news and commentNewsSeptember 2012

European bond markets are in need of reform says Celent report

UK financial services financial and operations officers say that the amount of their time spent dealing

with regulatory change has now risen to an average of 18%, representing almost one whole day every week.

the amount of time spent on managing regulatory change has grown considerably, with 59% of FS executives saying that they spend either ‘more’ or ‘significantly more’ time each week on regulatory matters than they did three years ago.

However, senior FS executives are also facing the challenge of managing this barrage of regulatory change without strong support from their teams. Nearly 4 in 10 (38%) CFOs and COOs say that their teams are not very or not at all knowledgeable about changes to the regulatory landscape. those who are least knowledgeable are medium sized companies (50%) followed by small companies (39%). Large companies are the most knowledgeable, with only one in five (22%) executives indicating that their teams do not have the requisite understanding.

Neil Owen, global practice director at robert Half Financial Services, which conducted the survey, said: “Senior FS professionals face a real dilemma: they have no choice but to manage the huge workload that regulatory change represents, but also find that their teams lack the necessary knowledge to keep their companies on top of it all. this is having a severe impact on their own workload because a whole day every week is being devoted to regulatory compliance – a huge chunk of their time. It’s not surprising that we are seeing such a big demand for interim and permanent FS staff with proven regulatory compliance and management skills who can help move projects forward.

UK departments are less knowledgeable than some of their global counterparts: 89% of CFOs and COOs in Hong Kong say that their teams are ‘somewhat’ or ‘very’ knowledgeable followed by 82% of peers in Germany and 70% in Singapore. BT

Regs are a burden on time say CFOs/COOs Fixed income market participants are

facing rapid market structure evolution as regulatory pressures and technological

innovation reshape their trading environment, according to a new report by financial research firm Celent, The Future of Electronic Fixed Income Trading: Cash and Derivatives.

bond markets have often traditionally been seen as relatively stable, compared to the more variable equities markets. Yet upcoming regulations at a global level, such as basel III, as well as US and european regulations such as miFID II, emIr and the US Volcker rule are placing increasing demands on bank capital, leading to downsized inventories of bond holdings and lower levels of liquidity in many secondary markets.

Central clearing models for standardised swaps are mandated by the european market infrastructure regulation and the US Dodd-Frank rule. but a more stringent regulatory regime has created problems, according to Celent.

“europe’s existing platforms are all essentially running similar rFQ models,” said report author Josephine de Chazournes, (above) senior analyst at Celent. “but with the scarcity of liquidity available in europe’s fixed income markets, especially in corporate bonds, there is space for new solutions.”

part of the problem for global and european bond markets is that buy-side market participants currently face a future loaded with costs, as they will have to obtain expensive clearing memberships at the same time as capital requirements have reduced bank inventories, leading to ever-greater pressure on limited budgets. but while technology has raced ahead in the US, in other parts of the world algorithms and other advanced trading tools are slightly less developed.

De Chazournes contrasts the success of innovative US fixed income platforms such as bonds.com with the relatively lacklustre performance of their european equivalents, which she says have struggled to attract sufficient liquidity. While regulation in both regions is pushing many previously OtC instruments onto clearing as mandated by global G20 commitments, she believes that exchange trading is probably not the best solution for european cash bond markets.

“A more innovative idea might be to create a hybrid trading platform that combines elements of exchange trading together with dark pool facilities and auctions,” she said. “Why not have a primary auction for corporate bonds and let the buy-side access that directly? We’d need market-wide consultation to achieve that, but it could be an option.”

Celent predicts that, under pressure from legislation such as europe’s miFID II, bond market trading models will increasingly focus on concentrating on liquidity. At the same time, price discovery innovation will centre on gathering data and building models to determine prices, and trading technology improvements will revolve around building a more electronic market structure with better connectivity, smart order routing and algorithms, as well as advanced processing databases and order and execution management systems.

“post miFID II, we will need this kind of technology and platform innovation to aggregate enough liquidity for bond markets to serve market participants effectively,” said De Chazournes. “Already some good examples of innovation and collaboration exist in parallel markets – SIX Swiss exchange and block trading platform Liquidnet have a deal that works in equities. Why not extend that to fixed income?”

While cash fixed income markets are already highly electronic, Celent sees potential for greater progress in fixed income derivatives, citing the arrival of both Nasdaq’s new NLX platform and the upcoming arrival of the Cme’s London-based trading platform as incentives that may foster competition. together with emIr requirements for mandatory clearing of OtC derivatives, the new platforms could lead to more standardisation of IrS and CDS index products, making them more likely to be traded electronically over the longer term. BT

“FS professionals have to manage the huge workload that regulatory change represents"


Polish bank PKO Bank Polski is to implement the FastTrade trading platform developed by LIST, a provider of trading solutions, for direct market access to the warsaw Stock Exchange, ahead of the exchange’s migration onto a new technology platform later this year. The LIST platform includes market making tools such as pricing, auto-quoting, position keeping and risk management, and low-latency brokerage tools such as the order execution management system, smart order routing, algorithmic execution engine and middle office support.PKO Bank Polski hopes to use the LIST technology to merge its current market making activity and brokerage services into a single platform that covers multiple asset classes and trading venues.

Spanish exchange group Bolsas y Mercados Españoles will soon be accessible to trade from London, via a co-location service developed by the BME together with data centre service provider Interxion. Built for firms that want remote access to Spain’s equities and derivatives markets, the service provides latencies of less than 13.8 milliseconds between London and Madrid through three 1GB fibre-optic lines. Users can access the link from Interxion’s City of London data centre campus. Real time market data from the BME will also be provided.

Technology provider Kurtosys Systems has agreed with data provider Morningstar UK to redistribute the company’s market data, making Kurtosys the first third-party redistributor of Morningstar data on mobile and tablet apps in the UK. Morningstar UK is a subsidiary of Morningstar, the provider of investment research. The new relationship will see Kurtosys tools powered by Morningstar data. The company’s direct market data feeds are designed to reduce resource demands for asset managers, freeing up resources for other tasks.

Jeddah-based Islamic Development Bank Group has signed a service agreement with Misys to supply systems for its treasury and investment departments. Misys will provide various systems including Opics Plus, Opics Risk Plus, Sophis Value and Eagleye. By automating its internal processes and managing the treasury and investment operations on a single platform, the solutions will enable the bank to monitor and report risk exposure across the IDB Group and address its needs for straight-through processing across the entire operations, including analysis, trade execution and risk management.

BT is to expand its reach into Russia through a new network link with Rostelecom, Russia’s national telecoms operator, improving the opportunities for foreign institutional investors to access Russia’s markets through the BT Radianz Cloud. Rostelecom’s network spans Russia with 500,000 kilometres of backbone infrastructure, which reaches approximately 43 million residential and enterprise customers. Meanwhile, BT currently serves around 400 large organisations in Russia. The deal between the two firms encompasses the BT Connect portfolio of network services, which serves corporate customers and supports applications for financial services, as well as other industries including manufacturing, logistics, pharmaceutical and oil and gas industries.

The Singapore Exchange has allowed brokers to use their own clearing and settlement processing systems for the first time, prompting a consortium of four Singapore securities firms

to implement a post-trade processing solution called NOVA from Dion Global Solutions. Consisting of AmFraser Securities, CIMB Securities Singapore, DMG & Partners Securities and Lim & Tan Securities, the consortium members have signed a joint memorandum of understanding to use the NOVA solution, which will be customised, implemented, hosted and operated by Dion together with its partners NCS,a provider of ICT services, and BrokerEdge Systems Advisors, a Singapore-based consulting firm. Previously, brokers did not have any choice over their interaction with the securities depository, nor were they able to select their own post-trade processing tools. The four brokerages intend to release a series of new services over the coming months to enhance retail customer service and improve risk management abilities. The first development will be a new e-portal providing access to.

Thomson Reuters has entered into a solutions partner agreement with Q-Project, a Belgium-based management consulting firm, to help local and French speaking markets address internal audit and governance, risk and compliance issues. This alliance will combine Q-Project’s consulting and systems integration in markets such as Belgium, the Netherlands, Luxembourg, France, Switzerland and North, west and Central Africa with the audit, risk management and compliance-related software available via the Thomson Reuters Accelus suite of products.

NCC Group, a provider of software escrow and assurance services, has acquired US-based Intrepidus, a security research and testing services provider primarily focused in the mobile telecommunications sector, for £7.1 million. The acquisition gives NCC a range of services to detect security flaws in mobile devices, applications, systems and networks, and substantially increases its presence in New York.

Johannesburg-based Momentum Asset Management has selected Charles River to automate portfolio management, order and execution management and compliance monitoring across its equity, fixed income and derivatives operations. Momentum AM was formed in late 2011 through the merger of RMB Asset Management and Metropolitan Asset Managers. “Charles River was originally deployed by Metropolitan Asset Managers in 2005 and is now the system of choice throughout the new business", says Sibusiso Mabuza, chief executive. "with Charles River IMS, we have the ability to handle all asset classes and generate a complete audit trail by using one system."

Rule Financial says that a 15% year-on-year growth in its business has been fuelled by banks’ increased spending on regulatory compliance. The consultancy says that regulatory pressure is a key driver for projects that it is winning in capital markets; with the Dodd-Frank regulation in the US and EMIR in Europe requiring banks to completely overhaul OTC derivatives clearing systems. Chris Potts, chief executive, Rule Financial, said: “The wave of regulation which was triggered by the 2008 financial collapse is now being felt by the world’s financial institutions, which is in turn driving IT strategies.”

Interactive Data has enhanced the FINRA-Interactive Data Structured Trading Aggregate Reports available in its Vantage fixed income transparency service with a new Agency Hybrid ARMS trade reporting summary and more granular trading detailed tables. The additional details support the front office in identifying the most active segments of an opaque market. BT

NEwSSeptember 2012



>

“What we see is a self-service model that offers a choice of ways to transact,” says Brindley. “What is paramount in this model – and it is something that the big retailers are very good at – is ensuring a consistent level of service across the channels. It’s not a multichannel model; it’s an omnichannel model.”

Paul Verra, field marketing director Europe at NCR, agrees: “When people see Marks & Spencer in the High Street it is a change in the competitive landscape – banks are now competing with retailers, and they need to create more of a retail experience in their branches.”

For this reason he sees a trend to return to branch banking. “We saw branches closing, and now we are seeing them re-open in new formats using new technologies that are being deployed,” he says.

“The old clichés of the clicks and mortar debate are coming back,” says Peter Fawcett, consulting practice leader for banking and financial services at TCS.

“There is compelling evidence to say that you need both, but for different customers.”

How individual banks address that customer segmentation is a key factor in how they approach the future. Fawcett says that it has to be a three-dimensional analysis: “You can’t just break it down by age or product; it’s like a Rubik’s Cube. That’s the sort of analysis we have been helping customers to do.”

While this shift towards a more retail approach is clear, large traditional banks are “almost paralysed” by the scale of the issues that face them in getting there, says Mark Jenkinson, a partner at Capco. “Size, legacy and the cost of change are huge challenges,” he says,

Jenkinson says that this can only mean that there has to be fundamental change in the supporting infrastructure of retail banking. “What are banks good at? Investing in core infrastructure? There has to be less infrastructure. One of the banks will conclude that is not what it wants to do – perhaps Lloyds has stumbled across it through the Co-op deal,” he says.

Others may be forced to think in these terms through the actions of governments and regulators. The UK Government, for one, intends to separate the functions of retail and investment banking following the recommendations of the Independent Commission on Banking, headed by Lord Vickers.

Such a change could be just what the industry needs to overcome the inertia stemming from the scale of the challenge, he says. Once you start thinking about utility banking, you are led inexorably to the idea of having central provision of core services.

In practice, nearly every player already does this through the creation of entities such as what is now VocaLink. Extending that model is not a giant leap of imagination.

It’s two decades since the advent of internet banking sparked the clicks and mortar debate about the future of branch banking, and the recent focus on mobile banking and payments often sounds like a replay of the same arguments – technology means that the services can be provided without the need for a physical presence on the High Street.

Yet at same time, in the wake of the financial crisis, ,we have politicians and consumers clamouring for “traditional” banking services in terms that hark back to the days of the local branch manager having an engagement with a local community of personal and small business customers. Ed Milliband, leader of the opposition Labour Party in the UK, has coined the term “stewardship” banking for such operations.

Beyond the political rhetoric and desire to see “bankers” punished, more commercial minds see a real opportunity and there is a resurgence of new entries to the banking services market from the traditional retailers. Supermarket giants such as Wal-Mart in the US and Tesco in the UK have long been in the game, with limited product offerings, and they are now being joined by other big name brands, such as Marks & Spencer and Sir Richard Branson’s Virgin Money.

These come on top of “challenger” banks like Metro, which two years after launching as the first new retail bank to enter the UK market in 100 years, has some 85,000 personal and business accounts served by 12 stores, as it insists on calling its branches. The bank plans to have 200 UK stores by 2020.

With the recent acquisition of 632 former Lloyds branches by Co-op Bank adding to that, there would seem to be an emergence of the sort of competition that is being called for.

For some established banks this is going to present hard choices – though it might be viewed as making it easier to face up to a choice that some have faced for many years: should they be in retail banking at all? If so, should they be providing a utility to everyone, or a premium service to a select few?

HSBC, for instance, has clearly stratified its services, and in both London and New York the top-level Premier brand seems to be becoming more prominent. Despite its slogan as the World’s Local Bank, full service retail operations are only really present in a few centres – London, Hong Kong, Bermuda and “possibly” New York, said former chief technology and services officer Ken Harvey four years ago (Banking Technology, November 2008).

What is becoming clear is that the services that are being offered in the High Street by incumbents and challengers alike, are changing, and moving in the direction of the traditional retailers rather than the traditional bank.

“There is certainly a momentum that has been building for the past two or three years,” says Ed Brindley, director of marketing and business development at Wincor Nixdorf. “What Metro, Virgin Money and the others have is a customer-focused, friendly service model, and picking up on the retail market service offering, we can see some of the banks making those investments.”

Brindley says that the retailers are moving to self-service, just as airlines moved to automated ticket machines and banks filled their branches with ATM devices. As they move into providing banking services they face similar issues around the location and type of devices they deploy, but they are approaching it from a different direction.

“What retailers bring is that they understand customers better, and that transfers fairly naturally to the 24/7 banking world,” he says. While online merchants like Amazon may be hurting bookshops, they have not eliminated them, and other merchants have responded by integrating their physical and internet operations.

Supermarkets have responded by introducing ‘click and collect’ services, for instance, allowing consumers to order online and collect at the store. Moreover, they have made it possible to do this across a wide range of devices – nearly all have smartphone apps that allow users to order on the fly and collect later.


COVER FOCUS: RETAIL BANKINGSEPTEMBER 2012

Big name retailers continue to enter the market for banking services. Does this mean that banks should renew their focus on the branch, reports David Bannister.

Back to the streets


>

“What we see is a self-service model that offers a choice of ways to transact,” says Brindley. “What is paramount in this model – and it is something that the big retailers are very good at – is ensuring a consistent level of service across the channels. It’s not a multichannel model; it’s an omnichannel model.”

Paul Verra, field marketing director Europe at NCR, agrees: “When people see Marks & Spencer in the High Street it is a change in the competitive landscape – banks are now competing with retailers, and they need to create more of a retail experience in their branches.”

For this reason he sees a trend to return to branch banking. “We saw branches closing, and now we are seeing them re-open in new formats using new technologies that are being deployed,” he says.

“The old clichés of the clicks and mortar debate are coming back,” says Peter Fawcett, consulting practice leader for banking and financial services at TCS.

“There is compelling evidence to say that you need both, but for different customers.”

How individual banks address that customer segmentation is a key factor in how they approach the future. Fawcett says that it has to be a three-dimensional analysis: “You can’t just break it down by age or product; it’s like a Rubik’s Cube. That’s the sort of analysis we have been helping customers to do.”

While this shift towards a more retail approach is clear, large traditional banks are “almost paralysed” by the scale of the issues that face them in getting there, says Mark Jenkinson, a partner at Capco. “Size, legacy and the cost of change are huge challenges,” he says,

Jenkinson says that this can only mean that there has to be fundamental change in the supporting infrastructure of retail banking. “What are banks good at? Investing in core infrastructure? There has to be less infrastructure. One of the banks will conclude that is not what it wants to do – perhaps Lloyds has stumbled across it through the Co-op deal,” he says.

Others may be forced to think in these terms through the actions of governments and regulators. The UK Government, for one, intends to separate the functions of retail and investment banking following the recommendations of the Independent Commission on Banking, headed by Lord Vickers.

Such a change could be just what the industry needs to overcome the inertia stemming from the scale of the challenge, he says. Once you start thinking about utility banking, you are led inexorably to the idea of having central provision of core services.

In practice, nearly every player already does this through the creation of entities such as what is now VocaLink. Extending that model is not a giant leap of imagination.

Under the Project Verde deal, IT systems supporting the 632 branches transferred to the Co-op will continue to be operated by Lloyds. This is a relatively unusual arrangement in the UK retail banking scene, but that’s not true in other countries. In The Netherlands, Rabobank, for instance, is essentially a federation of independent banking operations supported by a central operation.

“Banks have to look across the value chain, asking themselves where they want to play, what they want to do themselves and what they want to partner or outsource,” says Fawcett.

Jenkinson contends that once this issue of infrastructure is cleared up banks will be able to concentrate on the service offering, and to work out what they can offer to differentiate themselves in the new market landscape.

This too will involve a change of perspective and a move towards the customer-oriented thinking that comes naturally to retailers. “Banks still tend to see things in terms of products defined by the back-office processes that support them, as opposed to in terms of what people actually want,” he says.

For most people, at a basic level, that simply means moving money from x to y. “For a customer, if the money is not moved, their life falls apart – banks have to learn to see it in that way, and break down banking into services that people actually need,” says Jenkinson.

TCS’s Fawcett makes the same point: “Our view is that the banks are moving in the right direction. No-one is perfect, but you have to explore all the opportunities and design it from the customer point of view, not from the internal silo point of view.”

Moving into the digital world, other preconceptions have to be shattered. In the real world, banks service communities such a local town, or a type of industry – roots that are still apparent in the names of many US banks such as First Farmers & Merchants or the UK’s City of Derry Building Society or the Teachers’ Building Society.

“When you start to think about how banking might work in the digital world, with a digital community you have to think in terms of trust circles,” says Jenkinson. The problem is that banks rely on a lack of trust, in that their very reason for existence in the first place was to address that need.

On the positive side, while trust is one reason for having a physical presence, there is a more important reason to be on the High Street, Jenkinson says: “The key thing for a physical presence from a customer point of view is that it is the one place where they are offered services seamlessly across all channels.”

This is increasingly important as customers roam across channels. They might choose a mortgage provider from an online comparison site and begin the application process on the bank website, then move to phone banking to get an answer to a particular question. Ultimately they will have to come into the branch to sign the paperwork, but they may want to talk it over with someone – a house purchase is a big event in most people’s lives, but a mortgage application is the day-to-day routine for branch staff.

“We cannot predict how people enter the bank in the multichannel environment,” says Jenkinson.


“Whichever way they choose has to be seen as an opportunity.”

Fawcett agrees, pointing out that it is part of the analysis of the customer offerings. “It has to be a multichannel conversation, including call centres and external channels such as comparison sites,” he says.

NCR’s Verra says that this is exactly the sort of issue that the newer branches using the latest self-service machines are seeking to address. He points out that customers can now book an appointment from their internet banking service and, for some transactions, pre-stage parts of the process at the self-service kiosk.

Far from deskilling the branch staff, this allows more efficient use of their time. “Something like 60-70% of sales are through branches – especially mortgages and pension planning,” he says. “The role of the teller will change, and while you have to be careful saying “teller to seller”, the technology allows more proactive selling.”

Other new services, such as coin handling and payment services at the kiosk, are gaining ground in newer banks and in less-developed markets such as central and eastern Europe, but more slowly in the older and larger banks of western Europe. Metro Bank makes a selling point of the fact that it has free coin counting machines in every branch, but it does only have 12 branches at the moment, so the legacy issue is not the same as for Barclays, say, with thousands of branches.

“More traditional banks are reluctant to accept the newer technologies,” says Verra. “In some cases the technology being used is not mature enough for large scale roll-out, which makes banks hesitant, but others are seeing that things like cash recycling at the ATM can be a compelling business case if you have a lot of SME and small business customers.

In Eastern Europe, and in some parts of the Middle East, he says, things are moving more quickly: “They are asking us what the next new things are, and they are trying things such as pre-staging of transactions using mobile devices.”

Fawcett says that the branch does give the opportunity to cross-sell, but cautions that this must be done intelligently. “There is no point selling an ISA to someone who isn’t paying tax,” he says.

Fawcett is less positive about the banks’ ability to innovate. “There is a lot of innovation around, but not from the banks. It is coming from the retailers and the technology providers,” he says. “In terms of customer experience, people should look at Apple’s App Store or Amazon, which is where consumers are learning to interact. Some banks are starting to do that – Barclay’s PingIt for instance – but bank franchises are being eroded by the retailers. It is not just about the transaction services any more, but about the aggregation of services on top of that.”

An interesting example of how customer segmentation and technology can be combined by a large bank to provide a novel customer experience is provided by NCR’s Verra. ABN Amro has opened a kiosk-based branch at Amsterdam’s Schipol airport that can be accessed only by its premier account holders. They can do their banking there, but it is primarily an airport lounge. BT


Now in its 13 year, the incredibly successful Banking Technology Awards have become established as the premier event in the industry which recognises excellence in the use of IT in fi nancial services.Make sure your company doesn’t miss out on the prestigious Banking Technology Awards night and the opportunity to meet and greet a number of high-profi le industry professionals by booking your table at the fi nancial services IT social event of the year. Tables of 10 are available for the gala dinner.

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5 December 2012Grand Connaught Rooms, Great Queen Street, London, WC2B 5DA

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The Banking Technology Awards 2012

Best Green IT Initiative by a Financial Institution

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Under the Project Verde deal, IT systems supporting the 632 branches transferred to the Co-op will continue to be operated by Lloyds. This is a relatively unusual arrangement in the UK retail banking scene, but that’s not true in other countries. In The Netherlands, Rabobank, for instance, is essentially a federation of independent banking operations supported by a central operation.

“Banks have to look across the value chain, asking themselves where they want to play, what they want to do themselves and what they want to partner or outsource,” says Fawcett.

Jenkinson contends that once this issue of infrastructure is cleared up banks will be able to concentrate on the service offering, and to work out what they can offer to differentiate themselves in the new market landscape.

This too will involve a change of perspective and a move towards the customer-oriented thinking that comes naturally to retailers. “Banks still tend to see things in terms of products defined by the back-office processes that support them, as opposed to in terms of what people actually want,” he says.

For most people, at a basic level, that simply means moving money from x to y. “For a customer, if the money is not moved, their life falls apart – banks have to learn to see it in that way, and break down banking into services that people actually need,” says Jenkinson.

TCS’s Fawcett makes the same point: “Our view is that the banks are moving in the right direction. No-one is perfect, but you have to explore all the opportunities and design it from the customer point of view, not from the internal silo point of view.”

Moving into the digital world, other preconceptions have to be shattered. In the real world, banks service communities such a local town, or a type of industry – roots that are still apparent in the names of many US banks such as First Farmers & Merchants or the UK’s City of Derry Building Society or the Teachers’ Building Society.

“When you start to think about how banking might work in the digital world, with a digital community you have to think in terms of trust circles,” says Jenkinson. The problem is that banks rely on a lack of trust, in that their very reason for existence in the first place was to address that need.

On the positive side, while trust is one reason for having a physical presence, there is a more important reason to be on the High Street, Jenkinson says: “The key thing for a physical presence from a customer point of view is that it is the one place where they are offered services seamlessly across all channels.”

This is increasingly important as customers roam across channels. They might choose a mortgage provider from an online comparison site and begin the application process on the bank website, then move to phone banking to get an answer to a particular question. Ultimately they will have to come into the branch to sign the paperwork, but they may want to talk it over with someone – a house purchase is a big event in most people’s lives, but a mortgage application is the day-to-day routine for branch staff.

“We cannot predict how people enter the bank in the multichannel environment,” says Jenkinson.


“Whichever way they choose has to be seen as an opportunity.”

Fawcett agrees, pointing out that it is part of the analysis of the customer offerings. “It has to be a multichannel conversation, including call centres and external channels such as comparison sites,” he says.

NCR’s Verra says that this is exactly the sort of issue that the newer branches using the latest self-service machines are seeking to address. He points out that customers can now book an appointment from their internet banking service and, for some transactions, pre-stage parts of the process at the self-service kiosk.

Far from deskilling the branch staff, this allows more efficient use of their time. “Something like 60-70% of sales are through branches – especially mortgages and pension planning,” he says. “The role of the teller will change, and while you have to be careful saying “teller to seller”, the technology allows more proactive selling.”

Other new services, such as coin handling and payment services at the kiosk, are gaining ground in newer banks and in less-developed markets such as central and eastern Europe, but more slowly in the older and larger banks of western Europe. Metro Bank makes a selling point of the fact that it has free coin counting machines in every branch, but it does only have 12 branches at the moment, so the legacy issue is not the same as for Barclays, say, with thousands of branches.

“More traditional banks are reluctant to accept the newer technologies,” says Verra. “In some cases the technology being used is not mature enough for large scale roll-out, which makes banks hesitant, but others are seeing that things like cash recycling at the ATM can be a compelling business case if you have a lot of SME and small business customers.

In Eastern Europe, and in some parts of the Middle East, he says, things are moving more quickly: “They are asking us what the next new things are, and they are trying things such as pre-staging of transactions using mobile devices.”

Fawcett says that the branch does give the opportunity to cross-sell, but cautions that this must be done intelligently. “There is no point selling an ISA to someone who isn’t paying tax,” he says.

Fawcett is less positive about the banks’ ability to innovate. “There is a lot of innovation around, but not from the banks. It is coming from the retailers and the technology providers,” he says. “In terms of customer experience, people should look at Apple’s App Store or Amazon, which is where consumers are learning to interact. Some banks are starting to do that – Barclay’s PingIt for instance – but bank franchises are being eroded by the retailers. It is not just about the transaction services any more, but about the aggregation of services on top of that.”

An interesting example of how customer segmentation and technology can be combined by a large bank to provide a novel customer experience is provided by NCR’s Verra. ABN Amro has opened a kiosk-based branch at Amsterdam’s Schipol airport that can be accessed only by its premier account holders. They can do their banking there, but it is primarily an airport lounge. BT


2012, considerably more institutions indicate intentions to make significant changes in branch configuration (55% vs. 24%). Importantly, this sentiment has been accompanied by "action-significant investments" in technologies to improve sales and service effectiveness: CRM, customer analytics, and campaign management systems over the past three years. ■ Platform systems get modern. Two years ago, the bulk of branch channel technology spending had been cheque imaging. With cheque imaging projects largely completed, banks turned towards removing the remaining paper in the branch in the form of automated deposit account origination systems. In 2010, 22% of banks and 47% of surveyed credit unions had such systems. In the 2012 survey, usage grew to 28% and 52% respectively. ■ Even cores may be changing. Aging core banking systems present an impediment to delivering the customer centricity more banks seek. Yet, few FIs have had the courage to change cores. That may be changing, albeit slowly. The number of banks indicating they were somewhat likely or highly likely to replace or refresh core system over the next three to five years jumped from 17% in 2010 to 24%. Credit unions responded similarly, growing from 13% to 24%.■ FIs are investing in more capable online and mobile platforms, with a minority (38%) of large banks also delivering a unique tablet experience and another 46% indicating specific plans to do so. Emerging online and mobile functionality is in the works among the large banks and will be made available by smaller FIs subsequently. Business case or not, FIs broadly know that mobile is no longer optional. Fielding and maintaining a competitive mobile channel is a high priority toward achieving retail banking strategic objectives among 81% of banks and 93% of credit unions surveyed.

Not surprisingly in an area where the customer is king, experimentation with social media is widespread, with 80% of responding FIs claiming to be “active” in social media. “What is meant by “active” varies considerably though,” Celent observes. Roughly two-thirds of FIs listen to and track what others are saying about them in social media. Fewer use social media for outbound marketing outbound communications (42%), and fewer still integrate social media into CRM or BPM systems as they do with other methods of customer communications (5%).

Among all the retail banking technologies covered in the report, social media is the most nascent and viewed as the least strategically important. Most commonly “owned” by marketing departments, social media is not (yet) viewed as a respectable customer engagement channel. Instead, for most FIs, “it remains a curious marketing and at best, voice of the customer medium”.

Customer centricity relies on ways to integrate channels, inform front line sales teams, rigorously track open leads and queries and understand customer behaviour and product consumption in relevant and actionable ways. North American financial institutions are investing in a growing number of back office systems to assist them in their journey towards


customer centricity, from campaign management to predictive analytics and relationship pricing systems. But, the authors conclude, “most FIs aren’t well equipped to walk the walk when it comes to customer centricity”, which may in any case “be a journey, not a destination”.

Most institutions have hardly begun – particularly the smaller ones – but surveyed adoption intent “suggests a growing number of FIs at least have their bags packed and are ready for the trip”. A key challenge in moving from product and channel centric views to customer centricity is that product and channel organisational silos still abound.

Two remaining observations stand out as particularly significant against the backdrop of accelerating use of self-service channels by a growing number of digitally driven consumers, the report says:

Financial institutions continue to observe steady declines in branch transactions and accompanying foot traffic. While responses varied significantly, both 2010 and 2012 surveys point to an average decline of approximately -5% CAGR. Responses vary considerably, however, with 45% of respondents anticipating declines from 10% to 25% over the next five years, a fourth expecting 25% to 40% declines and about 20% of FIs expecting steep declines of up to 60% over the next five years (-12% CAGR).

Despite this inexorable trend, a large majority of financial institutions insist upon continuing to invest in growing branch count. 59% of banks and three quarters of credit unions surveyed expect to operate more branches in five years than they do now.

Compared to 2010, significantly more institutions expect branch growth. Among credit unions, nearly twice as many expect branch growth compared to two years ago. Clearly, a number of surveyed financial institutions have growth plans that would invite branch expansion. Yet, the data appears at odds with accelerating consumer preferences for self-service channels, and the ever growing branch transaction costs resulting from the changing mix.

Most financial institutions seem trapped in their expensive branch infrastructures until they demonstrate the ability to sell and service customers elsewhere. Too many FIs are overly reliant on the branch for sales to contemplate a right-sizing. Celent is sceptical that the surveyed intentions will play out over the next five years: “A modest reduction in branch densities appears overwhelmingly more likely. Yet, most institutions don’t see it that way. Instead, focused on growth, most can’t imagine doing so without continued branch expansion.” BT

“Perhaps the only thing more depressing than the current retail banking business and regulatory climate is the prodigious effort needed to equip retail financial institutions to thrive in our increasingly multichannel world.”


After years of more talk than action, the retail branch of the future may finally be in sight, at least in North America, where retail financial services “has reached a tipping point in the use of technology”, according to research and consultancy firm Celent.

Legacy branch-centric operating models are giving way to multichannel, customer-centric initiatives, according to a new Celent report, Emerging Technologies in Retail Banking: The Long Road to Customer Centricity.

Drawing on multiple interviews among financial institutions and solution providers as well as a survey administered among 132 FIs during May/June 2012, the report paints a picture of an industry that is being driven towards a new future whether it likes it or not.

“Perhaps the only thing more depressing than the current retail banking business and regulatory climate is the prodigious effort needed to equip retail financial institutions to thrive in our increasingly multichannel world,” says the report. “A significant majority of FIs

are ill prepared for what is upon them. A minority has begun a complex journey, but has a long way to go. No one has arrived.”

In Celent’s view, the events of the past several years have pushed a number of FIs past a tipping point, leading to significant, measurable changes in attitudes, organisation, and technology deployments since its last survey in two years ago. Specifically:■ Online rules. The online channel is now considered more strategically important than the branch channel by a majority of FIs. This reflects a dramatic change in thinking. The number of banks ranking the branch channel first or second in importance declined from 73% in 2010 to 54% in 2012. This occurred alongside a dramatic ascendency of the mobile channel from in 23% in 2010 to 51% in 2012. ■ Branch of the future may be emerging. While substantive branch transformation remains a rarity in North America, there appears to be a growing consensus that the status quo is unsustainable. In

RetAil teChNologySePTeMBer 2012

Grappling with falling branch revenues, increased competition and regulation, and a new online world, banks are finally struggling towards customer-centricity, says a new report from Celent.

Coming to terms with the future

2012, considerably more institutions indicate intentions to make significant changes in branch configuration (55% vs. 24%). Importantly, this sentiment has been accompanied by "action-significant investments" in technologies to improve sales and service effectiveness: CRM, customer analytics, and campaign management systems over the past three years. ■ Platform systems get modern. Two years ago, the bulk of branch channel technology spending had been cheque imaging. With cheque imaging projects largely completed, banks turned towards removing the remaining paper in the branch in the form of automated deposit account origination systems. In 2010, 22% of banks and 47% of surveyed credit unions had such systems. In the 2012 survey, usage grew to 28% and 52% respectively. ■ Even cores may be changing. Aging core banking systems present an impediment to delivering the customer centricity more banks seek. Yet, few FIs have had the courage to change cores. That may be changing, albeit slowly. The number of banks indicating they were somewhat likely or highly likely to replace or refresh core system over the next three to five years jumped from 17% in 2010 to 24%. Credit unions responded similarly, growing from 13% to 24%.■ FIs are investing in more capable online and mobile platforms, with a minority (38%) of large banks also delivering a unique tablet experience and another 46% indicating specific plans to do so. Emerging online and mobile functionality is in the works among the large banks and will be made available by smaller FIs subsequently. Business case or not, FIs broadly know that mobile is no longer optional. Fielding and maintaining a competitive mobile channel is a high priority toward achieving retail banking strategic objectives among 81% of banks and 93% of credit unions surveyed.

Not surprisingly in an area where the customer is king, experimentation with social media is widespread, with 80% of responding FIs claiming to be “active” in social media. “What is meant by “active” varies considerably though,” Celent observes. Roughly two-thirds of FIs listen to and track what others are saying about them in social media. Fewer use social media for outbound marketing outbound communications (42%), and fewer still integrate social media into CRM or BPM systems as they do with other methods of customer communications (5%).

Among all the retail banking technologies covered in the report, social media is the most nascent and viewed as the least strategically important. Most commonly “owned” by marketing departments, social media is not (yet) viewed as a respectable customer engagement channel. Instead, for most FIs, “it remains a curious marketing and at best, voice of the customer medium”.

Customer centricity relies on ways to integrate channels, inform front line sales teams, rigorously track open leads and queries and understand customer behaviour and product consumption in relevant and actionable ways. North American financial institutions are investing in a growing number of back office systems to assist them in their journey towards


customer centricity, from campaign management to predictive analytics and relationship pricing systems. But, the authors conclude, “most FIs aren’t well equipped to walk the walk when it comes to customer centricity”, which may in any case “be a journey, not a destination”.

Most institutions have hardly begun – particularly the smaller ones – but surveyed adoption intent “suggests a growing number of FIs at least have their bags packed and are ready for the trip”. A key challenge in moving from product and channel centric views to customer centricity is that product and channel organisational silos still abound.

Two remaining observations stand out as particularly significant against the backdrop of accelerating use of self-service channels by a growing number of digitally driven consumers, the report says:

Financial institutions continue to observe steady declines in branch transactions and accompanying foot traffic. While responses varied significantly, both 2010 and 2012 surveys point to an average decline of approximately -5% CAGR. Responses vary considerably, however, with 45% of respondents anticipating declines from 10% to 25% over the next five years, a fourth expecting 25% to 40% declines and about 20% of FIs expecting steep declines of up to 60% over the next five years (-12% CAGR).

Despite this inexorable trend, a large majority of financial institutions insist upon continuing to invest in growing branch count. 59% of banks and three quarters of credit unions surveyed expect to operate more branches in five years than they do now.

Compared to 2010, significantly more institutions expect branch growth. Among credit unions, nearly twice as many expect branch growth compared to two years ago. Clearly, a number of surveyed financial institutions have growth plans that would invite branch expansion. Yet, the data appears at odds with accelerating consumer preferences for self-service channels, and the ever growing branch transaction costs resulting from the changing mix.

Most financial institutions seem trapped in their expensive branch infrastructures until they demonstrate the ability to sell and service customers elsewhere. Too many FIs are overly reliant on the branch for sales to contemplate a right-sizing. Celent is sceptical that the surveyed intentions will play out over the next five years: “A modest reduction in branch densities appears overwhelmingly more likely. Yet, most institutions don’t see it that way. Instead, focused on growth, most can’t imagine doing so without continued branch expansion.” BT

“Perhaps the only thing more depressing than the current retail banking business and regulatory climate is the prodigious effort needed to equip retail financial institutions to thrive in our increasingly multichannel world.”

Earthport addresses Dodd-Frank payments issues

TD picks Fiserv for bill payments

Gresham benchmarked at 50,000 tps

Cross-border payment specialist earthport plans to enhance its cross-border payments service to address the transparency and predictability outlined by the US Dodd-Frank Act.

Section 1073 of Dodd-Frank means that international transfers from individuals in the US are subject to “clear and conspicuous disclosures about the cost of a transfer, the amount of currency to be delivered to the recipient and the date the funds will become available”.

In a recent online poll conducted by earthport, 76% of executives from US banks, money transfer organisations and their advisors said there will be a negative impact on their consumer payments business due to Dodd-Frank 1073. the majority – 83% – have assigned someone to focus on the issue, and 66% of financial institutions said they understand the detail of what needs to be done in advance of the February 2013 deadline.

“earthport is perfectly positioned in helping financial institutions address the requirements of Dodd-Frank for cross-border consumer payments. Our service was designed from the outset with transparency and predictability at its core,” said Neil burton, director of product strategy at earthport. “We are busy working with banks to ensure that our service fits within their overall compliance requirements for DFS1073.” BT

TD bank, one of the 10 largest banks in the US, has selected CheckFree rXp from Fiserv to enable electronic bill

payment for consumer and small business customers. CheckFree rXp will provide tD bank customers with more control over their bill payment tasks and will enable them to receive e-bills from more than 400 national and local companies directly within their online banking service.

“CheckFree rXp will bring in-demand payment options to tD bank customers, giving them control of how and when their bills are paid,” said rahul Gupta, group president, digital payment solutions, Fiserv.

“the integration of the service into the bank’s existing online banking solution will make bill payment even more convenient and accessible for users.”

CheckFree rXp is now used by 3,800 financial institutions. the service combines features such as expedited and recurring payment capabilities and the ability to receive alerts with an intuitive user interface for consumers and businesses. Users can also receive and pay e-bills, which contain all the same information as paper bills, from more than 400 common household billers such as utilities, credit card issuers and mobile phone carriers, through the service. BT

Gresham Computing’s reconciliation solution, Clareti transaction Control, has achieved transaction processing times of more than 50,000 equity trade transactions per second in a series of benchmarking tests conducted with

Intel. the tests were conducted at Intel’s Computing lab in reading, using the Intel

Xeon processor e7 family. CtC uses the GigaSpaces XAp elastic application platform as an integral part of

its infrastructure. XAp uses an in-memory data grid to improve processing speed, independent partitioning for reliability and consistency, and event-driven architecture that enables real-time processing of large event streams and unlimited scalability.

Gordon Hughes, alliances director financial services, Intel, said: “We are impressed by the results that Gresham’s CtC solution achieved in their rigorous performance testing conducted at Intel’s fasterLAb. Financial services customers are at the forefront of high performance and scalability demands, and in these tests the Intel Xeon processor e7 family has demonstrated CtC’s ability to deliver significant performance and power efficiency in the reconciliation environment. the ability to process 200 million transactions per hour gives customers the certainty they need that, as their volumes grow, CtC running on Intel processors can scale to the needs of their enterprise.” BT


Copenhagen-based payments, information and digital security specialist Nets is to acquire Luottokunta, Finland’s largest payment card solutions company. The acquisition of is part of Nets’ strategy to become being one of the leading European companies in its sector.

Luottokunta will change its name and become an integrated part of the Nets Group, while its offices will remain in Helsinki. With the acquisition of Luottokunta’s 500 staff, Nets will have a total of 2,700 employees in five countries and a turnover of €850 million.

Planet Payment, an international and multi-currency payment processor, and MashreqBank, in the United Arab Emirates, have signed an agreement to provide Planet Payment’s Pay in Your Currency service to Mashreq’s portfolio of merchants. With the service eligible customers are offered the convenience of paying in their home currency at the point of sale. The customers are handed a receipt, or pointed to an electronic terminal, which shows the transaction amounts in the UAE dirham and their home currency, together with the exchange rate and other service details.

The Smart Card Alliance has formed an independent, cross-industry organisation, the EMV Migration Forum, to support the alignment of the EMV implementation steps required for global payment networks, regional payment networks, issuers, processors, merchants and consumers to successfully move from magnetic stripe technology to secure EMV contact and contactless technology in the US. American Express, Discover, MasterCard and Visa have all announced their plans for moving to an EMV-based payments infrastructure in the US.

Agricultural Bank of China, the third largest bank in the People’s Republic of China, is to implement ACI Money Transfer System and ACI Proactive Risk Manager as its wholesale payment processing and anti-money laundering solution to facilitate its expansion into the US market. “ACI provides us with a complete and readily implemented solution for fully automated payment processing and fraud protection as we enter the US market,” said Wei He, vice president, operation department, ABC. BT

TRANSACTIONS & PAYMENTS


September 2012


Sysnet extends firewall to merchants through deal with Phoenix

Mobile SME services a priority for banks, says Fundtech survey

In a move to ignite mobile payments in the UK, operator group everything everywhere,

formed by the merger of the Orange and t-mobile brands in the country, has signed an exclusive, five-year partnership with payment processor masterCard. the two firms said that they plan to develop mobile and digital payment products and services for the operator’s 27 million-strong subscriber base, by combining their financial and technological assets.

masterCard and everything everywhere have already been working together for the past three years. Last year, they launched Orange’s NFC service Quicktap, and the Orange Cash pre-paid card. Further services are expected to be announced later this year.

the companies have already announced one of the first products created as a result of the new partnership; a co-branded pre-paid solution for mobile devices that allows customers to make payments using Near Field Communications technology. the solution will enable ee’s customers to make contactless payments at more than 100,000 retailers in the UK.

the pair said that they will expand the scope of their products over the course of the partnership into other areas, including person-to-person money transfers, loyalty rewards and digital payment services. In addition, the two companies will develop services that allow small business customers to accept payments using mobile devices.

“by moving our existing co-branded card offers onto mobile devices, we are closer to a world where our customers will be able to use their phone to pay for travel to work, pay for small purchases and take advantage of loyalty rewards from their favourite retail outlets,” commented Gerry mcQuade, chief marketing officer at everything everywhere. BT

MasterCard in Everything Everywhere deal Sysnet Global Solutions is to offer a private-labelled pCI compliant solution to its

payment processing clients and their merchants globally following a deal to use a cloud-managed firewall service from phoenix managed Networks.

Sysnet offers a range of services, including its proprietary web-based solution SysnetAIr to acquirers, ISOs, international banks, payment service providers and merchants in over 35 countries worldwide.

paul prior, chief product officer at Sysnet, said that the combination of the products effectively extends the firewall to the merchant point of sale, allowing its clients to offer stronger security to their merchant clients. prior said that this particularly addresses the problem of security for smaller merchants, which are increasingly seen as targets by criminals. this is particularly pronounced in the US where emV chip and pIN cards are not as common as in europe.

phoenix’s cloud-based management system will be integrated into Sysnet’s compliance management portal, Compliancemaker, and customised to help Sysnet clients with required Self-Assessment Questionnaires by automatically answering most of the technical questions associated with site security.

the Verizon 2012 Data breach Investigations report found that 96% of the breach victims investigated were not pCI DSS compliant when they were last assessed. this deal looks to pre-empt this problem at a high level to make payments more secure on a global scale. BT

Developing the mobile channel for Sme clients is the top priority for banks in the US as they move to

address what is seen as a huge untapped demand for new services in that sector, according to a survey carried out by transaction services specialist Fundtech.

the survey, conducted at the company’s annual North American Insights client conference last month, found that 95% of bankers describe the untapped potential of the Sme market as equal to or greater than any other current opportunity; 57% describe it as huge or large. Among participants, representing 100 financial institutions, 60% reported demand for new services from their Sme clients as higher than usual, while almost 20% said that the increased demand is “unprecedented.”

Developing or expanding the mobile banking channel is the top priority for the Sme market according to 38% of those polled, while reducing the cost of servicing this segment is also a high priority (34% said it was their number one priority).

banks are realising that they can’t ignore this demand - almost 60% said they see some evidence of non-bank

competitors taking away business from them in the Sme segment - and those that can address it will be able to pull ahead of their peers.

“the Sme market offers an enormous growth opportunity to banks that understand their unique needs,” said George ravich, chief marketing officer at Fundtech. “For the millions of Smes that consider their pick-up trucks as their offices, the mobile channel provides a compelling level of convenience and control. the key to success is offering this market segment well-designed options that are developed for the three major platforms – smartphone, tablet and computer.”

On the flip-side, regulation and compliance stood out as leading concerns among the bankers surveyed. results show a continuing lack of clarity around what must be done to comply with new regulations such as Dodd-Frank, and the expectation that there will be further regulations to follow. most (56%) believe that Dodd-Frank will undergo major revisions in the coming years, while 33% think that “this is just the beginning” and that there will be many more new regulations. BT

Earthport addresses Dodd-Frank payments issues

TD picks Fiserv for bill payments

Gresham benchmarked at 50,000 tps

Cross-border payment specialist earthport plans to enhance its cross-border payments service to address the transparency and predictability outlined by the US Dodd-Frank Act.

Section 1073 of Dodd-Frank means that international transfers from individuals in the US are subject to “clear and conspicuous disclosures about the cost of a transfer, the amount of currency to be delivered to the recipient and the date the funds will become available”.

In a recent online poll conducted by earthport, 76% of executives from US banks, money transfer organisations and their advisors said there will be a negative impact on their consumer payments business due to Dodd-Frank 1073. the majority – 83% – have assigned someone to focus on the issue, and 66% of financial institutions said they understand the detail of what needs to be done in advance of the February 2013 deadline.

“earthport is perfectly positioned in helping financial institutions address the requirements of Dodd-Frank for cross-border consumer payments. Our service was designed from the outset with transparency and predictability at its core,” said Neil burton, director of product strategy at earthport. “We are busy working with banks to ensure that our service fits within their overall compliance requirements for DFS1073.” BT

TD bank, one of the 10 largest banks in the US, has selected CheckFree rXp from Fiserv to enable electronic bill

payment for consumer and small business customers. CheckFree rXp will provide tD bank customers with more control over their bill payment tasks and will enable them to receive e-bills from more than 400 national and local companies directly within their online banking service.

“CheckFree rXp will bring in-demand payment options to tD bank customers, giving them control of how and when their bills are paid,” said rahul Gupta, group president, digital payment solutions, Fiserv.

“the integration of the service into the bank’s existing online banking solution will make bill payment even more convenient and accessible for users.”

CheckFree rXp is now used by 3,800 financial institutions. the service combines features such as expedited and recurring payment capabilities and the ability to receive alerts with an intuitive user interface for consumers and businesses. Users can also receive and pay e-bills, which contain all the same information as paper bills, from more than 400 common household billers such as utilities, credit card issuers and mobile phone carriers, through the service. BT

Gresham Computing’s reconciliation solution, Clareti transaction Control, has achieved transaction processing times of more than 50,000 equity trade transactions per second in a series of benchmarking tests conducted with

Intel. the tests were conducted at Intel’s Computing lab in reading, using the Intel

Xeon processor e7 family. CtC uses the GigaSpaces XAp elastic application platform as an integral part of

its infrastructure. XAp uses an in-memory data grid to improve processing speed, independent partitioning for reliability and consistency, and event-driven architecture that enables real-time processing of large event streams and unlimited scalability.

Gordon Hughes, alliances director financial services, Intel, said: “We are impressed by the results that Gresham’s CtC solution achieved in their rigorous performance testing conducted at Intel’s fasterLAb. Financial services customers are at the forefront of high performance and scalability demands, and in these tests the Intel Xeon processor e7 family has demonstrated CtC’s ability to deliver significant performance and power efficiency in the reconciliation environment. the ability to process 200 million transactions per hour gives customers the certainty they need that, as their volumes grow, CtC running on Intel processors can scale to the needs of their enterprise.” BT


Copenhagen-based payments, information and digital security specialist Nets is to acquire Luottokunta, Finland’s largest payment card solutions company. The acquisition of is part of Nets’ strategy to become being one of the leading European companies in its sector.

Luottokunta will change its name and become an integrated part of the Nets Group, while its offices will remain in Helsinki. With the acquisition of Luottokunta’s 500 staff, Nets will have a total of 2,700 employees in five countries and a turnover of €850 million.

Planet Payment, an international and multi-currency payment processor, and MashreqBank, in the United Arab Emirates, have signed an agreement to provide Planet Payment’s Pay in Your Currency service to Mashreq’s portfolio of merchants. With the service eligible customers are offered the convenience of paying in their home currency at the point of sale. The customers are handed a receipt, or pointed to an electronic terminal, which shows the transaction amounts in the UAE dirham and their home currency, together with the exchange rate and other service details.

The Smart Card Alliance has formed an independent, cross-industry organisation, the EMV Migration Forum, to support the alignment of the EMV implementation steps required for global payment networks, regional payment networks, issuers, processors, merchants and consumers to successfully move from magnetic stripe technology to secure EMV contact and contactless technology in the US. American Express, Discover, MasterCard and Visa have all announced their plans for moving to an EMV-based payments infrastructure in the US.

Agricultural Bank of China, the third largest bank in the People’s Republic of China, is to implement ACI Money Transfer System and ACI Proactive Risk Manager as its wholesale payment processing and anti-money laundering solution to facilitate its expansion into the US market. “ACI provides us with a complete and readily implemented solution for fully automated payment processing and fraud protection as we enter the US market,” said Wei He, vice president, operation department, ABC. BT


Yet another group of non-banks has launched itself into the mobile wallet arena with the announcement last month of Merchant Customer Exchange, a joint venture between 15 merchants in the US. MCX claims that the merchants, which include Wal-Mart, Sears, Shell Oil and BestBuy, account for “nearly every smartphone-enabled American and account for approximately $1 trillion in annual sales” between them.

The announcement came before the launch of MCX’s mobile application (development of which is “underway”). It will initially focus on offering merchants a mobile commerce solution “capable of seamlessly integrating a wide range of consumer offers, promotions and retail programmes”. The application will also be available on “virtually any smartphone”.

MCX says it will address the needs of financial institutions and merchants of all sizes in the mobile marketplace, although it is light on details.

The mobile wallet/payment arena is characterised as a battleground between merchants, financial institutions and non-financial institutions. There has been plenty of jockeying for position but not much action in terms of getting past the post with a winning formula.

In his book M-Commerce, consultant Paul Skeldon points out that the idea of turning a smartphone into a wallet is nothing new and “has had a long and pretty unsuccessful history to date”. For example, Nokia’s attempt to take the mobile wallet world by storm by enabling a range of its mobiles with near-field communications technology attracted little interest from banks, networks or consumers.

On the other hand, mobile wallets have been a big hit in Japan. NTT Docomo, one of the country’s leading mobile operators, has 15 million subscribers to its iD platform, which is used as a post-paid service with Docomo handsets and compatible credit cards.

Despite some failures the mobile payment world is attractive to many players. In May research group Gartner predicted that worldwide mobile payment transaction volumes would

surpass $171.5 billion in 2012, a 61% increase on the previous year. The firm also estimated that the number of mobile payment users would reach 212.2 million in 2012, up from 160.5 million in 2011.

“We expect global mobile transaction volume and value to average 42% annual growth between 2011 and 2016, and we are forecasting a market worth $617 billion with 448 million users by 2016,” said Sandy Shen, research director at Gartner. “This will bring opportunities for service and solution providers who will need to cater to the local demand patterns to customise their offerings.”

The mobile payments market will experience fragmented services and solutions for the next two years, says Gartner, as technology providers cater their solutions to the local market that will be using different access technologies, business models and partners, and under different regulatory conditions.

SMS will be the dominant access technology in developing markets because of the constraints of mobile devices and the ubiquity of SMS. Web/WAP is the preferred access technology in North America and Western Europe where mobile internet is commonly available and activated on user devices. Gartner expects web/WAP access to account for about 88% of total transactions in North America and about 80% in Western Europe by 2016. NFC transactions will remain relatively low through 2015, although growth will start to pick up from 2016.

“NFC payment involves a change in user behaviour and requires collaboration among stakeholders that include banks, mobile carriers, card networks and merchants,” said Shen. “It takes time for both to happen, so we don’t expect NFC payments to come into the mass market before 2015. In the meantime, ticketing, rather than retail payment, will drive NFC transactions.”

But it seems user behaviour cannot be forced – during the London Olympics mobile payment devices were deployed around the official venues throughout the UK, with games-goers forced to use Visa cards or cash; outlets displayed the

sign “Proud to only accept Visa”. This was a controversial step and generated much negative comment.

It also may not have resulted in the filip for cashless payments that was hoped for. Figures from UK ATM network operator Link suggest that cash use increased during the games. The network operator announced that withdrawals were up by 4.6% during the games, compared to the same 17 day period the year before; a total of £270 million more cash.

Gareth Lodge, senior analyst at research firm Celent, says the Olympics were a missed opportunity for contactless mobile payments. Writing about his experiences in attending an Olympic event, he pointed out that he saw no-one making a contactless payment, but saw plenty of people paying in cash. “Instead of the industry showcasing the technology of the future, it actually showed why cash is not going to disappear anytime soon. Customers don’t care about anyone’s pride when buying something – the industry has to remember it’s about why they are making a transaction, not our feelings. Sadly, cash won gold in this case, whilst I think other forms of payment simply failed to qualify for the finals.”

Where does this leave banks? A July 2012 report by Carlisle & Gallagher Group in the US – Mobile Wallet Reality Check: How will you stay top of wallet? – reveals that of the 48% of respondents who were interested in mobile wallets, 80% would use PayPal if it offered banking services. Google and Apple were also cited as preferred options.

Mobile wallet interest among the 605 US consumers surveyed online was skewed toward younger age groups and more affluent consumers (with household income of more than $50,000).

“The study confirms what banks may have feared: the mobile wallet market is up for grabs. Over the next decade, major technology players, retail providers, mobile carriers, start-ups and financial institutions will fight to make the mobile wallet a reality, allowing people to pay for almost everything with their smartphones,” says the report. BT

Out of pocket in the mobile wallet raceThe mobile payments market remains fragmented, but the smartphone-based wallet will be a major battlefield, writes Heather McKenzie.

PaYMEntS: CoMMEntarYSEPTEMBEr 2012


SIBOS 2012 PREVIEWSeptember 2012

>

Ever since it was announced that the 2012 Sibos, Swift’s annual conference and exhibition, would be held in Osaka, regular attendees have been in a low-level tizz. Would their institutions or companies fork out for the airfare?

Nearly all of the banks and vendors whose representatives normally pack the aisles of the exhibition floor and the seats of the conference will be having a reduced presence this year, but that is relatively normal as the event makes its triennial pilgrimage around the globe.

Osaka was always a bit of an odd choice, but Asia is the hot place in world finance right now and at the time of planning the 2012 event – three or four years ago – China probably didn’t look too promising as a venue.

For those who haven’t attended a Sibos, it can be hard to see what the fuss is all about: on the basic measure of a trade show, the number of attendees, it is not particularly big – 5-6,000 delegates is typical. by contrast, an event like the mobile World Congress, which brings together the players in the mobile

telephone industry in barcelona each year, will attract 67,000 people. even the user conferences held by large It companies can pull in three or four times as many delegates.

So what’s special about Sibos? many people will say that there isn’t much, and it is fair to say that until quite recently it could be something of a talking shop: Swift would come along, tell everyone what was changing and how much it was going to cost, and in between all that, various industry figures would hand down their wisdom.

Over the past few years, that has changed, largely because Swift has changed. At the management level, this year saw the installation of Gottfried Leibbrandt as chief executive, replacing Lázaro Campos, who had held the post for the previous five years. Campos had been with Swift for 25 years. by contrast, Leibbrandt joined in 2005 to head Swift Standards, a newcomer who’d previously worked at mcKinsey.

the Standards area of Swift is one that has changed dramatically in roughly the same period as Leibbrandt

As Sibos delegates prepare for the trek to Japan, David Bannister looks at some of the highlights of the conference programme

Turning Japanese


opportunity to see another side of some well-known figures in the standards world”. One of the interviewees will be Leibbrandt.

Ambitiously, there will also be an attempt to develop a standard and market practice in real-time in the Hands-On sessions.

the main sessions also seem to have been touched by the innovation fairy, with new threads exploring important issues. One of these is the Compliance Forum, a new two-day dedicated programme “that reflects the growing impact of regulatory requirements on financial institutions”

It also reflects, a critical observer might say, the increasing moves Swift is making into the software products and services world, rubbing alongside existing systems vendors in what might yet prove to be an uncomfortable relationship. the Compliance Forum is organised by the Swift Sanctions & AmL team, and will “focus on the challenges of financial crime through a dedicated programme of panel debates, practical case studies, product introductions and deep-dive sessions”. those would be Swift product introductions, would they?

Well, it is Swift’s event ... BT

The train and subway system in Osaka is extensive and is the recommended way to get around the city. The bus system, which has information only in Japanese, is trickier to negotiate. Transfers between subway lines can be made on the same ticket, but changing to a railway line will attract a separate charge. Most subway rides around the city cost between ¥200-300.

The Osaka One-Day Pass is good for unlimited travel on the subway, city buses, and the New Tram, but does not include travel on the OTS Line. The card is not activated until it is inserted into a machine and can be purchased in advance for later usage. It can be bought at subway stations and kiosks, and costs ¥850.

More information on the public transport system in Osaka can be found at www.kotsu.city.osaka.jp/foreign/english/ticket/index.html

TaxisTaxis can be hailed in the street – a plate on the dashboard indicates whether a taxi is vacant (red) or not (green). During the night, a light on the roof of the taxi indicates it is vacant.

If you do not speak Japanese, or your destination is not a well-known place, it is recommended to give your driver the precise address of your destination on a piece of paper or point it out on a map. Taxi fares typically start around ¥600-700 for the first 2km and increase by about ¥100 for every additional 500m travelled. The cost also increases when the taxi is not moving for a prolonged time. Late in the evening (typically 2200 to 0500), rates are raised by typically 20%. The average fare from Intex into the centre of Osaka is about ¥6,000 (£48/€60/$76 at the time of writing).

Rise and shine with Professor Poppe – Standards Fundamentals Monday 29 October 10:30 - 11:15

Education session – Standards development made simpler, faster, better Monday 29 October11:15 - 12:00

Opening of the Standards Forum Monday 29 October12:00 - 12:15

Food for thought – Standards: Can a community medicine also remedy internal disorders? Monday 29 October12:30 - 13:30

Up close and personal with Satoru Yamadera, Bank of Japan Monday 29 October16:00 - 16:30

Standards hands-on – Developing a standard and a market practice in real-time Monday 29 October16:30 - 18:00

Rise and shine with Professor Poppe – Gaining implementation insights Tuesday 30 October09:00 - 09:30

Eyeopener – The silent and massive migration from IP v4 to IP v6

Tuesday 30 October09:30 - 10:15

Let’s get practical – Firsthand implementation advice for ISO 20022 Tuesday 30 October10:30 - 11:15

Education session – MyStandards: What is it – and why should you care? Tuesday 30 October11:15 - 11:45

Food for thought – Local characters in a global market: Messages that work for everyone Tuesday 30 October12:30 - 13:30

Business panel – Why Market Infrastructures are adopting ISO 20022 Tuesday 30 October14:00 - 14:45

Up close and personal with Gottfried Leibbrandt, Swift Tuesday 30 October15:15 - 15:45

Let’s get practical – A customer’s take on MyStandards Tuesday 30 October16:00 - 17:00

Rise and shine with Professor Poppe – The intimate relationship between market practices and standards Wednesday 31 October09:00 - 09:30

Eye-opener – Cars and standards: lessons from the automotive industry Wednesday 31 October09:30 - 10:15

Business panel – Harmonising the Asian bond market: What’s next? Wednesday 31 October10:30 - 11:15

Business panel – Standards and Trade Repositories Wednesday 31 October11:15 - 12:00

Food for thought – Standards and Regulation Wednesday 31 October12:30 - 13:30

Let’s get practical – The CGI secret to seamless corporate cash management Wednesday 31 October14:00 - 14:45

Let’s get practical – Best practices for Renminbi implementation Wednesday 31 October16:00 - 16:45

Meet the market practitioners Wednesday 31 October17:00 - 18:00

Rise and shine with Professor Poppe – The big Standards ‘Poppe’ Quiz Thursday 01 November09:00 - 09:45

Eye-opener – The rise and success of the bar code Thursday 01 November09:45 - 10:30

Let’s get practical – How can standards foster regional integration?

Thursday 01 November10:30 - 11:15

Business panel – XBRL Thursday 01 November11:15 - 12:00

Food for thought – Standardisation models: The jungle versus the walled garden


Business panel – Standards testing: The next big thing?


Up close and personal with Martine Brachet, Société Générale Thursday 01 November14:45 - 15:15

Closing of the Standards Forum Thursday 01 November15:15 - 15:45

Standards Forum programme


SIBOS 2012 PREVIEWSeptember 2012

has been there, though the roots of the change go back a little longer. In part at least, the profile of Swift Standards has grown because of the industry’s migration to the ISO 20022 standard, but this has also been mirrored by a realisation that standards and best practice can save money and improve operational

efficiency, both of which are highly desirable.

Alongside the Standards Forum area at Sibos, another unlikely d e v e l o p m e n t has been the emergence of the

Innotribe innovation programme. For its first few years, this could seem like something of a brainstorming, crowd-sourcing, forum for self-proclaimed innovators to vent their spleen about why the world was ignoring their genius, but – credit where it’s due – it has matured into a mechanism for identifying new ideas and providing an incubator for them, backed by money from Swift.

It has also acted as a vehicle for getting Swift into territories that the main Sibos event cant reach. this year its Innotribe Startup Challenge looked to introduce “the world’s most promising Fintech and Financial Service startups to a global community of over 9000 financial institutions, venture capitalists, angels and influencers actively investing in innovation”. more than 400 companies from around the world applied to participate in the 2012 Challenge and dozens of expert judges selected 45 semi-finalists at events held in Singapore, belfast and New York.

there is still time to vote on which will be taken to the final, to be held at Sibos in Osaka. Visit http://innotribestartup.com/ before 23 September.

Like the Standards Forum, Innotribe has become part of the mainstream Sibos programme – the Innotribe challenge winner will even be announced from the main stage at the end of the conference.

the Standards Forum seems to have picked up some tricks from the Innotribe approach. Always a lively affair, this year’s event features eye Opener sessions, where academics and field experts will share standardisation lessons learnt from non-financial industries; and Up Close and personal interviews, “an

“Innotribe has matured into a mechanism for identifying new ideas and providing an incubator for them.”

Sibos 2012 will take place at Intex Osaka from 29 October-1 November. Intex is at 1-2-102 Nanko-Kita, Suminoe-Ku. (www.intex-osaka.com, +81 666 12 8800).The centre is located 30 minutes from the city centre and about 50 minutes from Osaka International Airport

Registration opens at 08:00 on Monday, with the exhibition floor opening its doors at 09:00 as the conference sessions also get under way. An opening reception takes place on the exhibition floor on Monday from 17:30-19:30. Sibos is open from 09:00-18:00 (although you can register from 08:00). This year Sibos does not extend to Friday morning, which will disappoint only the hardiest of Sibos goers.

The conference centre contains ten shops that sell food and drink as well as other items such as disposable cameras. There are also four restaurants.

Banking Technology’s sister paper Daily News at Sibos will be distributed at Intex in the publication area. Be sure to look out for it on Monday, Tuesday, Wednesday and Thursday.

HotelsThere are 12 official Sibos hotels. Daily News at Sibos will be distributed at a select number of these hotels; look for them in the reception and lobby areas.

Hilton Osaka, 8-8 Umeda 1-chome, Kita-ku, +816 6347 7111Swissotel Nankai Osaka, 5-1-60 Namba Chuo-ku, +816 6646

1111The Ritz-Carlton Osaka, 2-5-25 Umeda, Kita-ku, +816 6343

7000Hotel New Otani Osaka, 1-4-1 Shiromi, Chuo-ku, +816 6941

1111Hotel Nikko Osaka, 1-3-3, Nishi-Shinsaibashi, Chuo-ku, +816

6244 1111Imperial Hotel Osaka, 8-50 Temmabashi 1-chome Kita-ku, +816

6881 1111Rihga Royal Hotel Osaka, 5-3-68 Nakanoshima, Kita-ku, +816

6448 1121

Sheraton Miyako Hotel Osaka, 6-1-55, Uehommachi, Tennoji-ku, +816 6773 1111

Westin Osaka, 1-1-20 Oyodonaka, Kita-Ku, +816 6440 1111ANA Crowne Plaza Osaka, 1-3-1 Dojimahama, Kita-ku, +816

6347 1112Hotel Universal Port, 1-1-111 Sakurajima, Konohana-Ku, Osaka-

Shi, + 816 6463 5000Ramada Osaka, 3-16-19 Toyosaki Kita-Ku, +816 6372 8181All hotels will be served by Sibos delegate coaches, which run

Monday-Thursday, 07:00-10:00 and 17:00-19:00 to and from the Intex centre.

ClimateThose of us in Northern Europe struggling through a particularly wet summer will not be pleased to hear that Osaka is a fairly rainy city – most months feature around ten days of rain. A raincoat, jacket or umbrella is considered an essential item of luggage for those visiting this city.However, the autumn and winter in Osaka tend to be drier th an other seasons. The typhoon season falls between September and the beginning of October so there is unlikely to be a repeat of Hong Kong’s typhoon fun.Average temperatures in October range from a high of 23C (73F) down to 14C and in November, from 17C to 9C.

Getting aroundDelegates who purchase a week-long participant pass and book an official Sibos hotel via the Sibos registration website will qualify for a complimentary, four-day subway pass when they register at Intex.

The Intex centre is well served by train, tram and ferry routes as well as by road. Nakafuto, on the Nanko Port Town subway line, is the closest subway station to the centre. Other subway stops include Cosmo Square (a 10 minute walk away) and Trade-centre Mae (eight minutes).

PRACTICAL INFORMATION


opportunity to see another side of some well-known figures in the standards world”. One of the interviewees will be Leibbrandt.

Ambitiously, there will also be an attempt to develop a standard and market practice in real-time in the Hands-On sessions.

the main sessions also seem to have been touched by the innovation fairy, with new threads exploring important issues. One of these is the Compliance Forum, a new two-day dedicated programme “that reflects the growing impact of regulatory requirements on financial institutions”

It also reflects, a critical observer might say, the increasing moves Swift is making into the software products and services world, rubbing alongside existing systems vendors in what might yet prove to be an uncomfortable relationship. the Compliance Forum is organised by the Swift Sanctions & AmL team, and will “focus on the challenges of financial crime through a dedicated programme of panel debates, practical case studies, product introductions and deep-dive sessions”. those would be Swift product introductions, would they?

Well, it is Swift’s event ... BT

The train and subway system in Osaka is extensive and is the recommended way to get around the city. The bus system, which has information only in Japanese, is trickier to negotiate. Transfers between subway lines can be made on the same ticket, but changing to a railway line will attract a separate charge. Most subway rides around the city cost between ¥200-300.

The Osaka One-Day Pass is good for unlimited travel on the subway, city buses, and the New Tram, but does not include travel on the OTS Line. The card is not activated until it is inserted into a machine and can be purchased in advance for later usage. It can be bought at subway stations and kiosks, and costs ¥850.

More information on the public transport system in Osaka can be found at www.kotsu.city.osaka.jp/foreign/english/ticket/index.html

TaxisTaxis can be hailed in the street – a plate on the dashboard indicates whether a taxi is vacant (red) or not (green). During the night, a light on the roof of the taxi indicates it is vacant.

If you do not speak Japanese, or your destination is not a well-known place, it is recommended to give your driver the precise address of your destination on a piece of paper or point it out on a map. Taxi fares typically start around ¥600-700 for the first 2km and increase by about ¥100 for every additional 500m travelled. The cost also increases when the taxi is not moving for a prolonged time. Late in the evening (typically 2200 to 0500), rates are raised by typically 20%. The average fare from Intex into the centre of Osaka is about ¥6,000 (£48/€60/$76 at the time of writing).

Rise and shine with Professor Poppe – Standards Fundamentals Monday 29 October 10:30 - 11:15

Education session – Standards development made simpler, faster, better Monday 29 October11:15 - 12:00

Opening of the Standards Forum Monday 29 October12:00 - 12:15

Food for thought – Standards: Can a community medicine also remedy internal disorders? Monday 29 October12:30 - 13:30

Up close and personal with Satoru Yamadera, Bank of Japan Monday 29 October16:00 - 16:30

Standards hands-on – Developing a standard and a market practice in real-time Monday 29 October16:30 - 18:00

Rise and shine with Professor Poppe – Gaining implementation insights Tuesday 30 October09:00 - 09:30

Eyeopener – The silent and massive migration from IP v4 to IP v6

Tuesday 30 October09:30 - 10:15

Let’s get practical – Firsthand implementation advice for ISO 20022 Tuesday 30 October10:30 - 11:15

Education session – MyStandards: What is it – and why should you care? Tuesday 30 October11:15 - 11:45

Food for thought – Local characters in a global market: Messages that work for everyone Tuesday 30 October12:30 - 13:30

Business panel – Why Market Infrastructures are adopting ISO 20022 Tuesday 30 October14:00 - 14:45

Up close and personal with Gottfried Leibbrandt, Swift Tuesday 30 October15:15 - 15:45

Let’s get practical – A customer’s take on MyStandards Tuesday 30 October16:00 - 17:00

Rise and shine with Professor Poppe – The intimate relationship between market practices and standards Wednesday 31 October09:00 - 09:30

Eye-opener – Cars and standards: lessons from the automotive industry Wednesday 31 October09:30 - 10:15

Business panel – Harmonising the Asian bond market: What’s next? Wednesday 31 October10:30 - 11:15

Business panel – Standards and Trade Repositories Wednesday 31 October11:15 - 12:00

Food for thought – Standards and Regulation Wednesday 31 October12:30 - 13:30

Let’s get practical – The CGI secret to seamless corporate cash management Wednesday 31 October14:00 - 14:45

Let’s get practical – Best practices for Renminbi implementation Wednesday 31 October16:00 - 16:45

Meet the market practitioners Wednesday 31 October17:00 - 18:00

Rise and shine with Professor Poppe – The big Standards ‘Poppe’ Quiz Thursday 01 November09:00 - 09:45

Eye-opener – The rise and success of the bar code Thursday 01 November09:45 - 10:30

Let’s get practical – How can standards foster regional integration?


Business panel – XBRL Thursday 01 November11:15 - 12:00

Food for thought – Standardisation models: The jungle versus the walled garden


Business panel – Standards testing: The next big thing?


Up close and personal with Martine Brachet, Société Générale Thursday 01 November14:45 - 15:15

Closing of the Standards Forum Thursday 01 November15:15 - 15:45

Standards Forum programme


For us, Sibos represents a unique opportunity for us to spend time with our clients, build our relationships with them and better understand their needs. This year is no different and we’ll be spending important time talking with our clients. It is also a great opportunity to see many of our Asian clients given Sibos’ location. There are so many regional differences and nuances, whether it stems from regulatory changes, different banking models and strategies which are all impacting client needs, so these will be interesting discussions.

The agenda contains some interesting sessions on mobile payments/banking, a key development for the next five years. It also offers opportunities for discussing ways of enhancing operational/back-office efficiency, as even stronger cost management will be also be a key theme. The real challenge is to pull the differing opportunities together into a programme that delivers clear and tangible results, so it’s the conversations around how best to implement that I hope will be really insightful.

Our clients are the primary reason we attend Sibos. The conference provides a great opportunity to spend quality time with them and to better understand their plans. Sibos discussions ultimately set the tone for conversations we have the following year. As a Product Head it’s also a great opportunity to absorb new thinking by talking to peers and attending conference sessions, helping shape the product roadmap for the years ahead.

The conference itself will be compelling, with particular focus on LEI and other regulatory and compliance topic, but don’t be surprised to see regional confidence in evidence in many of the sessions. It will be interesting to see how exhibitors are reacting to the squeeze and what kind of show they can put on given the additional overhead implied by the location. And finally the networking and socialising – often a very valuable part of a successful Sibos.

As a vendor I have to be candid and say ‘the exhibition floor’: that is where it happens for us We look forward to some good dialogue with clients, prospects and other stakeholders. Sibos is for us the most efficient meeting ground in the annual diary. Content driven networking for a week is good fun.

The Sibos agenda is always pretty broad and varied and this year is no exception. As I mentioned before, regulation is going to be a key area on this year’s agenda and also the standards discussions relevant to Asia. What will also be particularly interesting is the dialogue around the evolution of relationships, how partnerships can be taken to the next level, particularly when there are home market advantages or regional specialisms which can be leveraged. Sibos is always a good milestone to address these.

The agenda offers a great opportunity to mix with colleagues and friends, both old and new; to spend time exploring key influences on, and issues for, our industry; and, hopefully, a little time to see something of Japan. I’m pretty happy with it.

In my view, it’s less about what is missing as there is such a wide variety of topics on the agenda. By necessity, areas like standards and technology are addressed each time. I’m more interested in seeing how the dialogue has moved on, what’s evolved and the progress made since last year, on topics like regulation, payment innovation and global standards in particular.

I personally would like to see more emphasis on technology and what the future holds. I know that operational issues and “business as usual” often drive the debate, but a vision of how technology can support, encourage and enable the changes that have to happen should be more prominent in the agenda.

Given Lloyds Banking Group’s support of London 2012, I’m hoping that I can take some inspiration from the recent Olympics and be match fit for this week long marathon! The London 2012 Olympic Games experience has confirmed that by aiming high, by making a difference together, by challenging ourselves to be the best, by focusing on our goals, then anything is possible. It’s this same approach that we intend to bring to Sibos.

I’m looking forward to the whole event, but - with a full and busy agenda for the four days - it’s going to be hard to get to see and hear everything that I’d like to. I’m least looking forward to some of the difficult choices that will have to be made!

Pace yourself. It’s exhilarating and rewarding, but on the flipside it can also be draining. Like the Olympics, there are so many things going on at once, you’ll inevitably find it difficult to slot everything in. Try to create a schedule that mixes client dialogue, treading the boards and seeing your contacts and peers, and attending some of the most relevant conference sessions.

Shoes. Sensible shoes, well worn in, with good socks or hosiery and plenty of relieving foot spray. Be adventurous outside the event – Osaka is a very safe, fascinating city, but beware! It’s easy to get lost, and it can seem intimidating. In Japan I’ve always found it useful to carry the name and address of my hotel or where I’m going on a piece of paper in Kanji, then you can rely on a taxi driver to get you safely there.

Some very practical tips: Pack some good shoes. A well booked and organised agenda with meetings, and a team like ours that builds on each other’s strength, is passionate about the common goal and has fun whilst doing so.

Which part of the event are you most interested in?

What issues are missing from the agenda that you’d like to

see addressed?

If you’ve been to Sibos before, what are your tips for the

event? If not, what are you most/least looking forward to?


SIBOS PREVIEWSeptember 2012

What will be the effect of Sibos being in Asia this year?

The great thing about Sibos moving around each year means that the conference agenda, its speakers and delegates can focus on a different region. With this year’s conference taking place in Osaka, it presents a great opportunity for us to meet many of our clients, particularly those based in Asia, and hear their perspectives.

This is just the third time that SIBOS has been held in Asia in the near 35 year history of the event, too few given the growth in its economic and trading influence of the continent over that period. Holding the event in Osaka is acknowledgement of the ever-growing importance of Asian countries, banks and payments to the global economy and financial system.

Asia’s continued economic growth will naturally be a pervading theme. It will be interesting to see firsthand how the region’s expansion, particularly that of China and India, sits against the choppy global economic climate, and to hear from clients how that impacts their businesses. I also expect the delegations to be at a senior level, which may result in more strategic dialogue.

Sibos in Osaka will take the focus away from the troubled Western banking system, and highlight the relatively benign circumstances the Asia Pacific financial services industry finds itself in. My feeling is that it will be forward looking, and highlight the regional opportunities, and the global opportunities that the regions banks have.

There are two sides to this coin: there is always a lot of talk about Sibos being in a particular region and that being a ‘large’ or a ‘small’ Sibos. In reality we at Clear2Pay have never seen a difference. A good Sibos is a well prepared Sibos in terms of planning customer meetings and dialogue with partners – and that goes for any region. We are excited about it being in APAC as it is a region where we see a lot of activity in modernisation of payment environments and we currently have a number of strategic discussions going on.

Regulation is a theme regularly at the front of everyone’s minds, but this year more so than ever. Regulation is the biggest challenge facing our clients right now and we will be having lots of discussions with them to ascertain how best we can work with them to ensure they meet these requirements. During our meetings with clients, we’ll also be looking at how we can add value through the products we offer, particularly on the transaction banking side during Sibos as we see this area as the foundation of the banking relationship.

It’s great to see SIBOS discussing many of the same topics and themes that Fujitsu believes are central to the future of payments/banking –for example, Cloud services; renewing and engineering legacy platforms; and the use of shared service centres. With the conference being held in our home market where we have already developed and deployed so many different solutions for clients, we’re looking forward to being able to “show” as well as “tell”.

Post-crisis regulation is filtering through every client discussion we have. Regulatory change has always been at the heart of the Sibos debate, but this year, I expect the intensity of dialogue to be greater. In particular, the challenges faced by the industry in interpreting what new regulation means or may mean in practice. Banks are looking for strategic and practical support on what local and global regulation means for their business, and the steps they need to take to achieve compliance.

For Colt, infrastructure renewal and rebuilding for the future. Our key themes of agility, flexibility and elasticity of future state solutions will chime with the regional optimism, ambition and opportunities.

Our focus this year be onthe future – the ‘crisis’ mindset is developing into a ‘new reality’ mindset and we see many banks eager to plan ahead again. The big difference is that we have to plan for the widest possible range of scenarios. What continues is technology advance and changing customer behaviour – banks are very aware of their opportunity to rebuild that customer relationship. Payments sit at the heart of that and we are working to converge the payment experiences that people have in a variety of roles into one, regardless of the payment type.

What are the key themes for you/your institutions?

Mandeep Ahluwalia,Global Head of banks Lloyds bank Wholesale banking & markets

Anthony Duffy,retail banking, Fujitsu UK&I

Peter Jameson,FI product head, bank of America merrill Lynch

Hugh Cumberland,business development manager, Colt

Warren Gardiner, chief product and strategy officer, Clear2pay


For us, Sibos represents a unique opportunity for us to spend time with our clients, build our relationships with them and better understand their needs. This year is no different and we’ll be spending important time talking with our clients. It is also a great opportunity to see many of our Asian clients given Sibos’ location. There are so many regional differences and nuances, whether it stems from regulatory changes, different banking models and strategies which are all impacting client needs, so these will be interesting discussions.

The agenda contains some interesting sessions on mobile payments/banking, a key development for the next five years. It also offers opportunities for discussing ways of enhancing operational/back-office efficiency, as even stronger cost management will be also be a key theme. The real challenge is to pull the differing opportunities together into a programme that delivers clear and tangible results, so it’s the conversations around how best to implement that I hope will be really insightful.

Our clients are the primary reason we attend Sibos. The conference provides a great opportunity to spend quality time with them and to better understand their plans. Sibos discussions ultimately set the tone for conversations we have the following year. As a Product Head it’s also a great opportunity to absorb new thinking by talking to peers and attending conference sessions, helping shape the product roadmap for the years ahead.

The conference itself will be compelling, with particular focus on LEI and other regulatory and compliance topic, but don’t be surprised to see regional confidence in evidence in many of the sessions. It will be interesting to see how exhibitors are reacting to the squeeze and what kind of show they can put on given the additional overhead implied by the location. And finally the networking and socialising – often a very valuable part of a successful Sibos.

As a vendor I have to be candid and say ‘the exhibition floor’: that is where it happens for us We look forward to some good dialogue with clients, prospects and other stakeholders. Sibos is for us the most efficient meeting ground in the annual diary. Content driven networking for a week is good fun.

The Sibos agenda is always pretty broad and varied and this year is no exception. As I mentioned before, regulation is going to be a key area on this year’s agenda and also the standards discussions relevant to Asia. What will also be particularly interesting is the dialogue around the evolution of relationships, how partnerships can be taken to the next level, particularly when there are home market advantages or regional specialisms which can be leveraged. Sibos is always a good milestone to address these.

The agenda offers a great opportunity to mix with colleagues and friends, both old and new; to spend time exploring key influences on, and issues for, our industry; and, hopefully, a little time to see something of Japan. I’m pretty happy with it.

In my view, it’s less about what is missing as there is such a wide variety of topics on the agenda. By necessity, areas like standards and technology are addressed each time. I’m more interested in seeing how the dialogue has moved on, what’s evolved and the progress made since last year, on topics like regulation, payment innovation and global standards in particular.

I personally would like to see more emphasis on technology and what the future holds. I know that operational issues and “business as usual” often drive the debate, but a vision of how technology can support, encourage and enable the changes that have to happen should be more prominent in the agenda.

Given Lloyds Banking Group’s support of London 2012, I’m hoping that I can take some inspiration from the recent Olympics and be match fit for this week long marathon! The London 2012 Olympic Games experience has confirmed that by aiming high, by making a difference together, by challenging ourselves to be the best, by focusing on our goals, then anything is possible. It’s this same approach that we intend to bring to Sibos.

I’m looking forward to the whole event, but - with a full and busy agenda for the four days - it’s going to be hard to get to see and hear everything that I’d like to. I’m least looking forward to some of the difficult choices that will have to be made!

Pace yourself. It’s exhilarating and rewarding, but on the flipside it can also be draining. Like the Olympics, there are so many things going on at once, you’ll inevitably find it difficult to slot everything in. Try to create a schedule that mixes client dialogue, treading the boards and seeing your contacts and peers, and attending some of the most relevant conference sessions.

Shoes. Sensible shoes, well worn in, with good socks or hosiery and plenty of relieving foot spray. Be adventurous outside the event – Osaka is a very safe, fascinating city, but beware! It’s easy to get lost, and it can seem intimidating. In Japan I’ve always found it useful to carry the name and address of my hotel or where I’m going on a piece of paper in Kanji, then you can rely on a taxi driver to get you safely there.

Some very practical tips: Pack some good shoes. A well booked and organised agenda with meetings, and a team like ours that builds on each other’s strength, is passionate about the common goal and has fun whilst doing so.

Which part of the event are you most interested in?

What issues are missing from the agenda that you’d like to

see addressed?

If you’ve been to Sibos before, what are your tips for the

event? If not, what are you most/least looking forward to?

Execution services provider Neonet has formed an agreement with marco polo Network, an emerging markets platform provider, to extend its reach into new markets outside the firm’s core european equities offering.

Neonet will use the marco polo Network specifically to access emerging markets, while marco polo clients will gain access to support and advice services offered by Neonet across europe’s equity markets.

marco polo Network was founded in 2000, and connects to 75 local exchanges in 80 emerging markets through a network of 150 in-country broker dealers.

“teaming up with marco polo Network, with their unmatched reach into emerging markets, is an ideal addition to Neonet’s offering,” said Joacim Wiklander, chief executive of Neonet Securities. “this partnership is in line with our strategy to add value to our clients through services and partners that extend our core offering for european markets.”

Neonet currently serves clients in 20 countries. the firm is owned by private equity investment firm Nordic Capital Fund VII, based in Sweden. BT

Futures and OtC derivatives trading venue Intercontinentalexchange and Latin American fixed income

depository Cetip have launched a brazilian fixed income trading platform, Cetip trader, which aims to provide efficiencies for fixed income market participants in brazil.

ICe claims that users will benefit from improved transparency, price formation and workflow automation through the platform’s combination of electronic trading, voice confirmation, straight-through processing and real-time and historical data. On the new platform, buy and sell orders settle bilaterally. Users can send requests for quote messages to multiple dealers. Cetip Voice provides confirmation of voice trades. Cetip trader also supports straight-through processing, allocations processing and depository registration via a version of ICe Link, the firm’s swaps clearing platform, adapted to the brazilian bond market.

In addition, the platform offers two clearing tools - limit order volume clearing and volume clearing - which are designed to provide price formation during the auction process and increase trade volume after a level is defined by the market, respectively.

“ICe was the natural choice to develop this tool with us because of its technology expertise and ability to adapt this platform to the brazilian market,” said Carlos ratto, commercial, products, marketing and communications officer at Cetip.

brazil has seen an inflow of trading technology offerings across multiple asset classes in recent years. US exchange operators bAtS Global markets and Direct edge have both separately expressed interest in launching an equities trading platform in the country, while several large brokers including Jp morgan have launched algorithmic trading tools in brazil to capitalise on the growing sophistication of market participants.

Separately, ICe obtained approval from US regulator the Commodity Futures trading Commission in June to operate its ICe trade Vault as a swap data repository for commodities, interest rate swaps, credit default swaps and foreign exchange. the firm aims to capitalise on the transfer of OtC derivatives onto centrally-cleared platforms, as part of the US Dodd-Frank reforms which are due to take effect by January 2013. BT

Neonet partners with Marco Polo Network

ICE and Cetip debut Brazilian fixed income trading platform

Tieto steps into UK private client market


Nordic It giant tieto has introduced its real-time private client stockbroking system to

the UK and Irish markets after a year of development and planning.

teito Securities is a multi-asset class system covering equities, swaps (CFDs and spread-betting), FX, futures, options, fixed income, commodities and OtC derivatives.

Christopher Gregory, who is heading business development for the UK operation, says that it provides a generic back office with a single integrated business process from front-to-back.

“What is particularly different about tieto is the architecture,” he said. “every other system has a front-, middle- and back-office component. tieto has a single business process from the generation of a portfolio to order execution – the system already knows the allocation and other details.” missing information can be added by front-office staff “creating a virtuous circle of data improvement”, he says.

Gregory also points out that the architecture was developed recently: “It wasn’t built for talisman and adapted for Crest,” he said, referring to the long-defunct London Stock exchange system replaced by Crest in 1996.

the system is set up with a many-to-many account structure, meaning that one client account can hold multiple asset classes, settling against multiple venues. In the back-office part of the process only the messaging adapter varies according to the Central Securities Depositary and Swift agent. Currently tieto Securities has 64 customer to CSD/Swift interfaces, including euroclear UK & Ireland Crest, Oslo VpS, Stockholm VpC and euroclear Finland HeX. the largest existing customer processes some 50,000 settlements a day.

the system, delivered on a software-as-a-service basis, also features auto routing for best execution, linked to the software’s reporting feature to generate client best execution reports.

According to Gregory, private client firms face a choice of systems that have been adapted from institutional platforms, or from private banking systems, and which don’t address their needs. BT

really good for their image, as they will be seen by the market as a positive force driving fair competition and better service for market participants.”

In addition to central clearing, new capital requirements under basel III will make the remaining OtC contracts more expensive, providing further incentive for market participants and market operators to expand the range of exchange-traded derivatives products traded. that can only be to the benefit of new markets that offer listed and OtC derivatives on a single platform, according to Omgeo’s Freeman.

“the decline of the OtC markets as they come under pressure from regulators is accelerating the growth of the futures markets, both in terms of new products and new entrants,” he said. “the growing complexity of global futures markets is likely to draw in more market entrants, and generate a wider range of products for market participants to choose from.” BT

MARKETS &INVESTMENTS


September 2012


US derivatives giant Cme Group’s plans to create a London-based derivatives exchange, the first step in its european ambitions, will provide market participants with greater product choice in a sector that has traditionally been

dominated by two large firms - but not directly increase competition, say observers.Cme europe will begin trading foreign exchange futures products in mid-2013, if

it succeeds in obtaining the necessary regulatory approval from the UK’s Financial Services Authority. robert ray, currently managing director, products and services at Cme Group, will become chief executive of Cme europe. Cme Globex will be used as the electronic trading platform and Cme Clearing europe, which launched in may 2011, will provide central counterparty clearing services.

At first sight, the move represents a potential threat to the position of the two dominant european derivatives exchanges, eurex, which is owned by Deutsche börse, and NYSe Liffe, which is owned by NYSe euronext. but drawing on the Cme Group’s focus on foreign exchange futures, as well as the lack of direct competition between many of the products listed on existing markets NYSe Liffe and eurex, some market participants suggest that Cme’s new european market is unlikely to directly challenge the existing incumbent exchanges.

“this does not directly increase competition between europe’s derivatives exchanges,” said tony Freeman, executive director, industry relations and market growth, emeA at post-trade services provider Omgeo. “Instead, it opens up more product choice for market participants by serving an area that was not completely covered by the existing two markets.”

Other market observers argue that, while the barriers to entry for a new market operator could be relatively high in terms of cost, especially in a head-to-head competition scenario, Cme Group’s high-profile announcement belies the astute strategy behind the firm’s european platform.

“the truth is a lot more subtle than a simple ‘Cme takes on NYSe Liffe and eurex’ scenario,” said Steve Grob, director of european strategy at technology provider Fidessa “History shows the difficulty of capturing open interest liquidity from an incumbent exchange - many have tried and failed. but the Cme plan in europe is clever. It doesn’t tackle eurex and Liffe head on from day one. Instead, Cme is focusing on currency futures, drawing on the firm’s strengths in one of its most liquid product areas.”

While other operators such as the London Stock exchange’s turquoise Derivatives platform struggled to gain any traction, partly because the relevant indices were owned by the rival exchanges, making it difficult to develop and support alternative products, Cme has already built up a european presence, partly through its european clearing operation, which now accounts for 20% of its customer base, according to the firm’s own reports.

“We continue to see an increase in business coming from our diverse set of customers in europe,” said terry Duffy, executive chairman and president, Cme Group. “Having an exchange in London that can leverage the central counterparty model of Cme Clearing europe will allow us to align ourselves even more closely with our regional customers in both listed futures and OtC markets, and provide additional opportunities to our expanding non-US customer base.”

Cme Group’s european plans also build on the firm’s ambitions to clear OtC derivatives on swap exchange facilities and organised trading facilities in the US and europe respectively. Under the european market infrastructure regulation, which is due to take effect by January 2013, the majority of OtC derivatives contracts will have to be centrally cleared and reported. the regulation is an attempt to adhere to the G-20 nations’ commitment to reduce systemic risk in OtC derivatives markets by increasing transparency. building up a strong OtC clearing business will create a pool of liquidity that could serve as a base for Cme to eventually draw in more listed derivatives onto its platform.

“It’s a smart start to a big plan,” said Grob. “Once they get established, the Cme will push the regulators to clamp down on the proprietary clearing silos. that could be

CME’s European derivatives push will increase choice – but not competition

Chi-X Canada prepares new retail ATS for early 2013

Alternative trading system Chi-X Canada, a subsidiary of global platform provider Chi-X Global,

has set out its plans to launch a second lit trading venue, CX2 AtS, in the first quarter of 2013.

Chi-X Canada said that the new platform will offer a different pricing model to the firm’s existing Canadian venue, and will focus on attracting and supporting retail investors. market participants on Chi-X Canada will be able to use their existing connectivity to access CX2. the launch is still subject to regulatory approval.

“Since our launch we have been committed to providing greater transparency and the means to reduce execution costs,” said Dan Kessous, chief executive of Chi-X Canada. “CX2 aims to target under-serviced areas of the market such as institutional and retail investors. We’re excited to build upon Chi-X’s history of innovation with this launch.”

Canada’s market structure is due to change dramatically in the near future. A consortium of banks under the name maple Group acquired an 80% stake in incumbent exchange tmX Group at the end of July. maple also acquired Alpha trading, a rival exchange group that also operates a dark pool, Alpha IntraSpread, earlier this month, together with Canadian clearing house and securities depository CDS. the deal effectively left Chi-X Canada as the only major alternative equities trading platform in the country.

Chi-X Canada achieved 23% Canadian equity market share in mid-August, an all-time record for the firm that surpassed its previous record, 15%. However, Chi-X Canada’s monthly market share for July was 13.65%, putting it in third place behind Alpha (16.04%) and tmX Group’s toronto Stock exchange (60.52%). BT

“Since our launch we have been committed to providing greater transparency.”

Execution services provider Neonet has formed an agreement with marco polo Network, an emerging markets platform provider, to extend its reach into new markets outside the firm’s core european equities offering.

Neonet will use the marco polo Network specifically to access emerging markets, while marco polo clients will gain access to support and advice services offered by Neonet across europe’s equity markets.

marco polo Network was founded in 2000, and connects to 75 local exchanges in 80 emerging markets through a network of 150 in-country broker dealers.

“teaming up with marco polo Network, with their unmatched reach into emerging markets, is an ideal addition to Neonet’s offering,” said Joacim Wiklander, chief executive of Neonet Securities. “this partnership is in line with our strategy to add value to our clients through services and partners that extend our core offering for european markets.”

Neonet currently serves clients in 20 countries. the firm is owned by private equity investment firm Nordic Capital Fund VII, based in Sweden. BT

Futures and OtC derivatives trading venue Intercontinentalexchange and Latin American fixed income

depository Cetip have launched a brazilian fixed income trading platform, Cetip trader, which aims to provide efficiencies for fixed income market participants in brazil.

ICe claims that users will benefit from improved transparency, price formation and workflow automation through the platform’s combination of electronic trading, voice confirmation, straight-through processing and real-time and historical data. On the new platform, buy and sell orders settle bilaterally. Users can send requests for quote messages to multiple dealers. Cetip Voice provides confirmation of voice trades. Cetip trader also supports straight-through processing, allocations processing and depository registration via a version of ICe Link, the firm’s swaps clearing platform, adapted to the brazilian bond market.

In addition, the platform offers two clearing tools - limit order volume clearing and volume clearing - which are designed to provide price formation during the auction process and increase trade volume after a level is defined by the market, respectively.

“ICe was the natural choice to develop this tool with us because of its technology expertise and ability to adapt this platform to the brazilian market,” said Carlos ratto, commercial, products, marketing and communications officer at Cetip.

brazil has seen an inflow of trading technology offerings across multiple asset classes in recent years. US exchange operators bAtS Global markets and Direct edge have both separately expressed interest in launching an equities trading platform in the country, while several large brokers including Jp morgan have launched algorithmic trading tools in brazil to capitalise on the growing sophistication of market participants.

Separately, ICe obtained approval from US regulator the Commodity Futures trading Commission in June to operate its ICe trade Vault as a swap data repository for commodities, interest rate swaps, credit default swaps and foreign exchange. the firm aims to capitalise on the transfer of OtC derivatives onto centrally-cleared platforms, as part of the US Dodd-Frank reforms which are due to take effect by January 2013. BT

Neonet partners with Marco Polo Network

ICE and Cetip debut Brazilian fixed income trading platform

Tieto steps into UK private client market


Nordic It giant tieto has introduced its real-time private client stockbroking system to

the UK and Irish markets after a year of development and planning.

teito Securities is a multi-asset class system covering equities, swaps (CFDs and spread-betting), FX, futures, options, fixed income, commodities and OtC derivatives.

Christopher Gregory, who is heading business development for the UK operation, says that it provides a generic back office with a single integrated business process from front-to-back.

“What is particularly different about tieto is the architecture,” he said. “every other system has a front-, middle- and back-office component. tieto has a single business process from the generation of a portfolio to order execution – the system already knows the allocation and other details.” missing information can be added by front-office staff “creating a virtuous circle of data improvement”, he says.

Gregory also points out that the architecture was developed recently: “It wasn’t built for talisman and adapted for Crest,” he said, referring to the long-defunct London Stock exchange system replaced by Crest in 1996.

the system is set up with a many-to-many account structure, meaning that one client account can hold multiple asset classes, settling against multiple venues. In the back-office part of the process only the messaging adapter varies according to the Central Securities Depositary and Swift agent. Currently tieto Securities has 64 customer to CSD/Swift interfaces, including euroclear UK & Ireland Crest, Oslo VpS, Stockholm VpC and euroclear Finland HeX. the largest existing customer processes some 50,000 settlements a day.

the system, delivered on a software-as-a-service basis, also features auto routing for best execution, linked to the software’s reporting feature to generate client best execution reports.

According to Gregory, private client firms face a choice of systems that have been adapted from institutional platforms, or from private banking systems, and which don’t address their needs. BT

really good for their image, as they will be seen by the market as a positive force driving fair competition and better service for market participants.”

In addition to central clearing, new capital requirements under basel III will make the remaining OtC contracts more expensive, providing further incentive for market participants and market operators to expand the range of exchange-traded derivatives products traded. that can only be to the benefit of new markets that offer listed and OtC derivatives on a single platform, according to Omgeo’s Freeman.

“the decline of the OtC markets as they come under pressure from regulators is accelerating the growth of the futures markets, both in terms of new products and new entrants,” he said. “the growing complexity of global futures markets is likely to draw in more market entrants, and generate a wider range of products for market participants to choose from.” BT


Markets & InvestMents: Frequency tradIngSeptember 2012

Speeding’s fi ne ...

>

an incident on 22 august in which the nasdaq stock market in new york was forced to cancel trades in Peet’s coffee and tea shares, after unusually high trading volumes in the stock sent values rocketing in the fi rst two minutes of trading, is only the latest in a long line of mishaps that have served to focus attention on highly automated trading strategies and their possible impact on equity market stability and investor confi dence.

earlier this month, broker Knight Capital was forced to temporarily suspend its market making activities, after a software glitch resulted in the incorrect entry of orders in NYSe-listed stocks to the market. the problem resulted in price fl uctuations that forced NYSe euronext to unwind trades in six stocks. It also cost Knight an estimated $440 million, prompting the bank to recapitalise itself following a deal with a group of investors including high-frequency market making fi rm GetCO and broker Jefferies.

Other recent equity market disasters include the Facebook IpO on the Nasdaq OmX market in may, which turned into a debacle when massive numbers of order messages overwhelmed the stock market’s trading engine in the opening minutes of trading, and exchange operator bAtS Global markets’ debut IpO on its own exchange, which was cancelled after a software problem left market participants unable to enter orders during the IpO auction process. Further back, the fl ash crash of may 2010, in which the US stock market briefl y crashed to the tune of $1 trillion before rebounding moments later, is widely seen as a major turning point in the decline of investor confi dence in equity markets.

With the high level of focus currently directed at HFt fl ows in global equity markets, calls have rebounded from various sources for greater control over trading strategies, including possible controls such as minimum order resting times, suggested by brussels-based public interest body Finance Watch, wider tick sizes, as suggested by the US trade body the Security traders Association, or circuit-breakers, promoted by the US Securities and exchange Commission. In europe, exchanges including Italy’s borsa Italiana and Germany’s Deutsche börse have introduced charging schemes for market participants that cancel a high-proportion of their orders, which are clearly aimed at HFt fi rms.

Yet not everyone is convinced that HFt fl ows are to blame for current equity market woes, nor that placing greater controls on such activity could constitute a solution. Alex Frino, chief executive at research fi rm Capital markets CrC, argues that there are three main kinds of HFt activity: market making, arbitrage and position taking – and that it is important to distinguish between them when weighing up possible market structure controls.

“there is no evidence that HFt exacerbates volatility per se,” he said. “I am concerned about some of the ‘solutions’ that are being proposed to control HFt fl ow. Circuit breakers, which cause a market halt when the market reaches a pre-defi ned threshold such as a 15% price movement, increase volatility. If you have a price approaching a limit, it could cause market panic. Also, if you shut down the market at the very moment when it most needs to fi nd price equilibrium, you are stopping the price formation process. When

Market supervisors should beware of rash moves towards the regulation and control of high-frequency trading strategies, reports Elliott Holley.

in other high-technology sectors of the economy, such as the aerospace industry.

“there are surprisingly few mandatory controls in place even today,” he said. “Small proprietary HFt firms are able to directly co-locate with exchange matching engines and introduce their automated trading strategies virtually without control. more processes to ensure quality control and adequate testing would be a sensible step towards improving the stability of global equity markets.”

While the european Securities and markets Authority published its guidelines on automated trading in may, in which the watchdog called on market participants to have adequate testing and monitoring controls in place, there is still no legally binding requirement in place that compels firms to conform to best practice. For rik turner, senior analyst, financial services technology at financial research firm Ovum, the Nasdaq and Knight Capital glitches confirm the need for regulatory action.

“this latest glitch can only increase the volume of calls to ban, or at least seriously restrict, the activities of the HFt community, though it is Ovum’s contention that, rather than imposing constraints on HFt, the regulators would do better to encourage the adoption of faster and better monitoring technology at the trading venues,” he said.

reforming europe’s market makers by mandating formal market making agreements and obligations has been suggested for some time by some observers. Yet even here, opinions differ, with some market participants contending that recent years have seen

successful alternative trading venues such as Chi-X europe and turquoise working out strong relationships with market makers from the outset, and others arguing over whether the market makers should be required to post liquidity, even in adverse conditions, as recently suggested by one draft of the upcoming miFID II legislation earlier this year.

“An obligation to remain in the market even in strongly adverse conditions is just not realistic,” said bowley. “You don’t stand on a railway line if a train is approaching. We should embrace technology, while taking care that it is used appropriately. regulation should enable markets, not block them.”

For Lehalle at CA Cheuvreux, the solution could be to align market making agreements with targeted taxes and incentives that will discourage only the kinds of HFt activity that pose the greatest risks to market stability. pointing to the reluctance of smaller proprietary HFt firms to register for market making status, he suggested that legitimate market makers should be exempted from HFt charges and taxes in exchange for registering for reasonable european market making obligations.

“We need quality assurance,” he said. “With the number of exchange outages and incidents reaching one or two every month, a combination of appropriate testing, responsible market making agreements and taxes on the firms that impose a cost to other market participants through predatory activities should help to restore balance and improve investor confidence.”BT


Markets & InvestMents: Frequency tradIngSeptember 2012

the market is reopened, there will be even more market uncertainty, leading to exacerbated price swings and increased volatility.”

According to Frino, market making HFt strategies actually absorb volatility by posting two-sided quotes that improve liquidity for market participants. Arbitraging can transfer or decrease volatility - the evidence is unclear. position taking momentum traders exacerbate volatility by following market moves, but conversely, contrarian traders dampen volatility by trading against excessive price moves in the market.

Other solutions have been suggested in different jurisdictions around the globe. In Australia, regulators want the brokers to filter orders before they enter the market. Yet Frino believes that such a move would risk unintended consequences, because nobody currently fully understands what imposing a filter would do to the market.

“It will slow things down, but we don’t know who will be affected most,” he said. “It could be that such a move would harm the market makers and arbitrageurs, who are helping to dampen volatility, and benefit the parasites who prey on institutional orders. by removing the ability of market makers to control their risk, it may make them unviable and cause them to withdraw from the market.”

meanwhile, proposals put forward by Finance Watch concerning minimum order resting times, which the organisation claims would allow institutional investors the chance to transact in meaningful blocks of liquidity, have also faced criticism from those who believe that resting times would discourage market makers from posting liquidity, because the longer durations required would expose them to more risk.

“the imposition of minimum order resting times is an insane solution,” said Frino. “this will advantage the parasites. It creates new risks for market makers and will likely just cause them to vacate the market. We need to study the effects properly before we rush into rash legislation.”

Other suggested solutions, such as widening tick sizes, would increase the cost of trading for market participants, according to Frino. While it would help the market makers by allowing them to make more profits from wider spreads, it would simultaneously disadvantage arbitrageurs by reducing the opportunities for trading on small price differences between markets. Furthermore, the imposition of a financial transaction tax, such as the one currently underway in France, or any other kind of charge targeted at HFt firms, simply

imposes a cost on the market while providing no benefit, he contends.

Irrespective of whether or not HFt is to blame for equity market volatility, evidence of an erosion in investor confidence is not hard to find. earlier this month, financial research firm tAbb Group carried out a survey of US broker-dealers, asset managers, hedge funds, execution venues and trading technology vendors that found some 26% of respondents have a very weak level of confidence; the figure in 2010 was just 3%. Only 2% of those surveyed between 6-13 August 2012 rated their confidence level as very high, down from 12% in may 2010.

“there’s concern that cracks in the system exposed during the 2010 flash crash and the recent rash of technology-specific issues are exposing the industry to unacceptable risks,” said Adam Sussman, tAbb partner, director of research and author of the report, entitled The Sky is Falling: US Equity Market Structure Confidence Survey Results. “We believe this erosion in market structure confidence during the past two years is due to tough market conditions, declining market volumes, the pipeline trading scandal and, more recently, botched IpOs.”

For Andrew bowley, co-head of electronic trading, europe at broker Nomura, the main priority should be to foster an industry-wide debate on the kind of market structure, and the kind of market making activities, that market participants want in equity markets.

“We have become over-excited as an industry by the term HFt,” added bowley. “the real issue is technology change. We are in a period of increasing automation, and markets are inherently competitive. participants with faster technology stand to gain – there’s nothing nefarious about that. but we do need a full and open debate about the role of market makers. europe’s equity trading volumes were horrendous in August. this is no time for small incremental experiments – instead, we need to look at the bigger picture.”

pointing out that all three technology problems at bAtS, Nasdaq and Knight have resulted from algorithmic software that was being used for the first time, bowley suggested that better testing procedures for all new trading technologies should be implemented.

“bAtS ran their own IpO on software that was being used for the first time, as did Nasdaq for the Facebook IpO,” he said. “Knight was also using a new algorithm for its trading in NYSe-listed stocks. In all three cases, the algorithms apparently hadn’t been tested adequately before use, and for me that is a key lesson the industry needs to learn.”

Other market participants concur. Charles-Albert Lehalle, head of quantitative research at CA Cheuvreux, suggested that the lack of testing procedures in financial markets stood at odds with standard practice

“The imposition of minimum order resting times is an insane solution,” said Frino. “This will advantage the parasites.”

in other high-technology sectors of the economy, such as the aerospace industry.

“there are surprisingly few mandatory controls in place even today,” he said. “Small proprietary HFt firms are able to directly co-locate with exchange matching engines and introduce their automated trading strategies virtually without control. more processes to ensure quality control and adequate testing would be a sensible step towards improving the stability of global equity markets.”

While the european Securities and markets Authority published its guidelines on automated trading in may, in which the watchdog called on market participants to have adequate testing and monitoring controls in place, there is still no legally binding requirement in place that compels firms to conform to best practice. For rik turner, senior analyst, financial services technology at financial research firm Ovum, the Nasdaq and Knight Capital glitches confirm the need for regulatory action.

“this latest glitch can only increase the volume of calls to ban, or at least seriously restrict, the activities of the HFt community, though it is Ovum’s contention that, rather than imposing constraints on HFt, the regulators would do better to encourage the adoption of faster and better monitoring technology at the trading venues,” he said.

reforming europe’s market makers by mandating formal market making agreements and obligations has been suggested for some time by some observers. Yet even here, opinions differ, with some market participants contending that recent years have seen

successful alternative trading venues such as Chi-X europe and turquoise working out strong relationships with market makers from the outset, and others arguing over whether the market makers should be required to post liquidity, even in adverse conditions, as recently suggested by one draft of the upcoming miFID II legislation earlier this year.

“An obligation to remain in the market even in strongly adverse conditions is just not realistic,” said bowley. “You don’t stand on a railway line if a train is approaching. We should embrace technology, while taking care that it is used appropriately. regulation should enable markets, not block them.”

For Lehalle at CA Cheuvreux, the solution could be to align market making agreements with targeted taxes and incentives that will discourage only the kinds of HFt activity that pose the greatest risks to market stability. pointing to the reluctance of smaller proprietary HFt firms to register for market making status, he suggested that legitimate market makers should be exempted from HFt charges and taxes in exchange for registering for reasonable european market making obligations.

“We need quality assurance,” he said. “With the number of exchange outages and incidents reaching one or two every month, a combination of appropriate testing, responsible market making agreements and taxes on the firms that impose a cost to other market participants through predatory activities should help to restore balance and improve investor confidence.”BT

Sparebank goes with TSYS for card management platform in Norway

Admiral extends The Logic Group deal

Barclaycard and Orange in Android phone firstSparebank 1, the Norwegian banking group, has signed an agreement to license

the prime 4 card management solution from tSYS. Sparebank 1 will deploy the solution to support its issuance and issuer processing of a range of masterCard

and Visa retail credit, charge, prepaid and contactless cards.Owned by an alliance of 16 cooperative banks, Sparebank 1 Gruppen has a major

presence across Norway with a total of 352 branches, making it one of the largest providers of financial products and services in the Norwegian market. the search for a card management solution and trusted partner was started in 2011, following the group’s decision to create its own card centre infrastructure.

“providing competitive banking products and services to consumers is our ultimate goal, and working with tSYS will help us realise further expansion in the area of cards and payments. tSYS met all our partner criteria and managed to differentiate themselves on many levels. they backed this up with a partnership model focused on security, reliability, growth and shared customer values,” said Øivind mellbye, project manager, Sparebank 1 Gruppen. prime 4 is a web-based, Service Orientated Architecture solution that provides single-platform support for multiple products and schemes, and is highly parameterised, allowing for faster speed to market and business agility.

“prime 4 will provide Sparebank 1 with a future-proof platform for expansion to support its business development strategy and future growth. this agreement also serves to reinforce our commitment to the Norwegian market and Nordic region as a whole,” said Gaylon Jowers, president of tSYS International.

the system is used by more than 130 financial institutions in more than 70 countries. BT

Admiral Group has announced a three year extension of its long-standing collaboration with the

Logic Group for its managed payment service, which supports secure and reliable acceptance of UK card-based payments across all Admiral Group brands and across multiple channels including call centres and websites.

In a move to future-proof the payment infrastructure, the Logic Group will continue to provide its core payment card validation and authorisation service, with 3D Secure security support for all internet transactions. through the added control mechanisms that the service provides, the Logic Group will now support the Admiral’s targets to combat fraud and control pCI DSS compliance costs.

mandy Healey, customer accounts manager at the Admiral Group said: “the Logic Group has delivered a reliable payment system aligned to our growing business which effectively supports our customer interaction across multiple channels. by using the Logic Group’s managed service, Admiral is assured that our payment infrastructure is in safe hands and will be kept up-to-date with technological and regulatory changes.”

mark Kusionowicz, marketing director, the Logic Group said: “We’re delighted to be able to extend our collaboration with

the Admiral Group. In a difficult regulatory environment where fraud is rife, the value and insight delivered in terms of identifying fraudulent transactions, combined with the reliability and strength of its managed payment service demonstrates the depth of our relationship.”

the managed payment Service currently processes approximately £18 billion of card transactions per year. the service has been designed to support all the latest developments in card payments including emV, contactless, dynamic currency conversion and pCI DSS. Within the service is a secure Ip network connection with built-in resilience. the service has the added benefit of a single supplier for the entire end-to-end card processing system.

the Logic Group’s core payment card validation and authorisation product is now extremely rich in functionality and is firmly established as europe’s leading integrated authorisation software solution. more than half of the UK’s top 100 retailers use the Logic Group payment solution to authorise their credit and debit card transactions as do many of the largest call centres and e-commerce websites. With support now available for unattended and wireless environments, multi-channel retailers can have a common platform and strategy across all store channels. BT

Orange and barclaycard have introduced the first Android smartphone compatible with the

Quick tap contactless payments service. Since the beginning of the month, new or upgrading Orange Samsung Galaxy SIII customers with a UK masterCard or Visa card can use Quick tap, enabling them to make mobile contactless payments nationwide.

Orange customers who take the Samsung Galaxy SIII from Orange Shops, Orange telesales and via the Orange web site will be able to use their handset to make convenient and secure contactless payments of up to £20 by tapping their phone on the point of sale device. Getting up and running involves downloading an app and activating the secure barclaycard service. Customers who activate the service before 5 October 2012 will also receive £50 free to spend using their phone.

Simeon bird, director of propositions, Orange UK, said: “We are really excited to be launching Quick tap payments on one of the most popular smartphones of the year. Contactless mobile payments are a secure and convenient alternative to cash and cards.”

tom Gregory, head of digital payments, barclaycard, said: “barclaycard is committed to making paying for things faster, safer and easier. With the launch of Quick tap payments on the Samsung Galaxy SIII, barclaycard is bringing a safe and secure new way to pay to customers of all UK banks. mobile payments are safe and have a full fraud guarantee and we’ve seen ever growing numbers of people using contactless to make quick and secure payments of up to £20.” BT


Mobile money specialist Monitise has announced a year-end group operating loss of £13.7 million, 7% higher than last year, on turnover up 136% at £36.1 million. The company said that the growing loss reflects “higher depreciation and amortisation resulting from peak investment made in scaling the capability of both the Monitise Enterprise Platform and in service delivery over the past two years”. Profitability in live operations was £10.6 million, up from £3.9 million last time.


September 2012


The mortgage industry saw a 23% jump in attempted fraud rates between April and June 2012, but overall fraud is down according to experian’s latest Fraud Index. Fraud fell by 3% year-on-year across financial services products with automotive finance

and insurance providers witnessing the biggest decreases during the period.A total of 39 in every 10,000 mortgage applications were identified as fraudulent between

April and June 2012, up from 32 in during the same period in 2011. experian’s fraud analysis also revealed that the majority of attacks on mortgage products continue to come from first party fraudsters, individuals misrepresenting their own circumstances. Almost a quarter (24%) of attempted mortgage fraud was due to individuals hiding adverse credit information and a further one in five (21%) applicants providing misleading employment histories.

Savings accounts saw a 109% uplift in fraud rates over during the period also. A total of 13 fraudulent applications in every 10,000 were detected, up from 6 in every 10,000 a year ago. third party identity fraudsters were responsible for the vast majority (88%) of fraudulent activity in this sector. 11 in every 10,000 falsified savings account applications were down to unrelated third parties. this kind of identity fraud is often perpetrated for money laundering or sleeper fraud purposes.

“Over the course of the last year, we have seen mortgages continue to be targeted at a high rate, with more people trying to misrepresent their personal, employment and credit information on applications to get properties out of their reach. At the same time, we have also seen an increase in the number of properties where the use of the property is misdeclared, such as applying for a regular residential mortgage on a buy-to-let property,” said Nick mothershaw, director of identity & fraud services at experian in the UK and Ireland. “meanwhile, deposit taking products – such as current and savings accounts – continue to be heavily targeted by third party identity fraudsters for money laundering purposes and as a sleeper platform from which to target more lucrative credit products.

Industry collaboration is a key tool in combating fraud, said mothershaw. “robust fraud prevention relies on thorough and efficient validation of customers’ identities and the information presented on the application form. It is vital that finance providers share comprehensive and timely information about finance applications and known frauds to help combat this common threat to the industry.”

the automotive finance industry saw a decrease of 32% in Q2. 16 in every 10,000 applications were discovered to be fraudulent, down from 24 in every 10,000 applications last year. Attempts at hiding adverse credit (64%) were still the most common method when applying for automotive finance.

Attempted fraud fell by 16% drop in the insurance sector. 10 in every 10,000 applications for insurance products were found to be fraudulent, down on the 12 in every 10,000 applications a year ago. 86% of insurance fraud attempted between April and June was committed by first party fraudsters.

14 in every 10,000 credit card applications were discovered to be fraudulent in Q2, seen an increase of 22% when compared to 12 in every 10,000 a year ago. While third-party fraudsters have historically been responsible for the majority of credit card fraud, experian’s analysis has shown that increasing numbers of first party fraudsters have targeted this particular product over the last year. In Q2 just over half (53%) of detected frauds targeting current accounts were perpetrated by first parties, which typically involved attempting to hide adverse credit histories in the application process.

Attempted current account fraud increased by 2% in Q2 and remains the most targeted financial product. 43 in every 10,000 applications were found to be fraudulent, up from 42 in every 10,000 in 2011 months ago. Over the last 12 months current account fraud has been driven primarily by first-party fraudsters, which have consistently been responsible for more than 70% of attempts.

experian’s Fraud Index is based on data derived from the National Hunter and Insurance Hunter fraud prevention systems, operated by experian on behalf of its members. these systems enable financial institutions to cross-match applications against over 100 million previous application records in order to spot commonalities and anomalies that are potentially indicative of fraud for further investigation. BT

Mortgage and savings fraud surges, but overall level is down says Experian

RETAIL

Rabobank builds on Thaler for direct German expansion

Rabobank has expanded its Internet Direct banking service into Germany, its sixth new

territory.the Internet Direct banking

initiative is an ambitious project to introduce completely online banking branches all over the world. So far, it has openedin adoption in belgium, Ireland, Australia, New Zealand and poland – the latter in cooperation with local player bGŽ. All of these setups use Callataÿ & Wouters’ thaler core banking software.

“When we knew we wanted to enter the German market with the rabobank IDb initiative, we knew that the thaler platform would serve us well, as it has been a crucial asset to us since our first go-live in 2001,” said Gert bouwman, global head of rabobank IDb.

In six months, Callataÿ & Wouters implemented thaler and the new startup bank was ready to run under the motto – ‘As direct as banking can be’. Apart from traditional savings products, raboDirect Germany also offers special types of notice accounts unique to the market, named raboSpar30 and raboSpar90.

“the pre-parameterisation and agility of thaler allowed us to set up new products easily,” says Klaus Vehns, general manager of raboDirect Germany, “more importantly, it’s also perfectly aligned with local regulations, which can be quite complex. because transparency is one of our key values, our customers can calculate taxes and income with our different types of products.”

raboDirect Germany is Callataÿ & Wouters’ second German banking customer in two years. “In our international expansion, Germany is a key target,” said marc De Groote, chief executive.“Currently, we are the only non-German software vendor in the local banking sector. Our second successful implementation there proves that we are more than ready to handle the local regulations and specifics.” BT

Sparebank goes with TSYS for card management platform in Norway

Admiral extends The Logic Group deal

Barclaycard and Orange in Android phone firstSparebank 1, the Norwegian banking group, has signed an agreement to license

the prime 4 card management solution from tSYS. Sparebank 1 will deploy the solution to support its issuance and issuer processing of a range of masterCard

and Visa retail credit, charge, prepaid and contactless cards.Owned by an alliance of 16 cooperative banks, Sparebank 1 Gruppen has a major

presence across Norway with a total of 352 branches, making it one of the largest providers of financial products and services in the Norwegian market. the search for a card management solution and trusted partner was started in 2011, following the group’s decision to create its own card centre infrastructure.

“providing competitive banking products and services to consumers is our ultimate goal, and working with tSYS will help us realise further expansion in the area of cards and payments. tSYS met all our partner criteria and managed to differentiate themselves on many levels. they backed this up with a partnership model focused on security, reliability, growth and shared customer values,” said Øivind mellbye, project manager, Sparebank 1 Gruppen. prime 4 is a web-based, Service Orientated Architecture solution that provides single-platform support for multiple products and schemes, and is highly parameterised, allowing for faster speed to market and business agility.

“prime 4 will provide Sparebank 1 with a future-proof platform for expansion to support its business development strategy and future growth. this agreement also serves to reinforce our commitment to the Norwegian market and Nordic region as a whole,” said Gaylon Jowers, president of tSYS International.

the system is used by more than 130 financial institutions in more than 70 countries. BT

Admiral Group has announced a three year extension of its long-standing collaboration with the

Logic Group for its managed payment service, which supports secure and reliable acceptance of UK card-based payments across all Admiral Group brands and across multiple channels including call centres and websites.

In a move to future-proof the payment infrastructure, the Logic Group will continue to provide its core payment card validation and authorisation service, with 3D Secure security support for all internet transactions. through the added control mechanisms that the service provides, the Logic Group will now support the Admiral’s targets to combat fraud and control pCI DSS compliance costs.

mandy Healey, customer accounts manager at the Admiral Group said: “the Logic Group has delivered a reliable payment system aligned to our growing business which effectively supports our customer interaction across multiple channels. by using the Logic Group’s managed service, Admiral is assured that our payment infrastructure is in safe hands and will be kept up-to-date with technological and regulatory changes.”

mark Kusionowicz, marketing director, the Logic Group said: “We’re delighted to be able to extend our collaboration with

the Admiral Group. In a difficult regulatory environment where fraud is rife, the value and insight delivered in terms of identifying fraudulent transactions, combined with the reliability and strength of its managed payment service demonstrates the depth of our relationship.”

the managed payment Service currently processes approximately £18 billion of card transactions per year. the service has been designed to support all the latest developments in card payments including emV, contactless, dynamic currency conversion and pCI DSS. Within the service is a secure Ip network connection with built-in resilience. the service has the added benefit of a single supplier for the entire end-to-end card processing system.

the Logic Group’s core payment card validation and authorisation product is now extremely rich in functionality and is firmly established as europe’s leading integrated authorisation software solution. more than half of the UK’s top 100 retailers use the Logic Group payment solution to authorise their credit and debit card transactions as do many of the largest call centres and e-commerce websites. With support now available for unattended and wireless environments, multi-channel retailers can have a common platform and strategy across all store channels. BT

Orange and barclaycard have introduced the first Android smartphone compatible with the

Quick tap contactless payments service. Since the beginning of the month, new or upgrading Orange Samsung Galaxy SIII customers with a UK masterCard or Visa card can use Quick tap, enabling them to make mobile contactless payments nationwide.

Orange customers who take the Samsung Galaxy SIII from Orange Shops, Orange telesales and via the Orange web site will be able to use their handset to make convenient and secure contactless payments of up to £20 by tapping their phone on the point of sale device. Getting up and running involves downloading an app and activating the secure barclaycard service. Customers who activate the service before 5 October 2012 will also receive £50 free to spend using their phone.

Simeon bird, director of propositions, Orange UK, said: “We are really excited to be launching Quick tap payments on one of the most popular smartphones of the year. Contactless mobile payments are a secure and convenient alternative to cash and cards.”

tom Gregory, head of digital payments, barclaycard, said: “barclaycard is committed to making paying for things faster, safer and easier. With the launch of Quick tap payments on the Samsung Galaxy SIII, barclaycard is bringing a safe and secure new way to pay to customers of all UK banks. mobile payments are safe and have a full fraud guarantee and we’ve seen ever growing numbers of people using contactless to make quick and secure payments of up to £20.” BT


Mobile money specialist Monitise has announced a year-end group operating loss of £13.7 million, 7% higher than last year, on turnover up 136% at £36.1 million. The company said that the growing loss reflects “higher depreciation and amortisation resulting from peak investment made in scaling the capability of both the Monitise Enterprise Platform and in service delivery over the past two years”. Profitability in live operations was £10.6 million, up from £3.9 million last time.

What Juniper’s research has shown is that there is sufficient traction in mobile money now from network operators, retailers and banks that a tipping point has been passed, largely driven by the growing use of mobile to purchase in the retail space.

As Juniper concedes, much of the growth between now and 2017 will be in the purchase of real world goods using mobile either remotely or in store. Retail has a stake in the ground to extend its ownership of the customer through offering omni-channel retailing, where consumers can buy and interact with retailers through stores, the web, catalogues, click and collect, social media and, of course, mobile. For the retailer, mobile payments are just a way of gluing this all together.

Meanwhile, mobile network operators are similarly trying to own the same customers, taking the approach that offering mobile payment services – typically and increasingly through mobile wallet apps – is the way to do this. Operators at least have the pedigree of handling payments through premium rate on bill services, but have largely shied away from becoming banks.

But banks, naturally, aren’t shying away from this space. they see both a threat and opportunity from mobile payments and, now that the heat is slowly being turned up under the cauldron on mobile money, banks are increasingly looking at how they too can own the customer and the payment chain.

While much has been written about the battle royal – and, let’s face it, some non-alignment pacts and curious ententes that make the build up to World War One look relatively straightforward – most of this has centred around individual domestic markets.

However, mobile is, well, mobile and by dint of this, should mobile payments take off, then there is every chance that it could be the next big thing in international payments. But is that going to work in the foreseeable future?

Currently, much of what is looked at in this field of international mobile payments is international worker remittance and migrant workers sending money – and other money-like entities such as airtime and virtual currencies and vouchers – home.

Juniper’s research showed that mobile as a means of enabling international money transfer is already on the rise, and Western Union – a leading international cash transfer company – is meeting this demand with its own Western Union Digital business with a web and mobile optimised site and a range of smartphone apps.

A year ago digital payments cross border accounted for 1% of the company’s business. the digital push has seen that grow to 35% in a year, driven mainly by new customers, says Khalid Fellahi, senior vice president and general manager of Western Union


Digital Ventures. “Most of these customers don’t want to go to a physical location to transfer money; they want to do it electronically.”

Western Union uses its existing infrastructure in some 135 countries to move the money and partners with banks around the world to facilitate the extraction of money at the other end.

But this is just a small facet of the mobile payments space. With increasing numbers of digital consumers looking to buy things on mobile, the need to make payments international is something that currently both attracts and repels mobile money companies, operators and banks.

“Much of the work being done in mobile payments, be it by banks, operators or third parties, is country specific right now,” says Karl Reider, delivery manager >

One of the key ways to pay using mobile is shaping up to be the mobile wallet. Already there are several examples globally from operators, banks and third parties and rumours that Apple is looking at including some sort of wallet-like app in IOS6 are all over the web like a cheap suit.

As to facilitating international payments they look set to be a simple way to offer a user interface that the consumer can easily use anywhere in the world (the issues being the back-end systems that is holding that back right now).

The payments world is giving a much-needed boost to the rollout of NFC-enabled equipment – such as handsets and point-of-sale systems, to name but two. By 2016, more than a quarter of US consumers will own an NFC-enabled handset, believes Forrester Research. But NFC-based mobile digital wallets are not the only game in town. There are several hardware-agnostic wallets entering the market, and because they face fewer hurdles, they will see faster adoption.

These will make international integration far simpler and are likely to garner greater support from consumers, merchants and even banks.

Integration with loyalty schemes and better contextual relevance – along with a compelling purchase experience – will also play a role in increasing the penetration of mobile wallets.

But while the advantages of wallets is clear, there are many issues with them. The development of mobile wallet technology is being held back by a number of ‘hidden controls’ that remain largely unexplored in the public domain, asserts Mobey Forum, a global bank-driven industry association enhancing the evolution of a sustainable and prosperous mobile financial services (MFS) ecosystem.

“As the first wave of mobile wallet solutions start to appear, the market’s attention remains fixed on mobile wallet apps and the devices where they reside,” explains Amir Tabakovic, head of market development at PostFinance and chair of the Mobey Forum Mobile Wallet Task Force. “We think this is unbalanced: the mobile wallet ecosystem is highly complex and its component parts are interdependent. The market’s failure to adequately consider the external forces influencing the mobile wallet is preventing the technology from fulfilling its full potential.”

“Mobey Forum has already established that providing an ‘easy way to pay’ will not be enough to guarantee mass market adoption of the mobile wallet,” adds Sirpa Nordlund, executive director, Mobey Forum. “Consumers must be lured away from their conventional wallets by the promise of some form of unique, additional value in return for agreeing to change their behaviour. But how will these new value oriented services integrate with the payment systems? What will motivate merchants to accept mobile wallet payments and what form will the acceptance infrastructure take? What are the integration issues?

Wallet wars

for mobile payments

“Much of the work being done in mobile payments, be it by banks, operators or third parties, is country specific right now.”

Karl Reider, GFT


There is certainly something in the air with mobile payments. Long talked about in mobile, technology and banking circles, it seems that the idea of using a phone to make purchases and move money around is finally coming to fruition.

One-fifth of Western European net users use mobile banking, according to a new Forrester report based on more than 13,600 consumer surveys. SMS alerts are still the most popular form of mobile banking in most countries, but use of mobile banking apps on smartphones is growing fastest.

As mobile internet use explodes and mobile banking is displacing use of other channels, Forrester

believes that ubiquitous mobile banking will mark a bigger strategic shift for the industry than home-based online banking. Banks need mobile banking to provide a platform for mobile payments and to protect their retail payments businesses from digital disruption.

At the same time, Juniper Research has revised its forecasts for the value of mobile transactions up to a whopping $1.3 trillion annually by 2017, predicated on the growing interest in peer-to-peer money transfer, mobile retail in the high street, so called ‘couch commerce’ in the home and, contentiously, its view that NFC is going to take off pretty soon everywhere.

ReTail: MOBile PaYMeNTSSEptEMBER 2012

Mobile banking and payments are taking off at last, but they have a long way to go before they achieve the global acceptability of more traditional payment methods, writes Paul Skeldon.

The global challengefor mobile payments

What Juniper’s research has shown is that there is sufficient traction in mobile money now from network operators, retailers and banks that a tipping point has been passed, largely driven by the growing use of mobile to purchase in the retail space.

As Juniper concedes, much of the growth between now and 2017 will be in the purchase of real world goods using mobile either remotely or in store. Retail has a stake in the ground to extend its ownership of the customer through offering omni-channel retailing, where consumers can buy and interact with retailers through stores, the web, catalogues, click and collect, social media and, of course, mobile. For the retailer, mobile payments are just a way of gluing this all together.

Meanwhile, mobile network operators are similarly trying to own the same customers, taking the approach that offering mobile payment services – typically and increasingly through mobile wallet apps – is the way to do this. Operators at least have the pedigree of handling payments through premium rate on bill services, but have largely shied away from becoming banks.

But banks, naturally, aren’t shying away from this space. they see both a threat and opportunity from mobile payments and, now that the heat is slowly being turned up under the cauldron on mobile money, banks are increasingly looking at how they too can own the customer and the payment chain.

While much has been written about the battle royal – and, let’s face it, some non-alignment pacts and curious ententes that make the build up to World War One look relatively straightforward – most of this has centred around individual domestic markets.

However, mobile is, well, mobile and by dint of this, should mobile payments take off, then there is every chance that it could be the next big thing in international payments. But is that going to work in the foreseeable future?

Currently, much of what is looked at in this field of international mobile payments is international worker remittance and migrant workers sending money – and other money-like entities such as airtime and virtual currencies and vouchers – home.

Juniper’s research showed that mobile as a means of enabling international money transfer is already on the rise, and Western Union – a leading international cash transfer company – is meeting this demand with its own Western Union Digital business with a web and mobile optimised site and a range of smartphone apps.

A year ago digital payments cross border accounted for 1% of the company’s business. the digital push has seen that grow to 35% in a year, driven mainly by new customers, says Khalid Fellahi, senior vice president and general manager of Western Union


Digital Ventures. “Most of these customers don’t want to go to a physical location to transfer money; they want to do it electronically.”

Western Union uses its existing infrastructure in some 135 countries to move the money and partners with banks around the world to facilitate the extraction of money at the other end.

But this is just a small facet of the mobile payments space. With increasing numbers of digital consumers looking to buy things on mobile, the need to make payments international is something that currently both attracts and repels mobile money companies, operators and banks.

“Much of the work being done in mobile payments, be it by banks, operators or third parties, is country specific right now,” says Karl Reider, delivery manager >

One of the key ways to pay using mobile is shaping up to be the mobile wallet. Already there are several examples globally from operators, banks and third parties and rumours that Apple is looking at including some sort of wallet-like app in IOS6 are all over the web like a cheap suit.

As to facilitating international payments they look set to be a simple way to offer a user interface that the consumer can easily use anywhere in the world (the issues being the back-end systems that is holding that back right now).

The payments world is giving a much-needed boost to the rollout of NFC-enabled equipment – such as handsets and point-of-sale systems, to name but two. By 2016, more than a quarter of US consumers will own an NFC-enabled handset, believes Forrester Research. But NFC-based mobile digital wallets are not the only game in town. There are several hardware-agnostic wallets entering the market, and because they face fewer hurdles, they will see faster adoption.

These will make international integration far simpler and are likely to garner greater support from consumers, merchants and even banks.

Integration with loyalty schemes and better contextual relevance – along with a compelling purchase experience – will also play a role in increasing the penetration of mobile wallets.

But while the advantages of wallets is clear, there are many issues with them. The development of mobile wallet technology is being held back by a number of ‘hidden controls’ that remain largely unexplored in the public domain, asserts Mobey Forum, a global bank-driven industry association enhancing the evolution of a sustainable and prosperous mobile financial services (MFS) ecosystem.

“As the first wave of mobile wallet solutions start to appear, the market’s attention remains fixed on mobile wallet apps and the devices where they reside,” explains Amir Tabakovic, head of market development at PostFinance and chair of the Mobey Forum Mobile Wallet Task Force. “We think this is unbalanced: the mobile wallet ecosystem is highly complex and its component parts are interdependent. The market’s failure to adequately consider the external forces influencing the mobile wallet is preventing the technology from fulfilling its full potential.”

“Mobey Forum has already established that providing an ‘easy way to pay’ will not be enough to guarantee mass market adoption of the mobile wallet,” adds Sirpa Nordlund, executive director, Mobey Forum. “Consumers must be lured away from their conventional wallets by the promise of some form of unique, additional value in return for agreeing to change their behaviour. But how will these new value oriented services integrate with the payment systems? What will motivate merchants to accept mobile wallet payments and what form will the acceptance infrastructure take? What are the integration issues?

Wallet wars

for mobile payments

“Much of the work being done in mobile payments, be it by banks, operators or third parties, is country specific right now.”

Karl Reider, GFT

at financial technology provider GFT Group. “And that makes taking these services cross border all the harder. Germany, for instance, doesn’t have the same m-payments tools as, say, Spain. Even within some banks, the tools for handling mobile payments aren’t compatible between different countries within the same bank brand. This is why companies like PayPal, which have no international issues, are so compelling.”

Dom Keen, chief executive of third-party mobile payment company, Monitise agrees: “The growing market for digital gaming and internationalised goods is seeing a small but growing need for internationalised mobile payments that, so far, isn’t being met.”

Right now, says Keen, the best way to enable mobile payments between countries is to use operator billing-based services such as Boku and Zong, but “these are no good for big ticket items, they are purely for micropayments”, he says. And there is the reticence to use these services by many merchants because the amount of ‘commission’ charged by the operators can, in some countries, be as high as 60%.

The answer, both Reider and Keen believe, lies not in banks per se, but in looking at how banks, brands and particularly retailers can use technology to plug into that does the integration for them.

For example, Envoy Services – recently acquired by WorldPay – has developed a pan-global payments gateway that merchants plug into and which can serve up relevant mobile payment tools in a vast number of countries. So far this isn’t something we are seeing from banks, operators or anyone else.

But it is easy to see why international mobile payments are not – yet at least – a top priority. Already they are not really anywhere near mass market in domestic commerce and taking them overseas is likely to be fraught with technological and regulatory issues. That said, the propensity for so many entities in so

many regions all trying to get top dog status in each country in the mobile payments sphere is going to go one of two ways.

Either there will be mess of payment mechanisms and tools so that the only way to integrate them is to get in some sort of platform that the mobile service provider plugs into to facilitate it, or this tangled web of providers will see one clear winner rise to the top.

My (mobile) money is on the latter – but who that will be remains to be seen: it certainly isn’t a done deal for banks, mobile operators or anyone else. BT

One of the biggest non-technical challenges faced by the internationalisation of mobile payments is the differing payments cultures in countries around the world. Anyone in the business already knows that outside the US and UK, credit and debit cards are not that popular, but as the whole world of alternative payments – of which mobile is but a part – opens up, even more striking differences emerge.

For instance, India and Austria are already big users of mobile payments domestically. Austria’s PayBox boasts more than five million users and in India, where mobile phone penetration is vast, the move to m-commerce is significant.

However, in Germany where credit card payments are relatively low, Elektronisches Lastschrift Verfahren, a form of direct debit payment, makes up a huge 28% of the market. In the Netherlands, which has been a huge adopter of e-commerce and latterly m-commerce, its own domestic version of PayPal – Ideal – has accounts for some 66% of the market.

Understanding where mobile payments fits in culturally and then trying to make it all work internationally is a huge task and, even with the technology sorted out, this could perhaps be its biggest barrier to success. It may simply just not happen.

But the fact that mobile and the wider digital world is increasingly the preserve of the young could yet shift these cultural mores.

“Cultural payment preferences have always existed but, until fairly recently, online purchasing options were dominated by global card schemes,” says Phil McGriskin, chief product officer, WorldPay. “With the advances in technology, a new generation of shoppers and developing online and online mobile economies, alternative payments are growing in popularity. This presents an opportunity in the e- and m-commerce space for merchants to gain a competitive advantage by offering customers the option to pay using their preferred payment type. Merchants need to identify where their target customers are located and offer the relevant payment options to cater to cultural preferences. This will ultimately drive revenue for merchants, especially in new and developing economies.”

The culture club

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Retail: MOBile PaYMeNtSSEPTEMBER 2012

“Until fairly recently, online purchasing options were dominated by global card schemes,”

Phil McGriskin, WorldPay


FATCA form filler from Fenergo

Fenergo, a client onboarding lifecycle management specialist, has launched an online FAtCA

self-certification tool designed to automate the collection the data collection process, reduce the cost of compliance and ensure more accurate compliance reporting.

the solution performs automatic form validation in real-time against pre-defined IrS rule-sets in an effort to reduce invalid submissions.

Capable of integrating with all front and back office systems to enable the sharing of data and the creation of a single, consolidated client view across the institution, the Fenergo FAtCA Self-Certification application integrates with the Fenergo FAtCA Compliance and Client Onboarding software. the information collected from the FAtCA Self-Certification tool can be extracted to populate the client database, automatically applying the appropriate client classification in accordance with the regulation. the solution automatically schedules the review of submitted data every three years and triggers an automatic compliance review if the data changes.

According to marc murphy, chief executive of Fenergo, “We are entering a period of unprecedented regulation in the financial services industry. All of these upcoming regulations promise to have a significant impact on banking operations and the ability to provide a consistently high level of service to clients. FAtCA is just one of these new regulations, which will place onerous demands on financial institutions. We developed the FAtCA Self-Certification solution to provide FFIs with a faster and more efficient way of collecting and processing this additional data, while helping to improve compliance and reduce the costs associated with it”. BT

Compliance cost set to rise as UK adopts dual regime in 2013

The UK’s new ‘dual’ regulatory regime, due to start in the first half of 2013, will increase the cost of compliance

by 20% or more, according to a majority of senior compliance professionals at financial services firms.

In a recent survey, 50% of respondents said that their costs of compliance will increase by up to 20%and a further 13% said it would be more. the survey was carried out by protiviti, a global consulting firm.

Next year the UK regulatory framework will change as the existing Financial Services Authority is split into the prudential regulation Authority and the Financial Conduct Authority. According to the survey only 17% of respondents say their firm is ‘completely’ prepared for the different reporting demands and processes of the new structure. While 63% say they are ‘partially’ prepared, 13% admit they are ‘only starting to prepare now’.

While the new regulatory regime has been set up, in part, to prevent a future UK financial crisis, two-thirds (67%) of respondents in the protiviti survey felt that the system would ‘not’ or ‘probably not’ be effective in preventing a future financial crisis. Just 3% said it would definitely be ‘effective’, while only 20% thought it would ‘probably be’ effective, underscoring the challenge the new market regulators will have in engaging with firms and wider stakeholders.

bernadine reese, managing director of protiviti UK, said: “the changes to the UK regulatory architecture are major changes that firms need to fully understand and address sooner rather than later. the FCA and prA have very different mandates and powers, and firms will need to fully understand their responsibilities and plan how best to respond to the regulators’ agendas.”

Such is the level of concern around the changes to UK regulation that 62% of respondents said that the regime will make the UK less attractive as a place to carry out business. Only 7% said that it will make the UK a better place to conduct business, while one-third (31%) said there will be no change.

there is significant concern among senior compliance professionals about the level of possible dual regulation. (i.e. they may be supervised by the prA for prudential purposes and the FCA for conduct purposes). According to the survey, nearly one in five (17%) of senior compliance professionals state that their company’s management and board are ’very concerned’, with 35% saying they are ‘somewhat concerned’ by the level of possible dual regulation facing their business. Just 7% of senior compliance professionals say that their company’s management and board are ‘not concerned’.

the prA, an operationally independent subsidiary of the bank of england, will focus on prudential supervision of financial institutions that manage significant risks on their balance sheets. the FCA will have responsibility for consumer issues and conduct of business regulation, and will supervise all financial services institutions meaning that some firms will be dual regulated. responsibility for the financial stability of the system as a whole will come under the watch of a new, third regulatory body: the Financial policy Committee (FpC) within the bank of england.

reese, said: “there is clearly a great deal of concern among financial services institutions around the new regime being initiated in early 2013. the changes being made to UK financial regulation are substantial and radical, yet the concern is that many firms remain unprepared.” BT

“We are entering a period of unprecedented regulation in the financial services industry.”

Included in AvoxData’s entity coverage are OtC derivative market participants, a feature that supports OtC transaction reporting requirements. the content is updated daily, reflecting changes identified by Avox’s global user base and data partners.

“the enhanced AvoxData web portal empowers Avox clients with capabilities not previously available with our traditional due diligence services,” said Ken price, chief executive and co-founder of Avox. “Functions ranging from a free lookup service for basic entity data through to a more comprehensive due diligence service make this a compelling site for any firm faced with the growing number of entity-based regulatory reporting requirements.” BT


RISK &REGULATION


September 2012


The adoption of global Legal entity Identifiers has moved a notch closer with the launch of a web portal to assign identifiers for OtC derivatives trading from Swift and US central securities depository the Depository trust & Clearing Corp.

the new portal – www.ciciutility.org – will assign the US Commodity Futures trading Commission’s Interim Compliant Identifiers, which will be issued to firms engaged in OtC derivatives trading and will ultimately comply with the global framework for a Legal entity Identifier.

In June, the Financial Stability board set out its recommendations and proposals to implement a global LeI that will uniquely identify parties to financial transactions.

An LeI, said the FSb, would “contribute to and facilitate many financial stability objectives, including: improved risk management in firms; better assessment of micro and macroprudential risks; facilitation of orderly resolution; containing market abuse and curbing financial fraud; and enabling higher quality and accuracy of financial data overall”.

moreover, LeIs will reduce operational risks within firms by mitigating the need for tailored systems to reconcile the identification of entities and to support aggregation of risk positions and financial data, which impose substantial “deadweight costs” across the economy. they will also facilitate straight through processing.

the FSb report suggested that insufficiently strong incentives in private markets have prevented a market-led LeI system. benefits of such a system are collective and accrue to users and the broader public as a group. the FSb issued 35 recommendations to develop and implement the global LeI system covering standards and ownership of the system.

the use of LeIs is also emerging in other regulations governing the collection of data. the DtCC and Swift portal will also be assisted by the Association of National Numbering Agencies in registering and validating entities, extending a federated approach (as recommended by the FSb) to the CICI and ultimately to the LeI under the FSb’s framework.

DtCC, Swift, the Global Financial markets Association and other financial services industry groups will work with the FSb implementation group on the global LeI solution. It is anticipated that the CICIs assigned by DtCC and Swift will become LeIs after the global LeI system is launched.

the Web portal builds on the test files of the provisional LeIs provided to the industry in February 2012. It contains the full database of 24,000 legal entities from more than 80 countries, heavily weighted towards those involved in OtC derivatives trading.

Included on the site are instructions on searching the database, downloading the daily change files or full database that will be available immediately, registering entities for CICIs, certifying the reference data for legal entities already assigned a CICI, public challenges of reference data and other helpful information, including answers to frequently asked questions and, for information not available on the site, a customer service e-mail box to send questions. With the launch of the portal, the site will allow legal entities to self-register, and financial firms to register their counterparties.

the financial services industry expects as many as 1.5 million legal entities that are counterparties on financial transactions across all asset classes globally to receive LeIs. the CICI is targeted at a much smaller subset of legal entities that are active in OtC derivatives markets, numbering less than 50,000.

building on the LeI work, the DtCC’s Avox reference data subsidiary has launched an enhanced legal entity data site enables free, unrestricted access to core data fields and standard industry identifiers for a global set of legal entities that are of interest to financial institutions throughout the world. registered clients are able to subscribe to more detailed content and services.

AvoxData offers a number of capabilities, starting with free dynamic entity search and aggregation available to anyone who wants to use the database. publicly available data attributes include legal name, primary place of business, country of incorporation, trading status, entity type, Avox ID (AVID) and, where available, the CICI.

Swift and DTCC launch LEI portal for OTC derivatives trading

FICO to pay $115m for Adeptra

FICO, the provider of analytics and decision management technology, is to acquire Adeptra,

a specialist in cloud-based customer engagement and risk intervention systems, for $115 million in cash

Adeptra’s software-as-a-service platform enables financial services institutions and other businesses to take advantage of the explosion in mobile communication in order to manage risk and fight fraud in real time.

FICO has had a relationship with Adeptra since 2002, and has been an Adeptra reseller since 2007. together, the two companies have helped to cut users’ fraud losses by integrating FICO Falcon Fraud manager with Adeptra solutions.

“For many of our clients, fraud protection and even debt collection have become important drivers of customer satisfaction and loyalty,” said Will Lansing, FICO chief executive. “We’re enabling our clients to interact with their customers in ways that strengthen customer loyalty while minimising business risks. that way, our clients can grow in lock-step with the evolving mobile economy.”

Founded in 1996, Adeptra provides solutions that allow businesses to communicate with customers in real time, using voice, SmS, mobile applications, email and other channels. by contacting customers instantly using their preferred channel, a business can immediately resolve important matters such as identifying whether a credit transaction is fraudulent, confirming a payment plan with a customer, and fixing customer service issues.

Adeptra’s clients include more than half of the world’s top 50 banks. “Combining the power of FICO and Adeptra is a fantastic move for our clients and for clients’ customers,” said tony mcGivern, chief executive of Adeptra. “together, we will develop the next generation of full-cycle decision management and risk intervention products along with a range of innovative new marketing and customer service solutions, all optimis ed for the mobile economy.” BT

FATCA form filler from Fenergo

Fenergo, a client onboarding lifecycle management specialist, has launched an online FAtCA

self-certification tool designed to automate the collection the data collection process, reduce the cost of compliance and ensure more accurate compliance reporting.

the solution performs automatic form validation in real-time against pre-defined IrS rule-sets in an effort to reduce invalid submissions.

Capable of integrating with all front and back office systems to enable the sharing of data and the creation of a single, consolidated client view across the institution, the Fenergo FAtCA Self-Certification application integrates with the Fenergo FAtCA Compliance and Client Onboarding software. the information collected from the FAtCA Self-Certification tool can be extracted to populate the client database, automatically applying the appropriate client classification in accordance with the regulation. the solution automatically schedules the review of submitted data every three years and triggers an automatic compliance review if the data changes.

According to marc murphy, chief executive of Fenergo, “We are entering a period of unprecedented regulation in the financial services industry. All of these upcoming regulations promise to have a significant impact on banking operations and the ability to provide a consistently high level of service to clients. FAtCA is just one of these new regulations, which will place onerous demands on financial institutions. We developed the FAtCA Self-Certification solution to provide FFIs with a faster and more efficient way of collecting and processing this additional data, while helping to improve compliance and reduce the costs associated with it”. BT

Compliance cost set to rise as UK adopts dual regime in 2013

The UK’s new ‘dual’ regulatory regime, due to start in the first half of 2013, will increase the cost of compliance

by 20% or more, according to a majority of senior compliance professionals at financial services firms.

In a recent survey, 50% of respondents said that their costs of compliance will increase by up to 20%and a further 13% said it would be more. the survey was carried out by protiviti, a global consulting firm.

Next year the UK regulatory framework will change as the existing Financial Services Authority is split into the prudential regulation Authority and the Financial Conduct Authority. According to the survey only 17% of respondents say their firm is ‘completely’ prepared for the different reporting demands and processes of the new structure. While 63% say they are ‘partially’ prepared, 13% admit they are ‘only starting to prepare now’.

While the new regulatory regime has been set up, in part, to prevent a future UK financial crisis, two-thirds (67%) of respondents in the protiviti survey felt that the system would ‘not’ or ‘probably not’ be effective in preventing a future financial crisis. Just 3% said it would definitely be ‘effective’, while only 20% thought it would ‘probably be’ effective, underscoring the challenge the new market regulators will have in engaging with firms and wider stakeholders.

bernadine reese, managing director of protiviti UK, said: “the changes to the UK regulatory architecture are major changes that firms need to fully understand and address sooner rather than later. the FCA and prA have very different mandates and powers, and firms will need to fully understand their responsibilities and plan how best to respond to the regulators’ agendas.”

Such is the level of concern around the changes to UK regulation that 62% of respondents said that the regime will make the UK less attractive as a place to carry out business. Only 7% said that it will make the UK a better place to conduct business, while one-third (31%) said there will be no change.

there is significant concern among senior compliance professionals about the level of possible dual regulation. (i.e. they may be supervised by the prA for prudential purposes and the FCA for conduct purposes). According to the survey, nearly one in five (17%) of senior compliance professionals state that their company’s management and board are ’very concerned’, with 35% saying they are ‘somewhat concerned’ by the level of possible dual regulation facing their business. Just 7% of senior compliance professionals say that their company’s management and board are ‘not concerned’.

the prA, an operationally independent subsidiary of the bank of england, will focus on prudential supervision of financial institutions that manage significant risks on their balance sheets. the FCA will have responsibility for consumer issues and conduct of business regulation, and will supervise all financial services institutions meaning that some firms will be dual regulated. responsibility for the financial stability of the system as a whole will come under the watch of a new, third regulatory body: the Financial policy Committee (FpC) within the bank of england.

reese, said: “there is clearly a great deal of concern among financial services institutions around the new regime being initiated in early 2013. the changes being made to UK financial regulation are substantial and radical, yet the concern is that many firms remain unprepared.” BT

“We are entering a period of unprecedented regulation in the financial services industry.”

Included in AvoxData’s entity coverage are OtC derivative market participants, a feature that supports OtC transaction reporting requirements. the content is updated daily, reflecting changes identified by Avox’s global user base and data partners.

“the enhanced AvoxData web portal empowers Avox clients with capabilities not previously available with our traditional due diligence services,” said Ken price, chief executive and co-founder of Avox. “Functions ranging from a free lookup service for basic entity data through to a more comprehensive due diligence service make this a compelling site for any firm faced with the growing number of entity-based regulatory reporting requirements.” BT


TS-Associates, a supplier of precision instrumentation solutions for ultra-low latency trading systems, has

acquired the assets of Correlix, a latency management service provider. Following the deal, the products will be integrated into a single product development plan, bringing them together in a single user interface.

the Correlix product set consists of Infiniband monitoring capability, a range of protocol decoders, a Quality Assurance facility and a managed service delivery capability. this will become an additional offering under the tS-Associates precision Instrumentation brand, alongside tipOff and Application tap. the availability of these products installed side-by-side on the same appliance with a unified user interface based on Web 2.0 technologies is planned.

raymond marra, chief operating officer Americas, said: “During prior head-to-head evaluations, some customers would ideally have liked parts of tipOff and parts of Correlix. they no longer have to choose as a result of our product integration plan which will deliver seamless performance and operational benefits to both our existing and new customers.”

Correlix customers can now expect continuity of service, a sustained road map for the product and the integration of tS-Associates’ Application tap, which enables

software component instrumentation. the next product release will be Correlix 5.0, featuring support for nanosecond precision, decoder and user interface SDKs, and other significant product enhancements.

As a result of the acquisition, tS-Associates adds enlarged office and data centre facilities in Wall Street, together with a development centre in Herzliya, Israel.

Henry Young, chief executive of tS-Associates, said: “Correlix developed a competent, mature and powerful product. It is a good fit with tipOff in terms of both technology and commercial synergies.”

Shawn melamed, chief executive of Correlix, said: “I have always been impressed with tS-A’s technology. therefore I am excited that our customers can benefit from a strong partner that will provide continuity of support and development in addition to integration with tS-A’s unique capabilities inherent in tipOff and Application tap.”

melamed will act as a consultant to facilitate the transition of existing Correlix customers over to tS-Associates.

tS-Associates precision instrumentation solutions have been integrated with transaction, market data, middleware and high frequency trading systems and are used at financial institutions throughout North America, europe and Asia pacific. BT

Growth in data volumes is creating a growing challenge for application performance monitoring, with nearly half of respondents in a recent survey saying that the scale of their It infrastructure has doubled or trebled over the

past decade.Carried out for predictive analytics specialist Netuitive, the survey found significant

increases in the growth of It environments, in the volume and diversity of metrics requiring analysis and correlation, and an acceleration in data monitoring frequency.

Application performance monitoring tools are now generating ‘thousands’ of key performance indicators for a basic server environment that require analysis and correlation – compared with ‘dozens’ a few years ago – while data monitoring frequency has increased significantly with monitoring intervals shortening to one to five minutes compared with 15 minutes five years ago.

the company says that the primary challenge is the ability to correlate and extract value from vast volumes of data from an increasing number of specialised monitoring tools across silos and domains in real time. In the survey, 77% of respondents were either ‘unsure’ or ‘not satisfied’ with their ability to cross-reference and correlate critical business, customer experience and It metrics.

“Our large enterprise customers are increasingly challenged to correlate and extract value from seemingly unmanageable yet interrelated data sets across applications, business activity, It performance, and the customer experience,” said Nicola Sanna, chief executive of Netuitive. “Only through advanced It analytics can you begin to accurately interpret interrelationships within Apm-generated big data to proactively detect problems before critical applications and services are disrupted.” BT

Application monitoring challenged by growth of IT infrastructures

TS-Associates acquires Correlix New platform for Thai Exchange


The Stock exchange of thailand will go live on 3 September with its new securities trading system,

Set Connect, which will increase its capacity and improve access for domestic and international market participants.

the new platform was developed together with 32 broker members, independent software and market data vendors and technology provider Cinnober Financial technology. the thai exchange has stated that its new platform will be faster than the current platform, and will support new financial products and multi-currency trading.

In addition to the new trading engine, the exchange will also initiate its new market data system, as well as a revamped market surveillance system that is designed to monitor trading activity and prevent any potential abuse.

“this system is able to instantly and proactively monitor and detect anomalies with high effectiveness, boosting our reliability and minimising possible risks,” said Charamporn Jotikasthira, Set president. “All three new systems will boost the thai capital market’s competitiveness which is our crucial step to provide trading services with cutting-edge technology, making it one of the world’s most efficient trading engines. Set Connect will enhance the confidence of global investors in the potential of the thai capital market, propelling the market onto the international stage.”

the introduction of the new platform has been timed to coincide with the introduction of new trading regulations that have been drafted to comply with the standards of other global stock exchanges. the exchange is also working with the Korea exchange to develop its clearing and settlement system. the clearing system for the derivatives market will be rolled out in Q4 next year, followed by a system for securities and fixed income products in the fourth quarter 2014. BT

“This system is able to detect anomalies with high effectiveness, minimising risks.”

IT & OPS


September 2012


Long-regarded as the poor relation in terms of investment, back offices are starting to get badly-needed investment in capital markets firms as they realise that modernisation and automation are “in urgent need of optimisation”, according to

research firm Ovum.rik turner, senior market analyst at Ovum and author of the report Optimization of

Post-Trade Operations: A Business Requirement, said that spending on front-office trading systems has created a situation where firms “are a victim of their own success” – by having front-office systems that are hugely efficient in generating trades, they have outstripped their back-offices’ ability to keep pace.

Such is the pressing nature of the problems created by the imbalance of investment in the front and back office that the emergence of a central industry utility is becoming increasingly probable. “Granted that back-office is not a major source of value-add for most institutions, you have to think that some sort of central managed service might step up,” said turner.

In some areas, this is already happening. “Omgeo appears to be moving towards world domination, at least in equities,” said turner.

According to the report, “all the biggest sell-side firms are still highly dependent on manual systems, overnight batch processing, and excel spreadsheets”, a situation that Ovum says does “not pass muster for the demands of modern-day capital markets”.

this is particularly true as they try to move towards properly integrated multi-asset trading strategies. “they don’t have the nous or the systems to handle it,” said turner. moving towards trading with lucrative markets like brazil is also being hamstrung by the ability to process the trades.

regulation is another factor driving the need to improve the situation. “In addition to the operational requirement, there is also the need to meet the increasingly stringent compliance requirements of regulators across the globe. A company’s ability to carry out appropriate risk management, and clear and settle trades in asset classes that were previously not centrally cleared, is becoming mandatory,” says the report.

“there’s no sign of the tide of regulation relenting,” said turner. “Institutions are going to have to find smarter ways to do these things.” BT

■ www.ovum.com

Fundtech and Ibm have benchmarked the Global pAYplus Services platform running at more than 20 million payments in a two-hour window.

the system was running on an Ibm software and hardware stack in tests conducted for a tier 1 global bank, processing high-volume, low-value payments. the two hour processing time was less than half the benchmark time set by the bank.

In variations of the test, Gpp-Sp processed double and triple the volumes in the target timeframes.

Gene Neyer, Fundtech senior vice president of global payments, said: “these results clearly demonstrate the technical feasibility of banks aligning payments processing infrastructure with the industry trends of consolidation and harmonisation of current payment silos. Centralised, high-performance SOA-based payment Services Hubs allow banks to offer customers a new level of business and functional payment capabilities while reaping the benefits of the highly affordable processing platform.” BT

Back-office modernisation an “urgent” requirement says Ovum study

Global PAYplus clocks 10 million transactions/hour in Fundtech/IBM benchmark

Bank SinoPac cuts processing times with T24

Bank Sinopac, based in taipei, has gone live with the temenos t24 core banking system to

centralise its operations and support the growth of its domestic and global branch network in Hong Kong, macau, China, Vietnam and the US.

A total of 129 domestic branches in taiwan, serving three million customers and processing up to two million transactions a day, went live simultaneously. the overseas locations will be added to the central hub in taipei in a second phase.

the bank wanted to create a centralised platform for its domestic and overseas business.

robert tsai, chief information officer at the bank, said: “this transformation will enable bank Sinopac to save 50% on hardware maintenance fees annually, up to 50% of software maintenance fees over a five-year investment.”

t24 was implemented on microsoft Windows Server and SQL Server, integrated with the bank’s .Net branch system front-end. It will be used to develop new services and products using its configurable, parameter-driven architecture, while ensuring compliance with local regulation such as taiwan’s local anti-money laundering requirements. It also facilitates renminbi remittance between taiwan and China in under an hour and supports Sinopac’s money management Account product, a single deposit account covering multiple currencies and multiple lines of credit.

by simplifying its system architecture and business processes, bank Sinopac was able to improve its Stp rate and cut its close of business time by half.

bank Sinopac’s president, tina Chiang, said: “We are placing significant importance on It to gain a competitive edge. With t24 we have undertaken a core transformation, establishing a modern core banking platform to support our domestic and international growth. t24 caters to our existing and future needs.” BT

“All the biggest sell-side firms are still highly

dependent on manual systems and Excel

spreadsheets.”

TS-Associates, a supplier of precision instrumentation solutions for ultra-low latency trading systems, has

acquired the assets of Correlix, a latency management service provider. Following the deal, the products will be integrated into a single product development plan, bringing them together in a single user interface.

the Correlix product set consists of Infiniband monitoring capability, a range of protocol decoders, a Quality Assurance facility and a managed service delivery capability. this will become an additional offering under the tS-Associates precision Instrumentation brand, alongside tipOff and Application tap. the availability of these products installed side-by-side on the same appliance with a unified user interface based on Web 2.0 technologies is planned.

raymond marra, chief operating officer Americas, said: “During prior head-to-head evaluations, some customers would ideally have liked parts of tipOff and parts of Correlix. they no longer have to choose as a result of our product integration plan which will deliver seamless performance and operational benefits to both our existing and new customers.”

Correlix customers can now expect continuity of service, a sustained road map for the product and the integration of tS-Associates’ Application tap, which enables

software component instrumentation. the next product release will be Correlix 5.0, featuring support for nanosecond precision, decoder and user interface SDKs, and other significant product enhancements.

As a result of the acquisition, tS-Associates adds enlarged office and data centre facilities in Wall Street, together with a development centre in Herzliya, Israel.

Henry Young, chief executive of tS-Associates, said: “Correlix developed a competent, mature and powerful product. It is a good fit with tipOff in terms of both technology and commercial synergies.”

Shawn melamed, chief executive of Correlix, said: “I have always been impressed with tS-A’s technology. therefore I am excited that our customers can benefit from a strong partner that will provide continuity of support and development in addition to integration with tS-A’s unique capabilities inherent in tipOff and Application tap.”

melamed will act as a consultant to facilitate the transition of existing Correlix customers over to tS-Associates.

tS-Associates precision instrumentation solutions have been integrated with transaction, market data, middleware and high frequency trading systems and are used at financial institutions throughout North America, europe and Asia pacific. BT

Growth in data volumes is creating a growing challenge for application performance monitoring, with nearly half of respondents in a recent survey saying that the scale of their It infrastructure has doubled or trebled over the

past decade.Carried out for predictive analytics specialist Netuitive, the survey found significant

increases in the growth of It environments, in the volume and diversity of metrics requiring analysis and correlation, and an acceleration in data monitoring frequency.

Application performance monitoring tools are now generating ‘thousands’ of key performance indicators for a basic server environment that require analysis and correlation – compared with ‘dozens’ a few years ago – while data monitoring frequency has increased significantly with monitoring intervals shortening to one to five minutes compared with 15 minutes five years ago.

the company says that the primary challenge is the ability to correlate and extract value from vast volumes of data from an increasing number of specialised monitoring tools across silos and domains in real time. In the survey, 77% of respondents were either ‘unsure’ or ‘not satisfied’ with their ability to cross-reference and correlate critical business, customer experience and It metrics.

“Our large enterprise customers are increasingly challenged to correlate and extract value from seemingly unmanageable yet interrelated data sets across applications, business activity, It performance, and the customer experience,” said Nicola Sanna, chief executive of Netuitive. “Only through advanced It analytics can you begin to accurately interpret interrelationships within Apm-generated big data to proactively detect problems before critical applications and services are disrupted.” BT

Application monitoring challenged by growth of IT infrastructures

TS-Associates acquires Correlix New platform for Thai Exchange


The Stock exchange of thailand will go live on 3 September with its new securities trading system,

Set Connect, which will increase its capacity and improve access for domestic and international market participants.

the new platform was developed together with 32 broker members, independent software and market data vendors and technology provider Cinnober Financial technology. the thai exchange has stated that its new platform will be faster than the current platform, and will support new financial products and multi-currency trading.

In addition to the new trading engine, the exchange will also initiate its new market data system, as well as a revamped market surveillance system that is designed to monitor trading activity and prevent any potential abuse.

“this system is able to instantly and proactively monitor and detect anomalies with high effectiveness, boosting our reliability and minimising possible risks,” said Charamporn Jotikasthira, Set president. “All three new systems will boost the thai capital market’s competitiveness which is our crucial step to provide trading services with cutting-edge technology, making it one of the world’s most efficient trading engines. Set Connect will enhance the confidence of global investors in the potential of the thai capital market, propelling the market onto the international stage.”

the introduction of the new platform has been timed to coincide with the introduction of new trading regulations that have been drafted to comply with the standards of other global stock exchanges. the exchange is also working with the Korea exchange to develop its clearing and settlement system. the clearing system for the derivatives market will be rolled out in Q4 next year, followed by a system for securities and fixed income products in the fourth quarter 2014. BT

“This system is able to detect anomalies with high effectiveness, minimising risks.”

Tech and geography beat too big to fail at Wells FargoWells Fargo has prospered through a focus on customers and cross-selling. At the heart of this is its highly integrated technology, writes Tom Groenfeldt.

Lost in the debates over Too Big To Fail is a major money centre bank that has come through three business cycles unscathed and had enough financial strength in the middle of the 2008 crisis to swoop in under Citi and the Federal Deposit Insurance Corporation and buy failing Wachovia – Wells Fargo.

Its former chairman, Dick Kovacevich, was a zealot about cross-selling products to existing customers and building up multiple relationships with each individual and household. It was a theme he launched at Norwest in Minneapolis, and he continued it when Norwest acquired Wells Fargo and took its name.

“From the day Norwest took over, it has been one of Dick’s metrics—the number of products per household,” says Bill Wood, chief information officer at the Wells Fargo community bank. As CIO of the community bank, Wood is responsible for branches, ATMs, phone banks plus internet and mobile banking. The bank now has six products per household and it hasn’t stopped trying to expand that.

“We try to focus on the customer experience across all those channels,” Wood.

William Isaac, former chairman of the FDIC and now director of FTI Consulting and chairman of Fifth Third Bank in Cincinnati, conducted a lengthy interview with Kovacevich which is included in the new paperback version of his book about the financial crisis, Senseless Panic, and is on his personal website, www.williamisaac.com.

Kovacevich doesn’t think any bank should be too big to fail, he told Isaac. They should be allowed to fail and all suppliers of capital, except depositors, should be forced to take haircuts – something noticeably lacking in the bailout of AIG. He made two other interesting comments. First, that concentration isn’t unusual in business.

“Five or fewer companies control more than 50% in every industry, from cereal to automobiles. Five banks control more than 50% of their industry in about every country in the world,” he says.

Second, size alone is not a danger and, in fact, big banks often have less risk.

“Some banks are big only because they have product and geographic diversity. That reduces the concentration of risk. If US banks had been allowed to bank nationally from the get-go, as was

the case in most other countries, few would even question their market share today. Texas banks in the 1990s were small by today’s standards. But they all failed because they were not allowed to bank outside of Texas,” he says.

Wells Fargo figures its highly integrated technology reduces risk, cuts marketing costs and lets the bank grow profits while reducing costs to customers. Too big to fail? Not if you keep risky investment banking to a minimum and spread your exposure across many lines of business and a broad geographic reach.

Kovacevich contends that traditional investment banking is low risk because the bank accepts very little risk on its books, a marked contrast to the lending commercial banks do. (The danger in investment banking came from highly leveraged internal hedge funds which were very profitable when things went well, he says.)

The cross-selling at Wells ensures that it is not highly dependent on any single product and its geographic reach reduces the risk from a local recession or the collapse of an industrial sector.

Cross-selling is a virtuous circle, says Kovacevich: “The cost of selling an incremental product to an existing customer is about 10% of the cost of selling that same product to a new customer.” In addition, the more accounts a client has with the bank, the stickier the relationship. The best way to hold onto customers is getting to use the bank’s bill pay service – who wants to go through the trouble of setting up all those accounts at a new bank?

The reason this sort of cross-selling is not widespread in financial services is that it is difficult. Bank systems were developed around products, not around customers, so getting a view of a customer across car loans, mortgages, credit cards, checking accounts, savings and CDs is difficult.

“It’s harder, much harder, because you need to manage hundreds of businesses and products,” explains Kovacevich. “Systems have to be capable of aggregating products and profitability by customer so you know what more to sell them and what better deals you can give them to incent them to give you more business.”

To make this work, Wells Fargo has to reach a level of integration that banks talk about, but few achieve.


IT & OPs: NeWs ANALYsIs SepTeMBer 2012

Wood, the CIO, says one key to Wells Fargo’s success is that in mergers and acquisitions Wells moves to common systems, which makes it easier to share information and provides a consistent experience across channels and across geography. After Wells acquired Wachovia in 2008, it retained its own systems in lending and community banking for the combined bank but took the Wachovia brokerage system.

“One of the big areas of work was tying the former Wachovia brokerage system with the Wells customer systems and Wells technology that was driving the channels,” explains Wood. “It was a large effort, but it was critical.” The result was a full view of customers across retail banking, lending and brokerage.

At the heart of its system, running on CSC Hogan mainframe technology, is a central customer file: “We try to tie all our products to our central customer file.” Describing the Hogan system as “a mainframe monster that eats a lot of MIps”, he says the bank surrounds it with mid-tier servers that cache frequently-accessed recent data. Online banking accounts, for example, hold the past 30 to 90 days on a cache facility off the mainframe.

With its central customer file, the bank has a good view of the customer. Using advanced analytics, it can understand the next best offer to make when a customer interacts with the bank, and the offer can go out across any channel. The system knows if an offer went out to a mobile phone so it won’t make the same offer online or through an ATM.

“It is a difficult process,” says Wood. “Over time, the more you understand the customer’s interactions online and understand life events, like a kid going to college, the better you are at making the right next offer.”

Wells would like to be better at understanding customers, he adds, so the bank focuses on it year after year.

“The fact that it is one of our key objectives every year is one reason we are pretty good at it. We think it is hard for others to catch up because we have had this commitment for so many years. We get a little better each year, and now it would be a mountain of work for anyone to catch up if they are starting from scratch,” he says. BT

HMl, the outsourcing subsidiary of Skipton Building Society, has boosted its compliance team ahead of the publication of the Mortgage Market Review this autumn with the appointment of Martin Berry as head of compliance. Berry joins from KPMG where he has spent the past few years as a manager in its risk consulting division covering several compliance oversight roles in the banking and insurance sectors. During his 12-year career in financial services compliance he has worked in the IFA sector for Sesame and several national IFAs, along with a number of life assurance companies. HML manages around £43 billion worth of mortgage assets for 50 clients.

Global financial business and technology consultancy Capco has given Armin Schmitt responsibility for all its operations in continental Europe, covering Benelux, France, Germany, Switzerland and Capco’s near-shore centre in Bratislava. Previously, Schmitt was head of Capco’s operations in Germany, German-speaking Switzerland and Eastern Europe. His expanded role positions him to build on Capco’s European business as it executes its growth strategy. Recent developments include the setting up of Capco’s Bratislava-based near-shore facility, together with a dedicated sourcing team to concentrate on leveraging the best of on-, near- and offshore client and Capco capabilities. Prior to joining Capco in 2007, Schmitt spent more than 10 years in senior leadership roles with consulting firms, including KPMG and BearingPoint. He has also worked within national and international financial services firms, with senior roles including co-head of IT at DZ bank. His particular focus has been on post-merger integration, and in the design and delivery of major transformation programmes.

Saxo Capital Markets UK has appointed Nick Beecroft as chairman, with responsibility for the development and performance of the subsidiary and, in consultation with the chief executive, its external relationships. Beecroft has over 30 years of international trading experience in the financial industry, including senior global markets roles at Standard Chartered Bank, Deutsche Bank and Citi. He was a member of the Bank of England’s Foreign Exchange Joint Standing Committee and has been with Saxo in the UK since 2009 as senior

markets analyst. Torben Kaaber, chief executive at Saxo Capital Markets UK, said: “We have grown to become an expert in foreign exchange and multi-asset trading and we pride ourselves on having the best technology, tools and market insight available to our clients. With Nick’s market knowledge and know-how, we can further develop the business and satisfy our clients.” Beecroft replaces Albert Maasland, who was appointed chairman when Kaaber took over in June 2011. Saxo Bank has operated in the UK since March 2006, initially as a branch and, since 1 January, 2012, as Saxo Capital Markets UK Limited.

ITRS Group, a financial application performance monitoring specialist, has appointed Jeff Hoffman as head of sales for the Americas. Hoffman was recruited from SunGard, where he was vice president of sales at Avantgard. He has previously worked in senior sales roles in financial markets, for vendors including IBM and Oracle.

Jose Contin has been appointed general manager at Broadridge City Networks eMeA, based in London. Contin is relocating from New York where he previously headed a US bank/broker-dealer relationship sales team for Broadridge. In his previous roles at Broadridge, Contin managed the account team that supported existing back-office clients and was responsible for developing and expanding client relationships. As a global relationship manager, he was responsible for several of Broadridge’s top revenue accounts. Prior to joining Broadridge in 2008, he spent 15 years in senior trading, client service and operations management roles at Morgan Stanley in San Francisco and New York.

Fiserv has hired Ginger Schmeltzer from SunTrust Bank to the newly-created post of senior vice president, emerging payments, digital payment solutions. Schmeltzer was senior vice president of digital channel management at SunTrust where she oversaw online banking, mobile banking and digital money movement technologies, as well as online sales and the SunTrust.com website. During her time at the bank she also developed and executed strategies for mobile financial services, person-to-person payments and electronic billing and payment. BT


events

septemBeR 24-25 2012eXpp summit, BerlinThe EXPP Summit is an international congress for e-invoicing and e-billing. Providing a meeting place for e-invoicing experts and end-users, it offers a perfect platform for gathering and sharing information on the latest trends and developments. www.expp-summit.com

septemBeR 25-26 2012 mobile and Advanced payments, parisThe Efma Mobile and Advanced Payments conference will explore the key topics in this sector, with industry speakers and delegates. The agenda includes innovative industry case studies and stimulating discussions on new strategies and best practices in the global mobile and advanced payments market.www.efma.com

septemBeR 25-26 2012 Cards & payments, parisThe 10th anniversary of the Efma annual Cards & Payments conference, this year’s agenda explores the payments universe, examining emerging trends and the growth of revenues across international channels.www.efma.com oCtoBeR 9-11 2012BAi Retail Delivery, Washington, DCBAI Retail Delivery brings you the best ideas from business leaders inside and outside financial services as well as technology solutions that enable you to formulate a strategic plan for driving profitability to move your business forward. www.bai.org/retaildelivery/

oCtoBeR 9 2012siA eXpo, milanThe 7th payments summit organized by the SIA, and held in Italy, will debate integration, efficiency and innovation in the European payment system. The one-day agenda of SIA Expo features a plenary session and a number of parallel streams on relevant issues such as e-payments, mobile payments, cards and retail payments, Target2-Securities, and the Digital Agenda.www.sia.eu/siaexpo

oCtoBeR 29-2 novemBeR 2012 sibos, osakaRegistration for Swift’s annual Sibos event is now open with the theme of “New realities: reshaping our industry through collective engagement”.www.sibos.com


PeoPleSeptember 2012

Appointments

ClS Group has appointed David Puth as chief executive officer of CLS Group Holdings and CLS Bank International, filling the gap left by the abrupt departure of Alan Boznian in April, since which time Gerard Hartsink, chairman of the European Payment Council, has been acting as executive chairman. Puth joins from State Street where he was executive vice president and head of global markets from 2008. In this role he was responsible for sales, trading and investment research across multiple asset classes, including FX, and for Currenex, the firm’s leading electronic FX brokerage business. Puth’s career spans more than three decades in financial markets, including 19 years at JP Morgan where he served in a variety of global leadership roles, including oversight of the firm’s FX, interest rate derivatives, commodities, and emerging markets businesses. Puth has served on several industry committees, as well as corporate and not-for-profit boards. He was a member of the Foreign Exchange Committee, sponsored by the Federal Reserve Bank of New York, which he chaired from 1999 to 2002. He has also served on the board of directors of CME Group and ICAP.

lCH.Clearnet has appointed Martin Ryan as group head of operations and client services, reporting to Christophe Hemon, group chief operating officer. He joins LCH.Clearnet from RBS where he was managing director and head of RBS Markets Operations, which supports a number of sales and trading businesses globally including fixed income, currencies and commodities, corporate risk solutions, institutional coverage research and strategy and global structuring. Before his three years at RBS he was a managing director at Morgan Stanley where he ran global equity derivatives and, later, fixed income

operations. Before that he began his career at JP Morgan, initially in credit markets where he supported a range of trading functions from London and during postings to New York and Tokyo.

Andrew Gray is to replace Donald Donahue as chairman of the board at omgeo, the post trade automation specialist. Gray was managing director of core business management at the Depositary Trust & Clearing Corporation, which co-owns Omgeo along with Thomson Reuters. The company has also made two new appointments to its board, with Tim Collier, chief financial officer of Thomson Reuters’ Financial and Risk Business, and Mark Bradbury, managing director, head of global equities business services, at Deutsche Bank, joining.

In addition to the new members, David Turner, chief financial officer, markets, at Thomson Reuters, has resigned and is departing as a member of the board. Donahue, who was president and chief executive at DTCC until July, will continue as a board member.

Gray is responsible for overseeing its core businesses including US clearance and settlement of equities and fixed income products, asset services, wealth management services, insurance and retirement services and data services as well as the marketing and communications group. Before joining DTCC in September 2009, he spent more than five years with Merrill Lynch, most recently as managing director and chief operating officer for Merrill Lynch’s Latin American and Canadian businesses. Prior to that, Gray held a number of senior strategy, finance and technology roles at Merrill Lynch. Before joining Merrill Lynch, Gray was a principal at the consulting firm Booz-Allen & Hamilton, where he specialised in strategy, technology and

business process redesign for financial services clients around the globe. Collier has worked at Thomson Reuters for the past decade in various capacities. Before taking his current role at Deutsche in August 2009, Bradbury was managing director, head of group technology and operations Japan. He had previously worked for Lehman Brothers, Credit Suisse and Dresdner Kleinwort.

Corinne Riguzzi has taken over as head of Surveillance & Enforcement, the trading surveillance unit at SIX exchange Regulation. Surveillance & Enforcement oversees trading on the SIX Swiss Exchange and Scoach Switzerland exchanges, but is organisationally separate. Riguzzi is a lawyer with trading experience, and has worked for Surveillance & Enforcement since 2006, most recently as its deputy head. The unit maintains close contact with the Swiss regulator, FINMA, and with the criminal prosecution authorities.

Former SunGard chief executive Cris Conde has become executive chairman at True Office, a start-up technology company that is taking an unusual approach to regulatory compliance training by creating games that staff “play” on tablet devices. Conde encountered True Office at the 2012 FinTech Innovation Lab where he was acting as executive-in-residence, for the event, which is run by the New York City Investment Fund and Accenture to support the development of technologies for the financial services industry in New York City. True Office and five other growth stage companies took part in this year’s event under the guidance and mentorship of chief technology officers and other senior executives from 12 of the world’s major financial institutions and executives from venture capital firms.

Diebold has hired John ennis from rival ATM maker Wincor Nixdorf to become country manager for the UK and Ireland. Ennis was previously general manager, banking global accounts, at Wincor Nixdorf, which he had joined in 2001 as director of its banking division in the UK. Prior to that he was head of self-service banking at NatWest. “John’s banking and technical experience combined with his expertise in the U.K. and Irish markets will be highly valuable in helping us grow our position in these two important regions,” said Dave Wetzel, vice president and managing director, Europe, Middle East and Africa, Diebold.

Diebold poaches Ennis from ATM rival

HMl, the outsourcing subsidiary of Skipton Building Society, has boosted its compliance team ahead of the publication of the Mortgage Market Review this autumn with the appointment of Martin Berry as head of compliance. Berry joins from KPMG where he has spent the past few years as a manager in its risk consulting division covering several compliance oversight roles in the banking and insurance sectors. During his 12-year career in financial services compliance he has worked in the IFA sector for Sesame and several national IFAs, along with a number of life assurance companies. HML manages around £43 billion worth of mortgage assets for 50 clients.

Global financial business and technology consultancy Capco has given Armin Schmitt responsibility for all its operations in continental Europe, covering Benelux, France, Germany, Switzerland and Capco’s near-shore centre in Bratislava. Previously, Schmitt was head of Capco’s operations in Germany, German-speaking Switzerland and Eastern Europe. His expanded role positions him to build on Capco’s European business as it executes its growth strategy. Recent developments include the setting up of Capco’s Bratislava-based near-shore facility, together with a dedicated sourcing team to concentrate on leveraging the best of on-, near- and offshore client and Capco capabilities. Prior to joining Capco in 2007, Schmitt spent more than 10 years in senior leadership roles with consulting firms, including KPMG and BearingPoint. He has also worked within national and international financial services firms, with senior roles including co-head of IT at DZ bank. His particular focus has been on post-merger integration, and in the design and delivery of major transformation programmes.

Saxo Capital Markets UK has appointed Nick Beecroft as chairman, with responsibility for the development and performance of the subsidiary and, in consultation with the chief executive, its external relationships. Beecroft has over 30 years of international trading experience in the financial industry, including senior global markets roles at Standard Chartered Bank, Deutsche Bank and Citi. He was a member of the Bank of England’s Foreign Exchange Joint Standing Committee and has been with Saxo in the UK since 2009 as senior

markets analyst. Torben Kaaber, chief executive at Saxo Capital Markets UK, said: “We have grown to become an expert in foreign exchange and multi-asset trading and we pride ourselves on having the best technology, tools and market insight available to our clients. With Nick’s market knowledge and know-how, we can further develop the business and satisfy our clients.” Beecroft replaces Albert Maasland, who was appointed chairman when Kaaber took over in June 2011. Saxo Bank has operated in the UK since March 2006, initially as a branch and, since 1 January, 2012, as Saxo Capital Markets UK Limited.

ITRS Group, a financial application performance monitoring specialist, has appointed Jeff Hoffman as head of sales for the Americas. Hoffman was recruited from SunGard, where he was vice president of sales at Avantgard. He has previously worked in senior sales roles in financial markets, for vendors including IBM and Oracle.

Jose Contin has been appointed general manager at Broadridge City Networks eMeA, based in London. Contin is relocating from New York where he previously headed a US bank/broker-dealer relationship sales team for Broadridge. In his previous roles at Broadridge, Contin managed the account team that supported existing back-office clients and was responsible for developing and expanding client relationships. As a global relationship manager, he was responsible for several of Broadridge’s top revenue accounts. Prior to joining Broadridge in 2008, he spent 15 years in senior trading, client service and operations management roles at Morgan Stanley in San Francisco and New York.

Fiserv has hired Ginger Schmeltzer from SunTrust Bank to the newly-created post of senior vice president, emerging payments, digital payment solutions. Schmeltzer was senior vice president of digital channel management at SunTrust where she oversaw online banking, mobile banking and digital money movement technologies, as well as online sales and the SunTrust.com website. During her time at the bank she also developed and executed strategies for mobile financial services, person-to-person payments and electronic billing and payment. BT


events

septemBeR 24-25 2012eXpp summit, BerlinThe EXPP Summit is an international congress for e-invoicing and e-billing. Providing a meeting place for e-invoicing experts and end-users, it offers a perfect platform for gathering and sharing information on the latest trends and developments. www.expp-summit.com

septemBeR 25-26 2012 mobile and Advanced payments, parisThe Efma Mobile and Advanced Payments conference will explore the key topics in this sector, with industry speakers and delegates. The agenda includes innovative industry case studies and stimulating discussions on new strategies and best practices in the global mobile and advanced payments market.www.efma.com

septemBeR 25-26 2012 Cards & payments, parisThe 10th anniversary of the Efma annual Cards & Payments conference, this year’s agenda explores the payments universe, examining emerging trends and the growth of revenues across international channels.www.efma.com oCtoBeR 9-11 2012BAi Retail Delivery, Washington, DCBAI Retail Delivery brings you the best ideas from business leaders inside and outside financial services as well as technology solutions that enable you to formulate a strategic plan for driving profitability to move your business forward. www.bai.org/retaildelivery/

oCtoBeR 9 2012siA eXpo, milanThe 7th payments summit organized by the SIA, and held in Italy, will debate integration, efficiency and innovation in the European payment system. The one-day agenda of SIA Expo features a plenary session and a number of parallel streams on relevant issues such as e-payments, mobile payments, cards and retail payments, Target2-Securities, and the Digital Agenda.www.sia.eu/siaexpo

oCtoBeR 29-2 novemBeR 2012 sibos, osakaRegistration for Swift’s annual Sibos event is now open with the theme of “New realities: reshaping our industry through collective engagement”.www.sibos.com


CommentSeptember 2012

restructuring – Although it seems obvious, it’s surprising how many major programmes move forward without being really clear on what they are trying to do. therefore, before beginning, identify both the strategic change objectives and the measurable value drivers underpinning them.

For example, the objective of reducing the bank’s overall risk profile may mean divesting part of the business, a goal which has measurable plans and clear financial benefits. but as well as the separation activity, this may imply additional change to scale down or change existing systems, processes and organisation in the remaining business.

by being clear on where the value is coming from, restructuring programme governance and reporting can focus on the work which unlocks value and removes the roadblocks to achieving this.■ Implement an end-to-end restructuring process – If acquisitions and divestitures are a recurring reality, consider developing a ‘deal playbook’ – a repeatable guide for the transaction process that compiles best practices and accelerators for your company, from deal initiation to value realisation.

banks preparing Financial Stability board mandated recovery plans or ‘Living Wills’ can take the same approach. these crisis scenarios may require rapid divestiture of troubled group entities or the whole firm, and require clear planning if they are to be executed quickly.

by combining recovery plans and deal playbooks, best practices across the group can be shared, reducing risk further, and increasing regulatory confidence in the bank’s ability to execute these changes.■ Successful It change is now even more critical – Now more than ever, It is on the critical path for banking change. ICb driven ring-fencing, for example, will require a logical or physical separation of systems, and will multiply reporting and data management due to legal entity changes. Automating and simplifying back-office systems and associated processes will help, but this must be aligned with wider operating model change.

Similarly, banking acquisitions and divestitures will typically require data migration between core banking systems.

this can be exceptionally complex, with many risks to both operations and reputation if problems arise.

It should be a high priority in restructuring, but it’s even more important that technology decisions support the overall restructuring goals and value drivers.■ embrace change in the business operating model – If change is to stick, and benefits are to be maintained over time, then the operating model for the business must be transformed. Changes to processes, organisation, governance and sourcing need to be planned holistically in support of the restructuring objectives.

As an example, provision of services such as It will change as a result of ICb driven ring-fencing and separation of economic functions. Internal cross-entity service companies will be established and third party contracts will have to change, with some needing to be novated between legal entities. In this case, care must be taken to establish the most appropriate sourcing model for the restructured business.

the overall restructuring portfolio should consider the impact of multiple programmes or initiatives on common capabilities (e.g. sourcing arrangements) and change once, supporting all the drivers, rather than incremental adjustments which may dilute the benefits.■ Communicate with stakeholders – All stakeholders must be carefully managed, including the board, leadership team and regulator. Don’t underestimate the time overhead to manage this properly.

Within the business, people will worry and resist change if they are not kept in the loop. restructuring programmes are highly disruptive, increasing the likelihood of losing key people – a regulatory concern when banks are trying to reduce risk.

Overall, smarter restructuring is about making the most of the opportunity to change.

managed well, however, transformation can deliver competitive advantages over rival organisations struggling to adapt to today’s new financial services environment.

take the opportunity to get ahead. take the bull by the horns and be smarter about restructuring.

Ian Hogg is senior managing consultant at IBm Global Business Services

Five keys to smarter restructuring Ian Hogg,

Ibm Global business Services

the UK is rolling out the biggest banking overhaul in over a decade in the wake of last year’s Independent Commission on Banking Report. the recommendations around ring-fencing, loss absorbency, and increased competition are driving unprecedented structural change within the industry.

these, and other pressures such as recovery and resolution planning, customer disenchantment, and the cultural issues implied by large scale ppI mis-selling, are driving banks to take stock of their business mix, costs and risk profile. In many cases, the outcome of these reviews is to initiate plans for radical restructuring either through internal transformation, or by mergers, acquisitions and divestitures.

“this year is likely to see a hive of activity among banks looking at ways to boost their core tier one capital,” notes m&A intelligence service mergermarket in its 2011 review of deals in emeA. “Divestments, alongside a variety of liability management exercises and rights issues, are expected to be seen across a number of european banks as a consequence.”

these multi-faceted programmes of change will be challenging for banks. History suggests that they will find it difficult to deliver the changes and realise the benefits in line with expectations, particularly where there is a complex legacy It environment. For example, studies show that 70 to 90% of all acquisitions fail to achieve their objectives.

but it doesn’t have to be that way. While acquisitions, divestitures and other regulatory driven change can be complex and expensive, there are ways to maximise value and minimise risk, while accelerating delivery.

Ibm knows this, having learned lessons the hard way in our own global restructuring. Over the past 15 years, we have transformed our business, acquired 130 companies since 2000, and expect to spend $20 billion on acquisitions by 2015. We have also divested companies with revenue exceeding $12 billion since 2003.

through this experience, and working with our m&A clients in banking, we have identified five key success factors to enable fast and controlled restructuring in banks. ■ Understand the reasons for



speed and security when making payments and technological developments are meeting this demand, with new players driving this change.

the payments business is an important contributor to the success of a bank and is an area that they should not get complacent about. Card issuing and acquiring are important to banks from a revenue point of view and have become more so since the financial crisis, which has made other previously lucrative revenue strea≠≠ms unviable.

What’s more, payments are an important way of helping banks to better know their customers. Indeed for many banks, where branch visits are on the decline, the transaction business remains one of the few modes of communication with their customers. therefore, the behavioural insight banks can gather from payments, and the opportunities to up-sell and cross-sell new propositions, is invaluable. Certainly, this market data is crucial from a compliance perspective – there are huge regulatory demands on banks to harness this data to treat customers fairly.

the fact remains that, at a time when falling interchange fees and wavering customer loyalty is impacting on banks’ profits, financial institutions should be doing all they can to minimise customer churn and improve revenues. this is where incumbent players can take full advantage of the opportunities presented to them by recent technological advances, in order to offer alternative payments methods as value-added services for a flexible and commodity-driven customer base.

there is certainly very little reason for banks to start panicking just yet – despite these threats, the incumbents still have it all to play for.

For one thing, there is the ever-important issue of security. Naturally it is of the utmost importance that payment methods are secure. Despite the desire for convenience and speed, consumers will always remain security-conscious and are unlikely to trust their bank account details with anything that appears vaguely suspicious. banks may not have the greatest reputations at the moment, but the likes of rbS and NatWest will always be trusted with payments transfers over an unknown

start-up. the security of these traditional high street banks is their golden ticket in the payments race and needs to be capitalised on.

New entrants to the payments market may also underestimate some vital elements when it comes to the payments business. Scalability, trust, transaction volumes, system coverage, security – these are all heavy demands on any would-be payment service provider and must not be over-looked in the excitement of offering any new payment products. Start-ups, without the many years of experience held by banks and long established payments processors, are unlikely to be able to offer the non-stop service that banks provide. And as previously mentioned, once consumer trust is lost, it is difficult to regain.

the fact is that there are still so many uncertainties where alternative payments are concerned, especially in the realm of mobile payments. Where will the payment come from – the SIm card, memory card, the actual phone? moreover, who will be responsible for processing these payments – the mobile phone operator or the bank? It will take at least two or three years for these decisions to be made, so it is unlikely that any staggering change in this arena will happen for quite some time yet. that’s not to say that this won’t be an area of huge growth – because it will. but this is a wave of attention, and waves come and go.

the real threat to traditional players will come if international brands, like Google and Apple, make a real play in the space. the goal here for banks will be to collaborate with these big names.

In the meantime, banks need to be alert but not overly concerned. Yes, payments is a boom industry right now but there is no need to make any drastic changes to your business just yet. However, it is important that banks do not underestimate the power of the consumer – and the impact any play by the big name players could have. A start-up is unlikely to unsettle the old boys at rbS and barclays – but the same cannot be said of Google and Apple.

Philippe eschenmoser is head of business consulting at SIX Payment Services

A renewed focus on payments Philippe eschenmoser,

SIX payment Services

Last month, in a move heralded as the latest in the disruption of traditional financial services, payments start-up Stripe closed a monumental $20 million funding round. this comes at a time when barclays continues to hit the headlines with the growing interest around pingit, and iZettle attracts attention following its reported fallout with Visa.

All of this clearly indicates that the focus on the payments business is intensifying and as a result the industry is undergoing a period of overwhelming change. this has led many to ask why the payments space is under such a spotlight – and what this will mean for the traditional payment players.

the forces driving these changes are complex, but can be broadly broken down into three categories: the financial crisis, regulation and technology.

the financial crisis has dominated banks’ agendas for the past four years. this has, unsurprisingly, opened the floodgates for new and innovative start-ups to enter the market in order to capitalise on the faltering loyalty of banking customers. the entrance of new payments players has been further facilitated by ever increasing regulatory initiatives, such as the payment Services Directive. Combine this with the significant strides being made in technology and the ubiquity of internet and mobile, and it is unsurprising that we are experiencing this state of flux within the payments space.

moreover, the resurgence of the payments business is also being encouraged by some of the traditional players. the financial crisis, combined with the increased scrutiny of the regulators, has negatively affected banks’ profitability. Not only are banks now faced with increasingly saturated markets, teeming with new players desperate for their slice of the payments pie, but they have to contend with the ongoing issue of interchange fee regulation. this has seen the cost of cross-border transactions rocket and the result is that banks receive less commission and have to find value-add solutions in order to boost their revenue. this is one reason why banks, most notably barclays, are now capitalising on technological advances to offer alternative payments methods as a value-add service.

Last but not least, consumers are increasingly demanding convenience,



restructuring – Although it seems obvious, it’s surprising how many major programmes move forward without being really clear on what they are trying to do. therefore, before beginning, identify both the strategic change objectives and the measurable value drivers underpinning them.

For example, the objective of reducing the bank’s overall risk profile may mean divesting part of the business, a goal which has measurable plans and clear financial benefits. but as well as the separation activity, this may imply additional change to scale down or change existing systems, processes and organisation in the remaining business.

by being clear on where the value is coming from, restructuring programme governance and reporting can focus on the work which unlocks value and removes the roadblocks to achieving this.■ Implement an end-to-end restructuring process – If acquisitions and divestitures are a recurring reality, consider developing a ‘deal playbook’ – a repeatable guide for the transaction process that compiles best practices and accelerators for your company, from deal initiation to value realisation.

banks preparing Financial Stability board mandated recovery plans or ‘Living Wills’ can take the same approach. these crisis scenarios may require rapid divestiture of troubled group entities or the whole firm, and require clear planning if they are to be executed quickly.

by combining recovery plans and deal playbooks, best practices across the group can be shared, reducing risk further, and increasing regulatory confidence in the bank’s ability to execute these changes.■ Successful It change is now even more critical – Now more than ever, It is on the critical path for banking change. ICb driven ring-fencing, for example, will require a logical or physical separation of systems, and will multiply reporting and data management due to legal entity changes. Automating and simplifying back-office systems and associated processes will help, but this must be aligned with wider operating model change.

Similarly, banking acquisitions and divestitures will typically require data migration between core banking systems.

this can be exceptionally complex, with many risks to both operations and reputation if problems arise.

It should be a high priority in restructuring, but it’s even more important that technology decisions support the overall restructuring goals and value drivers.■ embrace change in the business operating model – If change is to stick, and benefits are to be maintained over time, then the operating model for the business must be transformed. Changes to processes, organisation, governance and sourcing need to be planned holistically in support of the restructuring objectives.

As an example, provision of services such as It will change as a result of ICb driven ring-fencing and separation of economic functions. Internal cross-entity service companies will be established and third party contracts will have to change, with some needing to be novated between legal entities. In this case, care must be taken to establish the most appropriate sourcing model for the restructured business.

the overall restructuring portfolio should consider the impact of multiple programmes or initiatives on common capabilities (e.g. sourcing arrangements) and change once, supporting all the drivers, rather than incremental adjustments which may dilute the benefits.■ Communicate with stakeholders – All stakeholders must be carefully managed, including the board, leadership team and regulator. Don’t underestimate the time overhead to manage this properly.

Within the business, people will worry and resist change if they are not kept in the loop. restructuring programmes are highly disruptive, increasing the likelihood of losing key people – a regulatory concern when banks are trying to reduce risk.

Overall, smarter restructuring is about making the most of the opportunity to change.

managed well, however, transformation can deliver competitive advantages over rival organisations struggling to adapt to today’s new financial services environment.

take the opportunity to get ahead. take the bull by the horns and be smarter about restructuring.

Ian Hogg is senior managing consultant at IBm Global Business Services

Five keys to smarter restructuring Ian Hogg,

Ibm Global business Services

the UK is rolling out the biggest banking overhaul in over a decade in the wake of last year’s Independent Commission on Banking Report. the recommendations around ring-fencing, loss absorbency, and increased competition are driving unprecedented structural change within the industry.

these, and other pressures such as recovery and resolution planning, customer disenchantment, and the cultural issues implied by large scale ppI mis-selling, are driving banks to take stock of their business mix, costs and risk profile. In many cases, the outcome of these reviews is to initiate plans for radical restructuring either through internal transformation, or by mergers, acquisitions and divestitures.

“this year is likely to see a hive of activity among banks looking at ways to boost their core tier one capital,” notes m&A intelligence service mergermarket in its 2011 review of deals in emeA. “Divestments, alongside a variety of liability management exercises and rights issues, are expected to be seen across a number of european banks as a consequence.”

these multi-faceted programmes of change will be challenging for banks. History suggests that they will find it difficult to deliver the changes and realise the benefits in line with expectations, particularly where there is a complex legacy It environment. For example, studies show that 70 to 90% of all acquisitions fail to achieve their objectives.

but it doesn’t have to be that way. While acquisitions, divestitures and other regulatory driven change can be complex and expensive, there are ways to maximise value and minimise risk, while accelerating delivery.

Ibm knows this, having learned lessons the hard way in our own global restructuring. Over the past 15 years, we have transformed our business, acquired 130 companies since 2000, and expect to spend $20 billion on acquisitions by 2015. We have also divested companies with revenue exceeding $12 billion since 2003.

through this experience, and working with our m&A clients in banking, we have identified five key success factors to enable fast and controlled restructuring in banks. ■ Understand the reasons for



generating activities. the treasurer, as a result, will face a greater challenge when it comes to balancing two often conflicting objectives: ensuring access to liquidity while maximising return.

together, market volatility and regulation – both current and prospective – are prompting key changes in behaviour. the requirement to hold more collateral to support market activities goes hand in hand with a bank’s decision to withhold significant amounts of surplus capital and cash in reserve, to guard against unforeseen market volatility, regulatory change and operational risk. Simultaneously, the inaccurate reporting of cash and capital positions increases risk and can cause additional capital to be withheld unnecessarily. Only by ensuring the validity of collateral, suspense and cash positions can strategic cash reserves still be maintained – while enabling the release of available funds for revenue generation.

During the crisis, many banks made two very specific discoveries about their treasuries. the first, during the initial liquidity and collateral squeezes, was the pivotal role that treasury units would now assume, since they were in most instances directly affected by the market turmoil in money markets and ultimately had to ensure the bank’s liquidity. the second was the inadequacy of many treasury management systems; the fragmented It landscape made it incredibly difficult for banks to view their overall cash position and risk exposure, particularly during fast-moving cycles and unstable markets.

A major contributing factor to the latter discovery was the lack of access to complete and up-to-date information with which to measure risk and make funding decisions. the reliance on static rather than forward-looking measures of risk, coupled with a major disconnection between the front office and the risk and control department, meant that market exposures were not quantified, with insufficient contingency being set aside for unexpected loss.

In the midst of the turmoil, many banks found that past practices had suddenly become the source of significant problems – from the assumptions of on-going liquidity from normal sources, and of the quality of counterparties, to acceptance of operational losses as part of doing business. When these were all combined, as they were during the crisis, they served

to create a “perfect storm” for treasuries, in that the demands for and on bank funding had never been greater, yet their access to sources of funding had never been less available. by the same token, treasurers have never needed access to and confidence in information more, yet the multiple sources of information prevented them from being able to make accurate assessments and decisions within the short timeframes.

today, banks must have a clear view of their treasury activities to ensure that the correct decisions are made to protect the bank. Fundamental to these decisions are two elements: accurate information and time.

In recent years, most treasurers have dedicated much time and effort to both It and non-It projects, which have aimed to improve operations and address risk, compliance and regulatory issues. through It improvements, time-consuming liquidity and risk management processes have been automated, and while this has yielded positive results in both quality of information and control, market conditions have caused the treasurer to seek further improvements and efficiencies in order to support their broadened balance sheet stewardship remit.

this stewardship role can best be summarised into four key responsibilities, namely:■ Assuring liquidity – ensuring the bank always meets its obligations■ Assuring solvency – protecting the bank’s ‘nest egg’ through robust reporting, planning and decision-making■ Protecting revenues – reducing noise in financial results for decisions based on clarity, accuracy and timeliness of information■ managing customer flow – using technology to improve visibility and control beyond the treasury, minimising the negative impact of customer flow business on liquidity

each of these disciplines requires different skill sets and involves disparate information sources and technology infrastructures, but by bringing them together in a cohesive manner, today’s treasurer will be better positioned to fulfil their broadened role as steward of the bank’s balance sheet.

Andreas Hug is chief operating officer at Ambit treasury management, SunGard

The broadening role of the treasurer Andreas Hug,

SunGard

In the aftermath of the 2008 financial crisis, the treasury teams at many banks around the world were faced with an enormous challenge: how, with public confidence and stakeholder support at an all-time low, could they return their organisations to a stable, profitable outlook? From a financial perspective, immediate action needed to be taken to strengthen the balance sheet, to refinance debt and to improve the quality of information in relation to short and long term funding.

by virtue of the reporting structure and their detailed knowledge of complex cash-flows, debt restructuring, term/tenor transformation, risk and regulatory compliance, the agenda for most treasurers was therefore set accordingly, with the added benefit of increased visibility across the business following the crisis. In many cases, treasurers now find themselves being called on increasingly to advise the board on strategic business decisions and provide support for vital stakeholder communications. In essence, the treasurer’s role, as overall steward of the bank’s balance sheet, has moved into the spotlight, as banks seek to reassure stakeholders that the business is being properly managed and that appropriate action is being taken to ensure future profitability and stability.

So while the treasurer’s responsibilities have been expanding, so too have the challenges facing the day to day treasury operation. the financial crisis exposed weaknesses in many elements of the banking system, which ultimately contributed to the build-up of systemic risk and the failure of some banks. While markets in certain asset classes continued to function, the financial turmoil demonstrated the potentially contagious effects of a highly interconnected market and the limited transparency of counterparty relationships.

building on the lessons learned from the collapse of Lehman brothers, and the subsequent fallout, regulators have been steadfast in their commitment to ensuring the on-going liquidity of markets. regulations such as Dodd-Frank and basel III will cost banks dearly not only in implementation, but by requiring them to hold greater tactical and intraday liquidity. this will have the combined effect of curtailing many standard profit-

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generating activities. the treasurer, as a result, will face a greater challenge when it comes to balancing two often conflicting objectives: ensuring access to liquidity while maximising return.

together, market volatility and regulation – both current and prospective – are prompting key changes in behaviour. the requirement to hold more collateral to support market activities goes hand in hand with a bank’s decision to withhold significant amounts of surplus capital and cash in reserve, to guard against unforeseen market volatility, regulatory change and operational risk. Simultaneously, the inaccurate reporting of cash and capital positions increases risk and can cause additional capital to be withheld unnecessarily. Only by ensuring the validity of collateral, suspense and cash positions can strategic cash reserves still be maintained – while enabling the release of available funds for revenue generation.

During the crisis, many banks made two very specific discoveries about their treasuries. the first, during the initial liquidity and collateral squeezes, was the pivotal role that treasury units would now assume, since they were in most instances directly affected by the market turmoil in money markets and ultimately had to ensure the bank’s liquidity. the second was the inadequacy of many treasury management systems; the fragmented It landscape made it incredibly difficult for banks to view their overall cash position and risk exposure, particularly during fast-moving cycles and unstable markets.

A major contributing factor to the latter discovery was the lack of access to complete and up-to-date information with which to measure risk and make funding decisions. the reliance on static rather than forward-looking measures of risk, coupled with a major disconnection between the front office and the risk and control department, meant that market exposures were not quantified, with insufficient contingency being set aside for unexpected loss.

In the midst of the turmoil, many banks found that past practices had suddenly become the source of significant problems – from the assumptions of on-going liquidity from normal sources, and of the quality of counterparties, to acceptance of operational losses as part of doing business. When these were all combined, as they were during the crisis, they served

to create a “perfect storm” for treasuries, in that the demands for and on bank funding had never been greater, yet their access to sources of funding had never been less available. by the same token, treasurers have never needed access to and confidence in information more, yet the multiple sources of information prevented them from being able to make accurate assessments and decisions within the short timeframes.

today, banks must have a clear view of their treasury activities to ensure that the correct decisions are made to protect the bank. Fundamental to these decisions are two elements: accurate information and time.

In recent years, most treasurers have dedicated much time and effort to both It and non-It projects, which have aimed to improve operations and address risk, compliance and regulatory issues. through It improvements, time-consuming liquidity and risk management processes have been automated, and while this has yielded positive results in both quality of information and control, market conditions have caused the treasurer to seek further improvements and efficiencies in order to support their broadened balance sheet stewardship remit.

this stewardship role can best be summarised into four key responsibilities, namely:■ Assuring liquidity – ensuring the bank always meets its obligations■ Assuring solvency – protecting the bank’s ‘nest egg’ through robust reporting, planning and decision-making■ Protecting revenues – reducing noise in financial results for decisions based on clarity, accuracy and timeliness of information■ managing customer flow – using technology to improve visibility and control beyond the treasury, minimising the negative impact of customer flow business on liquidity

each of these disciplines requires different skill sets and involves disparate information sources and technology infrastructures, but by bringing them together in a cohesive manner, today’s treasurer will be better positioned to fulfil their broadened role as steward of the bank’s balance sheet.

Andreas Hug is chief operating officer at Ambit treasury management, SunGard

The broadening role of the treasurer Andreas Hug,

SunGard

In the aftermath of the 2008 financial crisis, the treasury teams at many banks around the world were faced with an enormous challenge: how, with public confidence and stakeholder support at an all-time low, could they return their organisations to a stable, profitable outlook? From a financial perspective, immediate action needed to be taken to strengthen the balance sheet, to refinance debt and to improve the quality of information in relation to short and long term funding.

by virtue of the reporting structure and their detailed knowledge of complex cash-flows, debt restructuring, term/tenor transformation, risk and regulatory compliance, the agenda for most treasurers was therefore set accordingly, with the added benefit of increased visibility across the business following the crisis. In many cases, treasurers now find themselves being called on increasingly to advise the board on strategic business decisions and provide support for vital stakeholder communications. In essence, the treasurer’s role, as overall steward of the bank’s balance sheet, has moved into the spotlight, as banks seek to reassure stakeholders that the business is being properly managed and that appropriate action is being taken to ensure future profitability and stability.

So while the treasurer’s responsibilities have been expanding, so too have the challenges facing the day to day treasury operation. the financial crisis exposed weaknesses in many elements of the banking system, which ultimately contributed to the build-up of systemic risk and the failure of some banks. While markets in certain asset classes continued to function, the financial turmoil demonstrated the potentially contagious effects of a highly interconnected market and the limited transparency of counterparty relationships.

building on the lessons learned from the collapse of Lehman brothers, and the subsequent fallout, regulators have been steadfast in their commitment to ensuring the on-going liquidity of markets. regulations such as Dodd-Frank and basel III will cost banks dearly not only in implementation, but by requiring them to hold greater tactical and intraday liquidity. this will have the combined effect of curtailing many standard profit-



participant banks, and concerns about cannibalisation of income streams.

SWIFt remit is a similar initiative focused on remittances, which also goes a long way towards meeting the requirement.

these standards – based approaches improve connectivity but usually do not address the commercial challenges. banks adopting these standards must still establish bilateral commercial relationships with other banks which also participate.

or would a broadening of scope deliver more value? Interlinking ACHs only solves part of the requirement. Clearing is only a small part of the cost of making a payment. According to an analysis from boston Consulting Group, clearing accounts for just 8% of the total cost of an international payment. most of the costs – and risks – of processing are in initiation and capture (30%), processing (35%) and customer service (23%). though banks make between one third and one half of their income from payments, the availability of resources to invest in it is limited.

Consequently, the line between the collaborative and competitive space has moved – and there is no ‘bright line’. banks need market infrastructures and other players such as payments service providers to step up further into the value chain. this will not only enable costs to be reduced through consolidation, but will allow the target market to be broadened, thus enabling the fast growing international retail payments segment to be served cost-effectively, and pre-empt further expensive regulatory involvement.

Redefining global ACH there must be a better way – but to see it, you have to look at the big picture. Optimising the individual components of the existing 50 year – old model will only result in small improvements.

In our day-to-day life, we can see real-life examples of starting afresh. paypal and Google Wallet are both examples where this has already happened. mobile payments schemes are another. the service providers exploit, rather than replace, the high fixed cost, low margin payments clearing and settlement systems, simply providing an overlay which delivers convenience and value; and hence attracts an optimal price without incurring massive investment or risk.

Global market trends are moving towards greater volumes of lower average value transactions. e-payments and m-payments are growing at 19% and 49% respectively, according to the World payments report. And banks facing a growing onslaught of regulations have little appetite or capacity to build or buy new payments services.

the pressing need is for a global payments service which re-intermediates banks into the whole of, not just a small part of, the value chain. A few banks are starting to describe this as a ‘global ACH’ – a cost-effective, fast to adopt service which reaches all the main trading channels and is accessible through a single commercial agreement.

that is a wider requirement than traditional ACH; it requires the movement of client funds, rather than simply the sorting of payment instructions. It is closer to the business model exploited by money transfer operators (mtOs) than traditional correspondent banking. Where correspondent banking is an ‘open loop’ based on multiple messages passed through a chain, mtOs operate a ‘closed loop’ in which they have direct control of the delivery of value to the beneficiary. the idealised service is then the predictability and transparency of closed loop, with the global reach of open loop. Crucially, there is also the transfer and settlement of money, rather than just the messaging and sorting of payment instructions.

Given the fast growth in e-commerce and other forms of low value international payments, it presents a significant opportunity for anyone who gets the formula right.

Gareth Lodge is senior analyst, corporate payments, at Celent, and neil Burton is director of product service strategy at earthport

How can we harness domestic ACHs globally? Gareth Lodge,

Celent, and neil Burton, earthport

Global ACH, or iACH as it is sometimes called, seems to be the buzzword of the moment.

to turn end-user demand and industry interest into reality, we need to ask if there is a good business case for a global ACH.

to answer that question, we first need to understand the role of an ACH (Automated Clearing House) in the payments ecosystem.

though a critical component of the payments process, ACHs do not handle client funds, which are the domain of banks and payments service providers. Instead they offer domestic clearing of payments at exceptionally low cost (often less than one cent per transaction) and with high operational efficiency.

When ACHs were first created, international transactions were a rarity and so ACHs are domestic in focus. even today, over 90% of payment volumes never cross a border. but the level of cross-border transactions is increasing, as is the quest for the next level of cost savings. ACHs are about scale – they tend to have relatively fixed costs, so driving additional volumes creates even greater savings.

If that’s the case, does the concept of a global ACH - that is, an ACH operating across multiple countries – make sense?

might interlinking ACHs or other standards – based approaches work? As the national payment schemes operating ACHs are deeply ingrained into national culture, achieving seamless and low cost processing of payments on a global scale has remained a mirage for the industry for many years.

Some years ago, a project called WAtCH attempted to establish a worldwide ACH. the project was eventually abandoned due to the massive costs and challenges of bringing stakeholders to a common view.

Another initiative, the International payments Framework being developed by the IpFA, seeks to improve non-urgent cross-border credit transfers by providing rules, standards and operational procedures and guidelines to enable ACHs to interconnect.

Despite providing connectivity between US and european ACHs since 2010, this project has been beset with challenges arising from issues with differences in routing tables, silo architectures within

“The pressing need is for a global payments service which re-intermediates

banks into the whole of, not just a small part of,

the value chain.”

smArtstreAm techNoloGies

smartstream technologies delivers operational advantage to clients through enterprise-wide, real-time Transaction Lifecycle Management (TLM®) solutions that automate, track and control financial transactions and processes within and beyond the enterprise.

Built on SmartStream’s TLM Enterprise Control Architecture, TLM solutions provide greater transaction visibility to create exceptions-based operations capable of automating complex and high volume transaction flows. Operational risk and cost is reduced, while customer service levels are improved.

SmartStream is owned by Dubai International Financial Centre (DIFC) and has global operations supporting over 1,000 clients, including more than 75 of the world’s top 100 banks.

coNtActs:leon thomson on +44 (0) 203 377 3493 or email: [email protected]

tieto

tieto is an IT service company providing IT, R&D and consulting services. With approximately 16 000 experts, we are among the leading IT service companies in Northern Europe and the global leader in selected segments. We specialize in areas where we have the deepest understanding of our customers’ businesses and needs. Our superior customer centricity and Nordic expertise set us apart from our competitors.

Tieto Financial Services offers services, solutions and products to financial institutions throughout Europe. Our customers include major banks and financial institutions that have chosen us for our capability to take total responsibility for any assignment.

We enable Financial Institutions to utilize their business potential by combining our technology skills and deep financial industry knowledge with advanced Nordic customer behavior. Working with Tieto you get a reliable, committed long-term partner that helps you to industrialize your day-to-day IT-operations and get the most out of your IT investments.

tcs fiNANciAl solutioNs

tcs financial solutions, a strategic business unit of Tata Consultancy Services, enables transformation in financial services through a holistic suite of solutions for firms in banking, capital markets and insurance, and diversified financial institutions. Each solution in the TCS BαNCS family runs as a scalable and robust service, integrated with existing enterprise infrastructures and technology architectures.

Our mission is to provide best of breed solutions that drive growth, reduce costs, mitigate risk and offer faster speed to market for 240+ institutions in over 80 countries.

TCS BαNCS is an integrated financial services platform. Its embedded transformation intelligence enables flexible, open and collaborative deployment and distribution of financial products and services.

TCS BαNCS aspires to be better than established benchmarks, which is why we’ve embedded an Alpha (“α”) consciously within our brand, to remind ourselves of the superior returns that we strive to deliver. Our ability to foster rapid time-to-market with new products allows organisations to transform themselves into nimble competitors with scalable offerings.

Our Co-Innovation Network is a true partnership for sharing best practices and innovation, and our ‘Experience Certainty’ mindset ensures the brightest of futures for all our customers.

For more information, visit www.tcs.com/bancs or contact us at [email protected]

About tata consultancy servicesTata Consultancy Services is an IT services, business solutions and outsourcing organisation with over 143,000 IT consultants located across the world delivering real results to global businesses through its unique Global Network Delivery ModelTM.

SmartStream TechnologiesSt Helen’s 1 Undershaft London EC3A 8EEUnited KingdomTel: +44 (0)20 7898 0600Email: [email protected]: www.smartstream-stp.com

TietoKutojantie 6-802630 EspooFinlandTel: +3582072010Fax: [email protected]/financialservices

TCS Financial SolutionsWeb: www.tcs.com

suNGArD

About sunGardWith annual revenue of $5 billion, SunGard is a global leader in software and processing solutions for financial services, higher education and the public sector. Visit SunGard at www.sungard.com Adaptiv SunGard’s Adaptiv provides enterprise-wide credit and market risk management and operations solutions for financial services institutions. Adaptiv assists institutions of varying size and complexity to deploy technology to meet both internal and regulatory requirements for risk management and operational control. Adaptiv helps financial services institutions from the banking, hedge fund, asset management, insurance and corporate sectors with its deep understanding of risk management and operational processes. www.sungard.com/adaptiv. front ArenaA trading solution serving a range of financial institutions, SunGard’s Front Arena solution provides straight-through processing by integrating sales and distribution functions, trading capabilities and risk management. Institutional asset managers and brokers, traders, and market makers use Front Arena to trade equities, fixed-income, interest rate derivatives, and credit. For more information, visit www.sungard.com/frontarena securities financeAround the world, $11 trillion in securities financing is managed on SunGard’s proven solutions for international and U.S. domestic securities lending and repo for over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics products and services, we provide comprehensive business solutions and information with worldwide reach for equities or fixed income securities financing Contact: [email protected]

call a sunGard expert today: 0044 (0)208 081 2779

Email: [email protected]: +44 (0)208 081 2779Fax: +44 (0)208 081 2001

www.bankingtech.com

Directory of service

BANKersAccuity is the world’s leading provider of international payment routing data and AML screening software enabling banks and corporations to maximise payment efficiency and ensure AML compliance.

Our Payment solutions help maximise rates of payment STP and with our recent acquisition of CBNet, we are now the only company to source all payment data, including SSI’s, SWIFT/BICs and National Bank Codes directly from the authoritative sources.

Our compliance suite includes the world’s first compliance filtering engine, introduced in 1994, as well as a range of caution lists and screening solutions that provide a prime defence against participation in illicit financial activities, such as money laundering.

Our strategic services Group provides deployment, consulting, training and integration services. We are experts in reducing False Positive rates and helping improve rates of Payment STP.

visit www.Accuitysolutions.com/bankingtech to sign up for a free trial of any of our industry-leading solutions.

Accuity

PeterevANs

peterevans is a leading independent provider of front to back office solutions for the financial services sector. Clearly focused on the securities and investment market petervans has more than 23 years of experience of providing solutions to this sector.

xanite, peterevans new suite of products, offers a configurable, fully integrated, browser based, comprehensive front to back solution that can be either deployed as a single application or integrated as components into your existing platform. Each of the xanite modules can de delivered via an ASP or self-hosted. Covering wealth management, custody, corporate actions, clearing and settlement, private client and on-line stock broking with full operational and administrative support for the front, middle and back office. xanite gives full but controlled access to clients, portfolio, fund and relationship managers, brokers, middle and back office staff – on line anywhere in the world and provides a modern and flexible platform for expanding future business and revenues.

BankersAccuity Reed Business Information, 30 Farringdon Street, London, EC4A 4HH Tel: +44 207 653 3800 Fax: +44 207 653 3828 Email: [email protected]

cleAr2PAy

clear2Pay is a payments modernisation company that actively supports global financial institutions to meet their payments unification goals through its pure SOA Open Payment Framework (OPF). The company facilitates financial organisations in their provision of payments services across the entire value and process chain: Card, ACH, Branch, Bulk, High Care and International Payments. Clear2Pay also offers solutions and services such as e-Banking, the Open Test Platform, ChargeBack, Consultancy and Training. Clients include financial institutions such as ING, Banco Santander, Crédit Agricole, VISA, MasterCard, BNP Paribas, The Federal Reserve, NETS (Denmark), The People Bank of China (PBOC), Rabobank, The Co-operative Financial Services and Commonwealth Bank. Clear2Pay operates out of 14 countries and employs over 650 staff. In 2011 the company won the XCelent Customer Base 2010 award. For more information, please visit www.clear2pay.com.

Clear2Pay NV SASchaliënhoevedreef 20A2800 Mechelen, BelgiumTel: +32 15 79 52 00Fax: +32 15 79 52 01Jean de Crane, GM EMEAEmail: [email protected]

New Broad Street House35 New Broad StreetLondonUnited KingdomEC2M 1NHEmail: [email protected]: +44 (0) 2920 402200Web: www.peterevans.com

orc softwAre

About orc softwareOrc software (SSE: ORC) is the leading global provider of powerful solutions for the worldwide financial industry in the critical areas of advanced trading and low latency connectivity. Orc’s customers include leading banks, trading and market-making firms, exchanges, brokerage houses, institutional investors and hedge funds. solution DescriptionOrc Trading and Orc Connect provide the tools for making the best trading and connectivity decisions with strong analytics, unmatched market access, powerful automated trading functionality, high performance futures and options trading capabilities, ultra-low latency and risk management.

Advanced trading solutionsorc trading applications■ Orc Trading for algorithmic trading■ Orc Trading for arbitrage■ Orc Trading for market making■ Orc Trading for risk management■ Orc Trading for warrants market making■ Orc Trading for volatility trading

orc connect applications■ Orc CameronFIX for FIX to FIX routing■ Orc CameronFIX for FIX integration

Orc SoftwareAmericas: +1 312 327 8555Asia Pacific: +852 2167 1950EMEA: +46 8 506 477 00Email: [email protected]: www.orcsoftware.com

fiDessA GrouP

Exceptional trading, investment and information solutions for the world’s financial community. 85% of the world’s premier financial institutions trust Fidessa to provide them with their multi-asset

trading and investment infrastructure, their market data and analysis, and their decision making and workflow technology. $10 trillion worth of transactions flow across our global connectivity network each year. We offer unique access to the world’s largest and most valuable trading community of buy-side and sell-side professionals, from global institutions and investment banks to boutique brokers and niche hedge funds.

A global business with scale, resilience and expertise, we’ve delivered around 30% compound growth since our stock market listing in 1997 and we’re recognised as the thought leader in our space. We set the benchmark with our unrivalled set of mission-critical products and services and, uniquely, serve both the buy-side and sell-side communities. Ongoing investment in our leading-edge solutions ensures Fidessa remains the industry’s number one choice.

FidessaOne Old Jewry London EC2R 8DNTel:+44 (0)20 7105 1000Fax:+44 (0)20 7105 1001Email: [email protected] Web: www.fidessa.com

www.bankingtech.com

smArtstreAm techNoloGies

smartstream technologies delivers operational advantage to clients through enterprise-wide, real-time Transaction Lifecycle Management (TLM®) solutions that automate, track and control financial transactions and processes within and beyond the enterprise.

Built on SmartStream’s TLM Enterprise Control Architecture, TLM solutions provide greater transaction visibility to create exceptions-based operations capable of automating complex and high volume transaction flows. Operational risk and cost is reduced, while customer service levels are improved.

SmartStream is owned by Dubai International Financial Centre (DIFC) and has global operations supporting over 1,000 clients, including more than 75 of the world’s top 100 banks.

coNtActs:leon thomson on +44 (0) 203 377 3493 or email: [email protected]

tieto

tieto is an IT service company providing IT, R&D and consulting services. With approximately 16 000 experts, we are among the leading IT service companies in Northern Europe and the global leader in selected segments. We specialize in areas where we have the deepest understanding of our customers’ businesses and needs. Our superior customer centricity and Nordic expertise set us apart from our competitors.

Tieto Financial Services offers services, solutions and products to financial institutions throughout Europe. Our customers include major banks and financial institutions that have chosen us for our capability to take total responsibility for any assignment.

We enable Financial Institutions to utilize their business potential by combining our technology skills and deep financial industry knowledge with advanced Nordic customer behavior. Working with Tieto you get a reliable, committed long-term partner that helps you to industrialize your day-to-day IT-operations and get the most out of your IT investments.

tcs fiNANciAl solutioNs

tcs financial solutions, a strategic business unit of Tata Consultancy Services, enables transformation in financial services through a holistic suite of solutions for firms in banking, capital markets and insurance, and diversified financial institutions. Each solution in the TCS BαNCS family runs as a scalable and robust service, integrated with existing enterprise infrastructures and technology architectures.

Our mission is to provide best of breed solutions that drive growth, reduce costs, mitigate risk and offer faster speed to market for 240+ institutions in over 80 countries.

TCS BαNCS is an integrated financial services platform. Its embedded transformation intelligence enables flexible, open and collaborative deployment and distribution of financial products and services.

TCS BαNCS aspires to be better than established benchmarks, which is why we’ve embedded an Alpha (“α”) consciously within our brand, to remind ourselves of the superior returns that we strive to deliver. Our ability to foster rapid time-to-market with new products allows organisations to transform themselves into nimble competitors with scalable offerings.

Our Co-Innovation Network is a true partnership for sharing best practices and innovation, and our ‘Experience Certainty’ mindset ensures the brightest of futures for all our customers.

For more information, visit www.tcs.com/bancs or contact us at [email protected]

About tata consultancy servicesTata Consultancy Services is an IT services, business solutions and outsourcing organisation with over 143,000 IT consultants located across the world delivering real results to global businesses through its unique Global Network Delivery ModelTM.

SmartStream TechnologiesSt Helen’s 1 Undershaft London EC3A 8EEUnited KingdomTel: +44 (0)20 7898 0600Email: [email protected]: www.smartstream-stp.com

TietoKutojantie 6-802630 EspooFinlandTel: +3582072010Fax: [email protected]/financialservices

TCS Financial SolutionsWeb: www.tcs.com

suNGArD

About sunGardWith annual revenue of $5 billion, SunGard is a global leader in software and processing solutions for financial services, higher education and the public sector. Visit SunGard at www.sungard.com Adaptiv SunGard’s Adaptiv provides enterprise-wide credit and market risk management and operations solutions for financial services institutions. Adaptiv assists institutions of varying size and complexity to deploy technology to meet both internal and regulatory requirements for risk management and operational control. Adaptiv helps financial services institutions from the banking, hedge fund, asset management, insurance and corporate sectors with its deep understanding of risk management and operational processes. www.sungard.com/adaptiv. front ArenaA trading solution serving a range of financial institutions, SunGard’s Front Arena solution provides straight-through processing by integrating sales and distribution functions, trading capabilities and risk management. Institutional asset managers and brokers, traders, and market makers use Front Arena to trade equities, fixed-income, interest rate derivatives, and credit. For more information, visit www.sungard.com/frontarena securities financeAround the world, $11 trillion in securities financing is managed on SunGard’s proven solutions for international and U.S. domestic securities lending and repo for over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics products and services, we provide comprehensive business solutions and information with worldwide reach for equities or fixed income securities financing Contact: [email protected]

call a sunGard expert today: 0044 (0)208 081 2779

Email: [email protected]: +44 (0)208 081 2779Fax: +44 (0)208 081 2001

www.bankingtech.com

SEPTEMBER 2012

RegTechGuiding your way through global regulatory storms

Deep impactCounting the cost of regulatory compliance

The cosT of noT moniToring your cusTomer – driving Kyc sysTems and conTrol upgrades?AML scandals highlight the cost of getting KYC wrong

regulaTory idenTifiers – geTTing The righT roadmap? The LEI will set fundamental precedents for the success of future reporting standards

hfT: on The brinK of definiTive new conTrols …?Will HFT rules be globally aligned after all the glitches?

record Keeping: The eu raises The global bar A new gold standard set for OTC trading

In partnership with


SEPTEMBER 2012

OUT OF OFFICE

It might have been billed as the � rst cashless games, with Visa’s sponsorship of the London Olympics ensuring that mobile payment devices were deployed around the of� cial venues throughout the UK – but � gures show that cash usage during the

games.According to ATM operator Link, withdrawals were up by 4.6% during the games,

compared to the same 17 day period last year – a total of £270 million more cash.The real � gure is likely to be higher than that, as Link points out that while its ATMs

represent about 70% of UK cash withdrawals, it doesn’t include withdrawals from people using their own bank or building society machines, or “the vast majority of overseas card withdrawals”.

Total Link cash withdrawals between Friday 27 July and Sunday 12 August hit £6.12 billion, 4.6% up on the same period last year.

John Howells, Link’s chief executive said: “August is normally a quiet month for ATM withdrawals but so far 2012 has proved the exception. This extra cash should boost spending which should prove a valuable bonus to retailers.” BT

What with one thing and another, banks aren’t really popular with the general public at the

moment, giving competitors a chance to poach customers and generally adding to their woes.

In the UK, the Nationwide has been keen to point out that it isn’t a bank and therefore it isn’t a bad place to put your money. A series of advertisements in the national press has been driving the point home for a few months now.

On top of that, we see that the world’s largest building society is “taking action to empower its employees to make energy ef� ciency savings”. It is the � rst business to work with the Carbon Trust to develop a bespoke version of its online behaviour change tool Empower. The tool will be specially designed to help Nationwide’s 15,000 employees with energy ef� ciency, which the building society is “con� dent will result in signi� cant annual � nancial and carbon savings”.

Nationwide’s own version of Empower will feature virtual representations of familiar locations, accompanied by energy ef� ciency tips tailored for the society. Advice will be provided across a variety of business areas. This includes depictions of retail branches and administration centres, as well as transport options for getting to and from work, details on teleconferencing instead of travelling to meetings, and recommendations on how

employees can take action in their own homes. Employees will be encouraged to pledge how they will cut carbon and will be provided with additional learning tools such as quizzes and myth-busters.

The advice provided to employees will be designed to complement the wider efforts to reduce carbon throughout Nationwide’s business, following their work on developing environmental sustainability strategies with the Carbon Trust. The society’s energy spend is mostly focused on their own estate. Branches, administration centres, and data centres account for the vast majority of their direct emissions, with branches the highest individual element. Behaviour change is a simple and cheap way to have a big impact on this energy spend, with most initiatives having a payback in around a year or less.

“We are delighted to be working with Nationwide, which is the � rst business to create their own version of the Empower employee engagement tool. This shows a pioneering commitment to reducing their carbon footprint through people, not just through technical changes and new equipment,” said Richard Rugg, director of programmes at the Carbon Trust. “We expect that by helping their employees work in a more environmentally-friendly way Nationwide will reap both � nancial and social bene� ts. We hope to see staff carry this behaviour into other areas of their lives.” BT

Nationwide in green push

War on cash a loser during Olympics

From the Archive

Swift sets charges for continued use of ISO 7775 ... SIA postpones move to T+1 indefi nitely ... UK banks commit to fi ght money-laundering ... Banks turn to India for outsourcing ... ISO 15022 boosts automation of corporate actions processing ...

Display IT goes down in fl ames ... NCR backs Iris Scanning for ATM biometrics ... Decline in UK cash use continues ... IBM rebrands the AS/400 ... banks see big opportunities in European Monetary Union ...

Leonard Schrank take over helm at Swift ... NAB overhauls IT at UK subsidiaries ... global custodians respond to calls for proxy voting ... banks turn to facilities management to reduce IT costs ... suppliers fl oundering as systems market stagnates ...

London’ option market set for major reforms ... UK government proposes ATM liability laws ... Bahrain becomes fi rst Middle Eastern Swift member ... Big Bang leaves back offi ce headaches ... More regulators for London’s fi nancial services industry ...

10Years

ago

15Years

ago

20Years

ago

25Years

ago

SEPTEMBER 2012

RegTechGuiding your way through global regulatory storms

Deep impactCounting the cost of regulatory compliance

The cosT of noT moniToring your cusTomer – driving Kyc sysTems and conTrol upgrades?AML scandals highlight the cost of getting KYC wrong

regulaTory idenTifiers – geTTing The righT roadmap? The LEI will set fundamental precedents for the success of future reporting standards

hfT: on The brinK of definiTive new conTrols …?Will HFT rules be globally aligned after all the glitches?

record Keeping: The eu raises The global bar A new gold standard set for OTC trading

In partnership with

RegTech I S1

damage report

The cost of not monitoring your customer – driving Kyc systems and control upgrades?When the G20 first revealed its plans in April 2009, the scale and scope of new reforms was all encompassing. Now, we are seeing how serious the regulatory community is about them.

The battle to know your customer provides a first glimpse of just how seriously the industry will take the new reforms.

At the time the new rules were asked for, few questioned why combatting financial terrorism was on the reform agenda for a banking system that had just collapsed. Nevertheless, the G20 commitments contained the demand that the banks clean up the way they look after – and protect – the financial system from abuse by bad people.

The fact is, however, these rules, extending beyond anti-money laundering to sanctions and bribery, were some of the first to go on the books … and now the level of historical compliance is being scrutinised.

Much of this ‘hard stuff’ has yet to be written into regulatory rulebooks around the world, but we can see from the early regulatory adopters that it is definitely on its way. The industry has been asked to raise its game significantly in the past nine months.

The EC is releasing the fourth Anti-Money Laundering Directive (AMLD IV) by the end of this year. With the European Supervisory Authority’s Joint Committee guidance expected on the wire transfer and e-money directive in the EU in quarters three and four, as well as the US’ FinCEN’s rule on customer due diligence and the IRS’ FATCA, the second half of 2012 looks to be a busy one for AML and KYC compliance officers across the board.

This means that, not only has the bar been raised on KYC systems and controls, but that it is going far higher.

However, and perhaps most importantly, the regulatory approach to dealing with systems and controls problems that occurred when the bar was lower is now a bellwether for banks.

In the past, money laundering reporting officers could fear a ‘light touch’ slap on the wrist or big bosses could put a few million away in a slush fund just in case they were caught out with a violation. But, it is turning out to be a very different story. Why? Because, for the first time, we are seeing real, meaningful and game-changing penalties for sanctions, bribery and AML, with fines now in the billions.

Out of control or, rather, poorly-managed internal controls are at the heart of recent wave of unprecedented fines. HSBC’s AML transgressions in the US have quickly become the most notable, but probably not the worst, of recent fines. In an incident chief executive Stuart Gulliver called “shameful, embarrassing and very painful”, HSBC was fined $1 billion in July for

failing to have sufficient internal controls to prevent money laundering and terrorist financing between 2004 and 2010. This comes after being cited by the Fed, as early as 2010, as having “significant potential” for money laundering, including a backlog of 17,000 unreviewed, suspicious activity alerts. HSBC, despite many apologies for its behaviour, has given the industry reason to expect more, putting away an additional $2 billion to cover any other regulatory rainy days.

In August, Standard Chartered took a very high profile fall when the New York State Department of Financial Services (DFS) settled with the bank at $340 million for record falsification and breach of sanctions in illegal transactions with Iran. And it might not stop there. SCB’s fines may creep to nearly $1 billion as it pays for its transgression to other US regulators, including the Treasury, Fed and Justice Department.

Moreover, the US action has sparked a wave of other investigations. OFAC is leading investigations into several European banks including Deutsche Bank, Commerzbank, RBS and, most recently, UniCredit. With the Fed and Department of Justice currently investigating internal issues in Iran-related risk at RBS, we can expect this scrutiny to spread to other banks and we may see more hefty fines in the near future.

As if firms weren’t concerned enough about covering their bases for internal controls and sanctions related offences, it turns out they will have to keep a watchful eye out for bribery too, with, not only fines, but jail time also on the horizon. An ex-Morgan Stanley trader is facing nine months prison time under the Foreign Corrupt Practices Act after evading internal controls for both his benefit and that of a Chinese governmental employee.

Some commentators ask “so what?” Banks have always been challenged in this ‘grey’ area and always will be – it’s just part of the game.

The reality is that the regulators have woken up to the fact that new systems and technology can be deployed to collect the right information about the system and to monitor it effectively. Of course, they can’t prescribe the architecture or name the systems that ought to be purchased or developed. Nor can they spell out what ‘good’ looks like. They can, however, wield a very big club when they smell something bad.

CXOs will now lie awake at night trying to work out how quickly they can afford to upgrade hundreds of legacy systems and processes without blowing up the bank’s cost/income ratio. How fast they move in the KYC space will largely depend on how much resource they need elsewhere. After all, if you can pay $1 billion for sanctions violations, how much will a bank pay when they are caught in breach of high frequency trading rules or Basel III ratios?

KYc/AmlSEPTEMBER 2012

› Standard Chartered seen paying $1 billion to end probes › Yet another one through the wringer: RBS being investigated by Fed for dealings

with Iran discovered in internal review

› Banker gets nine-month sentence for bribes › The Iran saga continues; UniCredit under investigation by US under suspicion

of breaking sanctions

Top TWITTER alERTs:

› Will AML regulation in the EU include tax-evasion type offences?

› How quickly will detailed AML rules go into force globally?

› How will new, unprecedented AML fines influence fines in other regulatory areas?

KnoWn unKnoWns

› Huge fines are a key factor in driving AML compliance

› Historical compliance with AML regulation is becoming a part of today’s regulatory scrutiny

› How will the business case for investment in systems and controls be justified?

ThEmEs

damage reportA new collaboration to promote dialogue on the impact regulatory change will have on financial institutions’ technology and operations ...

Welcome to the first issue of RegTech, a collaboration between Banking Technology and JWG, the regulatory think-tank.

The impact of regulation on financial services operations is well-known to our readers, and has formed a growing part of the coverage in Banking Technology over recent years.

The detail of that impact is increasingly important, and the interplay between different regulations from different jurisdictions further complicates the picture. Since 2006, JWG has been sifting through the mass of information, analysing that interplay and mapping the details into business rules and creating standards.

Currently that mass of information is running at 70,000 new pages of regulation each year – more than 250,000 pages so far. Tracking that information on behalf of its membership has given JWG a unique insight that will help institutions overcome the technology challenges presented by complex legacy infrastructures with difficult performance and integration needs.

JWG’s approach has been to look beyond just ticking the boxes in search of ways to upgrade business performance as well as meet regulatory demands. To do this, it has been working proactively to mirror, shape and define requirements with regulatory bodies and to help develop workable solutions.

JWG’s output covers a multitude of formats, from regular Twitter updates – follow @jwg_group for those – to bespoke in-depth analysis for its clients. With regular updates through RegTech, we will distil the essence of these into concise summaries of the pressing issues on a regular basis.

By its nature, this is a rapidly changing area, so monthly coverage can provide only a snapshot of the issues. Nevertheless, we believe that that such snapshots will be a useful guide to the central issues, and provide readers with essential information on what action they need to take in specific areas.

In the final weeks of preparing this first RegTech issue, headlines in the mainstream media have been dominated by money laundering, price rigging and bribery scandals at major international banks such as Barclays, HSBC and Standard Chartered.

The cost of getting regulatory compliance wrong is clear from those stories, but RegTech is not about getting it wrong – it is about getting it right. Understanding what each regulation means in terms of day-to-day operations is crucial to being able to roll with the punches and improve processes while satisfying the regulators.

Open dialogue on all sides is central to this. We hope you will find that RegTech is a valuable contribution to extending that dialogue.

WelcomeSEPTEMBER 2012

Editor David Bannister,+44 207 017 [email protected]

Senior Staff Writer Elliott Holley,+44 207 017 [email protected]

Production Kosh Naran

Press Releases Send relevant releases to [email protected]

Publisher Tim Banham,+44 207 017 [email protected]

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ISSN 0266-0865

an informa business

David Bannister, editor PJ Di Giammarino, chief executive, JWG

RegTech I S1

damage report

The cost of not monitoring your customer – driving Kyc systems and control upgrades?When the G20 first revealed its plans in April 2009, the scale and scope of new reforms was all encompassing. Now, we are seeing how serious the regulatory community is about them.

The battle to know your customer provides a first glimpse of just how seriously the industry will take the new reforms.

At the time the new rules were asked for, few questioned why combatting financial terrorism was on the reform agenda for a banking system that had just collapsed. Nevertheless, the G20 commitments contained the demand that the banks clean up the way they look after – and protect – the financial system from abuse by bad people.

The fact is, however, these rules, extending beyond anti-money laundering to sanctions and bribery, were some of the first to go on the books … and now the level of historical compliance is being scrutinised.

Much of this ‘hard stuff’ has yet to be written into regulatory rulebooks around the world, but we can see from the early regulatory adopters that it is definitely on its way. The industry has been asked to raise its game significantly in the past nine months.

The EC is releasing the fourth Anti-Money Laundering Directive (AMLD IV) by the end of this year. With the European Supervisory Authority’s Joint Committee guidance expected on the wire transfer and e-money directive in the EU in quarters three and four, as well as the US’ FinCEN’s rule on customer due diligence and the IRS’ FATCA, the second half of 2012 looks to be a busy one for AML and KYC compliance officers across the board.

This means that, not only has the bar been raised on KYC systems and controls, but that it is going far higher.

However, and perhaps most importantly, the regulatory approach to dealing with systems and controls problems that occurred when the bar was lower is now a bellwether for banks.

In the past, money laundering reporting officers could fear a ‘light touch’ slap on the wrist or big bosses could put a few million away in a slush fund just in case they were caught out with a violation. But, it is turning out to be a very different story. Why? Because, for the first time, we are seeing real, meaningful and game-changing penalties for sanctions, bribery and AML, with fines now in the billions.

Out of control or, rather, poorly-managed internal controls are at the heart of recent wave of unprecedented fines. HSBC’s AML transgressions in the US have quickly become the most notable, but probably not the worst, of recent fines. In an incident chief executive Stuart Gulliver called “shameful, embarrassing and very painful”, HSBC was fined $1 billion in July for

failing to have sufficient internal controls to prevent money laundering and terrorist financing between 2004 and 2010. This comes after being cited by the Fed, as early as 2010, as having “significant potential” for money laundering, including a backlog of 17,000 unreviewed, suspicious activity alerts. HSBC, despite many apologies for its behaviour, has given the industry reason to expect more, putting away an additional $2 billion to cover any other regulatory rainy days.

In August, Standard Chartered took a very high profile fall when the New York State Department of Financial Services (DFS) settled with the bank at $340 million for record falsification and breach of sanctions in illegal transactions with Iran. And it might not stop there. SCB’s fines may creep to nearly $1 billion as it pays for its transgression to other US regulators, including the Treasury, Fed and Justice Department.

Moreover, the US action has sparked a wave of other investigations. OFAC is leading investigations into several European banks including Deutsche Bank, Commerzbank, RBS and, most recently, UniCredit. With the Fed and Department of Justice currently investigating internal issues in Iran-related risk at RBS, we can expect this scrutiny to spread to other banks and we may see more hefty fines in the near future.

As if firms weren’t concerned enough about covering their bases for internal controls and sanctions related offences, it turns out they will have to keep a watchful eye out for bribery too, with, not only fines, but jail time also on the horizon. An ex-Morgan Stanley trader is facing nine months prison time under the Foreign Corrupt Practices Act after evading internal controls for both his benefit and that of a Chinese governmental employee.

Some commentators ask “so what?” Banks have always been challenged in this ‘grey’ area and always will be – it’s just part of the game.

The reality is that the regulators have woken up to the fact that new systems and technology can be deployed to collect the right information about the system and to monitor it effectively. Of course, they can’t prescribe the architecture or name the systems that ought to be purchased or developed. Nor can they spell out what ‘good’ looks like. They can, however, wield a very big club when they smell something bad.

CXOs will now lie awake at night trying to work out how quickly they can afford to upgrade hundreds of legacy systems and processes without blowing up the bank’s cost/income ratio. How fast they move in the KYC space will largely depend on how much resource they need elsewhere. After all, if you can pay $1 billion for sanctions violations, how much will a bank pay when they are caught in breach of high frequency trading rules or Basel III ratios?

KYc/AmlSEPTEMBER 2012

› Standard Chartered seen paying $1 billion to end probes › Yet another one through the wringer: RBS being investigated by Fed for dealings

with Iran discovered in internal review

› Banker gets nine-month sentence for bribes › The Iran saga continues; UniCredit under investigation by US under suspicion

of breaking sanctions

Top TWITTER alERTs:

› Will AML regulation in the EU include tax-evasion type offences?

› How quickly will detailed AML rules go into force globally?

› How will new, unprecedented AML fines influence fines in other regulatory areas?

KnoWn unKnoWns

› Huge fines are a key factor in driving AML compliance

› Historical compliance with AML regulation is becoming a part of today’s regulatory scrutiny

› How will the business case for investment in systems and controls be justified?

ThEmEs

RegTech I S3

hfT: on the brink of definitive new controls …?Thanks to technological hiccup after technological hiccup, high frequency trading (HFT) remains a permanent fixture in the financial press. With each blip, regulators and politicians promise to regulate HFT, but how they are going to put effective controls in place is still an open question.

Despite the noise, the issues with HFT remain the same. The industry can’t come to consensus on what HFT is, when it is safe to use and how it can best be kept under control.

In offering a not-so-friendly reminder of the market dangers of HFT, the NASDAQ faced a glitch that forced exchanges to cancel trades after skyrocketing share prices were detected. This came only a few weeks after a fiasco - or “technology issue” - on a system run by Knight Capital caused an algo order to drive wild fluctuations in stock prices, resulting in an estimated $440 million loss and a rapidly sinking share price.

In the US, the CFTC Technology Advisory Committee on HFT was created in February 2012 “to ensure that markets evolve” and shed some light on the “how” and “what” of HFT. Their definition, whilst general, offers at least a start point, finding that HFT is a type of automated trading using algorithms, low-latency technology, high speed connections and high message rates. The definition omits other activities that might fall under the HFT banner, though it aims to be consistent with other Technology Advisory Committee work. With the definition still in a discussion phase, the industry will continue to be unsure for some time.

Europe has come closer to legislative control of HFT through MiFID II, and through the response of some more eager member states. MiFID II has attempted to define HFT through characteristics unseen in other regulations, including using co-location, circuit breakers, minimum daily portfolio turnovers, order-to-trade ratios and rebates for liquidity provision. Furthermore, MiFID II, rather controversially, is contemplating banning direct market access, in addition to controls to ensure that trading venues keep trades entered on their systems for at least 500 milliseconds.

Sure to add fuel to policy discussions is the new paper released by the UK Foresight Commission on crashes and their relation to HFT. Counter to the argument offered by many that an increase in liquidity equals a safer market, the paper suggests that more liquidity may be associated with more “volatility and crashes”, meaning regulators may have to rethink their approaches to HFT regulation.

Meanwhile, the Germans have shown a lack of patience with the pace of HFT regulation in the EU and offered their own regulatory opinions and ideas, expected to be submitted to parliament for passage by the second half of 2012. BaFin, with the blessing of the German ruling coalition, has reserved the right to monitor finance experts and HFT and has outlawed constantly testing market levels to influence prices. Fines will also be levied for even tiny price changes and disproportionate use of trading systems. All of this HFT attention across the continent means that Europe may see an accelerated legislative timeline, especially if more technological errors occur.

Other countries outside the US and Europe, motivated to avoid repeated examples of HFT malfunctions in their jurisdictions, have made moves to HFT regulatory control. Most notably, Australia’s Securities & Investment Commission released a proposed law to regulate algo trading, requiring annually tested system controls that would include pre-trade filters, limits and prohibitions, to avoid experiencing unnamed “recent events overseas”. Furthermore, large fines, in the hefty ballpark of $1.1 million, have also been stipulated for a lack of order signal tracking. In a similar move, Hong Kong’s Securities Futures Commission has suggested that algos be tested yearly along with having proper controls to prevent wild trade fluctuations. India has also jumped on board, with its Securities and Exchange Board to monitor algo trading with a stronger focus on HFT, and has even received national pleas to shut down HFT altogether.

The bottom line is that the political imperative to do something about HFT will force changes in the way that automated trading works. However, as other efforts to control HFT have seen in the past, the market adapts very quickly to whatever rules are put in place.

Are we now going to get this right? It would appear it is a bit early to answer. Whatever is done, it needs to be joined up globally.

HigH frequencY trAdingSEPTEMBER 2012

› Social benefits of high frequency trading › Australia clamps down on ‘algo’ trading; unveils measures requiring traders to

control their systems and test them annually.› Russians focus watchful eye on HFT: Moscow Exchange to levy commission on

HFT traders who create “unproductive load” on system

› A seemingly regular occurrence: erroneous orders cause jump in NASDAQ share prices; now historic low in US market structures

› Knight $440m trading loss said linked to dormant software

Top TWITTER alERTs:

› Speculation continues as to the best approach for dealing with HFT: ban it or control it?

› Will recent glitches cause a rewrite of MiFID II?

KnoWn unKnoWns

› Differences within Europe on HFT regulation mean that the EU will soon be forced to take a position

› Do regulators have the technical expertise and the resources to regulate automated trading efficiently and effectively?

› To what extent will the current patchwork of HFT rules be aligned globally, despite being in early stages?

ThEmEs

The industry can’t come to consensus on what HFT is, when it is safe to use and

how it can best be kept under control.

S2 I RegTech

regulatory identifiers – getting the right roadmap?

The industry is at a turning point in laying the foundations for global reporting success through the new legal entity identifier. The G20 has asked for the identifier to be launched by March 2013 – a mere 100 business days from now.

The LEI will set fundamental precedents for future reporting standards, before even more complicated work is carried out on product identifiers, industry codes and other identifiers required for ‘apple to apple’ comparisons between data.

If missed, this opportunity to get the regulatory community aligned may not come again anytime soon. Without a firm view of how to overcome the implementation issues the rapid regulatory ‘mandate’ for the identifier may be delayed for a number of years.

The target operating model for the LEI system is a three-tier structure consisting of the Regulatory Oversight Committee, which will have ultimate responsibility for the governance of the global LEI system; the Central Operating Unit, with responsibility for delivery operations; and Local Operating Units, which will be the local implementers of the global system. The highly federated model will require a lot of operational issues to be worked out.

The FSB is pedalling hard to get clarity. It has empowered a new Private Sector Preparatory Group (PSPG) to help work through the implementation issues. With 170 members from 30 jurisdictions, the PSPG’s ostensible goal is to focus on solving each of the legal, operational and technical problems that make up the vast, growing global jigsaw puzzle that is the LEI. The industry awaits the work of this heterogeneous group of academics, consultants, vendors and financial institutions to define the thorny details. The next checkpoint is the 15 October LEI ‘solution demonstration day’ when we will see just how much progress has been made. To keep the industry further clued in, the FSB has announced it will release LEI progress reports “approximately” every three weeks.

However, the world is not standing still waiting for the PSPG results. As we write, new rules are being inked that require identifiers … of some sort. So far, none of these has been able to explicitly state that they will only

accept an LEI. This means that regulatory reporting teams are left trying to explain to their masters why anything needs to change with the status quo. Yes, we are right now creating the opportunity for CXOs to opt for another mapping column.

As they were the instigators of the LEI, US authorities, anxious to give the industry clarity on what is required for new OTC reporting, gave the go-ahead to DTCC/SWIFT

in July to provide the ‘temporary LEI’, or CFTC interim compliant identifier (CICI), for two years. According to Commissioner O’Malia, for the global LEI this news is “not as good”, despite being “good news” for the CFTC, offering demonstrations and opening an online portal for 24,000 CICI identifiers.

In the EU, after intense debates about the content, the European Markets Infrastructure Regulation (EMIR) has finally become law, meaning an OTC identifier will now be required

from July 2013. However, there is still one more step to go as the European Securities Markets Authority (ESMA) now needs to define the exact wording about what identifier will be used. Current drafts do not look like they will demand that only the LEI be used.

The European Banking Authority, the risk reporting regulator, has a similar challenge to their cousins at ESMA. COREP and FINREP reporting will also require identifier standards in 2013. Few would expect them to do anything other than follow ESMA’s lead.

In Asia, the Monetary Authority of Singapore announced, in a recent OTC clearing consultation, that it will “take into account the LEI for reporting and classification”. The Hong Kong Monetary Authority went a step further and committed to adopting the LEI for its OTC regime if it exists soon, but similarly will default to an interim identifier if it still finds itself waiting when the text becomes law.

Will local regulators mandate the specific use of the new LEI code? It is not looking terribly likely in the short term. However, it is only once the industry understands the full set of real, hard consequences of not having an LEI code, that we can tell whether it will become the new reality. With a deadline of March 2013 to produce the first iteration of the LEI, the timeline is very tight to keep the global identifier conversation on track.

identifiersSEPTEMBER 2012

› What will the March 2013 final LEI solution look like?

› When will the LEI be mandated by regulation?

› How will regulatory use cases be established?

› Actions taken by regulators and firms with interim identifiers are already underway.

› New mapping table requirements are the order of the day

› Firms may have to take multiple steps to implement various identifier regimes across borders

› Where shall the LEI COU make its home? The FSB needs lawyers to help decide:› FSB progress note on the global LEI initiative› IOSCO reaffirms commitment to FSB LEI principles, but will this have any impact

on US/EU regulatory agendas?

› FSB LEI system operational solution demonstration day invitation › CFTC opens online portal for 24,000 CICI identifiers; but when will the FSB’s LEI

officially launch in US?

Top TWITTER alERTs:

KnoWn unKnoWns

ThEmEs

The world is not standing still: new rules are

being inked that require identifiers … of

some sort.

RegTech I S3

hfT: on the brink of definitive new controls …?Thanks to technological hiccup after technological hiccup, high frequency trading (HFT) remains a permanent fixture in the financial press. With each blip, regulators and politicians promise to regulate HFT, but how they are going to put effective controls in place is still an open question.

Despite the noise, the issues with HFT remain the same. The industry can’t come to consensus on what HFT is, when it is safe to use and how it can best be kept under control.

In offering a not-so-friendly reminder of the market dangers of HFT, the NASDAQ faced a glitch that forced exchanges to cancel trades after skyrocketing share prices were detected. This came only a few weeks after a fiasco - or “technology issue” - on a system run by Knight Capital caused an algo order to drive wild fluctuations in stock prices, resulting in an estimated $440 million loss and a rapidly sinking share price.

In the US, the CFTC Technology Advisory Committee on HFT was created in February 2012 “to ensure that markets evolve” and shed some light on the “how” and “what” of HFT. Their definition, whilst general, offers at least a start point, finding that HFT is a type of automated trading using algorithms, low-latency technology, high speed connections and high message rates. The definition omits other activities that might fall under the HFT banner, though it aims to be consistent with other Technology Advisory Committee work. With the definition still in a discussion phase, the industry will continue to be unsure for some time.

Europe has come closer to legislative control of HFT through MiFID II, and through the response of some more eager member states. MiFID II has attempted to define HFT through characteristics unseen in other regulations, including using co-location, circuit breakers, minimum daily portfolio turnovers, order-to-trade ratios and rebates for liquidity provision. Furthermore, MiFID II, rather controversially, is contemplating banning direct market access, in addition to controls to ensure that trading venues keep trades entered on their systems for at least 500 milliseconds.

Sure to add fuel to policy discussions is the new paper released by the UK Foresight Commission on crashes and their relation to HFT. Counter to the argument offered by many that an increase in liquidity equals a safer market, the paper suggests that more liquidity may be associated with more “volatility and crashes”, meaning regulators may have to rethink their approaches to HFT regulation.

Meanwhile, the Germans have shown a lack of patience with the pace of HFT regulation in the EU and offered their own regulatory opinions and ideas, expected to be submitted to parliament for passage by the second half of 2012. BaFin, with the blessing of the German ruling coalition, has reserved the right to monitor finance experts and HFT and has outlawed constantly testing market levels to influence prices. Fines will also be levied for even tiny price changes and disproportionate use of trading systems. All of this HFT attention across the continent means that Europe may see an accelerated legislative timeline, especially if more technological errors occur.

Other countries outside the US and Europe, motivated to avoid repeated examples of HFT malfunctions in their jurisdictions, have made moves to HFT regulatory control. Most notably, Australia’s Securities & Investment Commission released a proposed law to regulate algo trading, requiring annually tested system controls that would include pre-trade filters, limits and prohibitions, to avoid experiencing unnamed “recent events overseas”. Furthermore, large fines, in the hefty ballpark of $1.1 million, have also been stipulated for a lack of order signal tracking. In a similar move, Hong Kong’s Securities Futures Commission has suggested that algos be tested yearly along with having proper controls to prevent wild trade fluctuations. India has also jumped on board, with its Securities and Exchange Board to monitor algo trading with a stronger focus on HFT, and has even received national pleas to shut down HFT altogether.

The bottom line is that the political imperative to do something about HFT will force changes in the way that automated trading works. However, as other efforts to control HFT have seen in the past, the market adapts very quickly to whatever rules are put in place.

Are we now going to get this right? It would appear it is a bit early to answer. Whatever is done, it needs to be joined up globally.

HigH frequencY trAdingSEPTEMBER 2012

› Social benefits of high frequency trading › Australia clamps down on ‘algo’ trading; unveils measures requiring traders to

control their systems and test them annually.› Russians focus watchful eye on HFT: Moscow Exchange to levy commission on

HFT traders who create “unproductive load” on system

› A seemingly regular occurrence: erroneous orders cause jump in NASDAQ share prices; now historic low in US market structures

› Knight $440m trading loss said linked to dormant software

Top TWITTER alERTs:

› Speculation continues as to the best approach for dealing with HFT: ban it or control it?

› Will recent glitches cause a rewrite of MiFID II?

KnoWn unKnoWns

› Differences within Europe on HFT regulation mean that the EU will soon be forced to take a position

› Do regulators have the technical expertise and the resources to regulate automated trading efficiently and effectively?

› To what extent will the current patchwork of HFT rules be aligned globally, despite being in early stages?

ThEmEs

The industry can’t come to consensus on what HFT is, when it is safe to use and

how it can best be kept under control.

S4 I RegTech

record keeping: the eu raises the global bar Most of what MEPs voted into law in July required ESMA to define exactly what they meant in their record keeping demands legislated through EMIR. Unfortunately, a few clauses slipped through the net in the drafting process …

One of these was regarding record keeping which, according to experts, means that, as of 16 August, everyone doing OTC trading in the EU is subject to a brand new gold standard of record keeping for 10 years. This is leaving many firms mildly shocked by requirements they did not expect to be dealing with until next year.

What’s the problem? As most experts will recount, record management should not be viewed as an isolated issue, but rather as a key component of broader data governance issues across regulation.

The real industry-wide challenge is getting the supply chain to better understand parts of firms’ business to come up with the solutions that comply with record keeping regulations, ranging from central securities depository to OTC derivatives. But it remains to be seen whether the supply chain is able to provide fixes that not only allow firms to deploy a universal global record keeping policy, but go the extra mile and enable compliance across regulations and borders in a cost-effective way.

The June release of ESMA’s EMIR technical standards will require comprehensive upgrades to firms’ current record keeping practices. ESMA’s demands are significant and include a detailed, granular understanding of current practices and future capabilities across all business areas, including recording all transaction, position and business information. At the end of the day, firms will be under pressure to pull all these pieces together into a coherent story to reconstitute many currently irreconcilable trades and positions.

The CFTC’s rule on swap data record keeping and reporting has been less prescriptive, stating that, if market participants are left to define the records that need to be kept, they will provide the Commission with adequate records when needed. With these significant divergences in detail, and further guidance from ESMA not expected for months, we are looking at serious consequences in Europe and abroad as institutions attempt to comply across borders.

For large firms with global systems, the gold plated nature of the EU’s standards is a big deal. Those who may think they have all their requirements covered by the Dodd-Frank change team may want

to re-examine what they now need to do to stay in business in Europe. New requirements will increase operational risk and require additional systems changes.

But it’s not just about records. It’s also about retention. How long firms retain information, and how easily they can access it, has only contributed to more head-spinning confusion. ESMA’s standards mandate this information must be searchable by a wide variety of fields. Just in case you already have that covered, ESMA wants records to be accessible for 10 years and immediately accessible

for 6 months. The industry has issued mixed responses to this but, with 69% of firms that responded to ESMA’s original consultation offering no comment on these standards, it is questionable just how much firms have this on their radars. Of the firms that did respond, JWG analysis shows that 58% criticised the 10-year requirement and 42% called it

acceptable or even too short. With such disparate responses, the regulator now has permission to choose its own path.

Other European rules show just how patchy the playing field is. Differing retention periods in regulations, such as MiFID and CSDs, which stipulate a five-year retrieval period, have added another layer of complexity. Add to that mix the EU Data Protection Regulation and it becomes clear that longer, inconsistent record retention requirements carry with them serious issues of retaining sensitive personal data for prolonged periods of time. With a continued lack of definitive guidance on compliance across regulations from any one source, it will be difficult for firms to get value from suppliers.

It’s obvious from the consultation responses ESMA received, and the inconsistencies across record keeping regulation, that these technical standards are unlikely to end up where the industry wants them to be.

Industry confusion will continue, as diverging requirements across jurisdictions make compliance difficult and costly, if not impossible. Factor in ESMA’s assertion at a recent Paris hearing that the technical standards will form a framework that is subject to change in the future, and you have a lot of uncertainty that looks like it’s going nowhere. The only real answer is for shared solutions that leverage the latest technology, so that fixes can be created to make infrastructure compliance desirable rather than feared.

record KeepingSEPTEMBER 2012

› Do regulators have enough technical knowledge of the industry to develop adequate and workable record keeping standards?

› As the EU has raised the bar for record keeping requirements, how will the US react?

› How will developments from the European Data Protection Supervisor influence record keeping requirements?

› Where are the gaps? JWG analysis of record keeping and BCP requirements proposed by ESMA and IOSCO finds lots! Check it out:

Top TWITTER alERTs:

KnoWn unKnoWns

› Record keeping requirements are not an island; shifts in one regulatory area may have serious effects on overall record keeping policies

› The industry has very mixed views on both the practicality and ability to comply with these new standards

› Global alignment of record keeping standards requires action now

ThEmEs

42% of firms called ESMA’s 10 year record-keeping requirement

acceptable or even too short

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