Swift sees expanding role as facilitator for industry collaboration

As delegates gather for the third Business Forum organised by Swift in London this week, issues on the global impact of regulation and the banking industry’s response to it are more pressing than ever

Perhaps equally pertinent to the conference – the largest event Swift organises aside from the annual Sibos conference and exhibition, with 800 delegates expected this year – is the role that Swift itself will play in the future industry landscape.

Arun Aggarwal, Swift’s managing director for UK and Ireland (right), said that the event, now in its third year, would be looking at regulatory fragmentation and the issues that this raises. Although people talk about global regulation, there is a move “back to national or regional control, with liquidity and capital buffers being kept in-country”. The plenary session of the conference will be asking questions like, “how do big global players operate in that sort of environment, and what does it mean for financial centres like London” he said.

Sir John Gieve, chairman of VocaLink and former deputy governor of the Bank of England, opens an impressive list of speakers that includes Paul Sharma, director of policy for the Prudential Regulatory Authority, Bank of England, John Trundle, chief executive of Euroclear UK and Ireland, John Owen, chief executive, international banking, RBS, and many others. The day ends with a closing session by Mark Garnier, a UK Member of Parliament, and former investment banker who sits on the Treasury Select Committee.

It’s very much a Big Picture speaker line-up, which is appropriate, Aggarwal said, because the industry is changing rapidly. “The level of stress in the industry, whether it’s economic or regulatory, is changing the mind-set completely,” he said.

“Clearly we have a very different environment, with a massive amount of re-regulation coming, but the landscape is now clearer – it’s not 100% clear, but people can now understand, broadly, the regulatory landscape they are facing, and how they can respond to that,” he said.

The theme of the conference is “thinking beyond compliance: turning challenges into opportunities”. It is not a new theme, but it is starting to be one that people are acting on, and realising that “they cannot simply think about putting in a system as a quick fix for regulatory compliance”, says Aggarwal. “You have to think how that system integrates into your organisation so that it is beneficial not just for compliance but for risk management and business growth. In doing that, in order to be cost-effective and efficient, you need to leverage what is competitive and what is collaborative.”

The debate over what is competitive and what is collaborative has also been a theme for the past few years, and Swift, under the leadership of Gottfried Leibbrandt, who took over as chief executive last year, has been reasserting its role in the facilitating that debate

“Our community role has been stressed. It is not a radical change from the past, but it is the case, I think, that the emphasis has been ratcheted up a bit,” said Aggarwal. “The financial services industry has to pull together a lot more to survive and prosper. The ultracompetitive environment of the past has had to be muted in face of the massive challenges the industry faces. One good place that can facilitate that collaboration is Swift. People are getting out of business lines where they can’t compete. There are a whole bunch of things happening in the market that are pointing towards people standardising more and finding ways to share. We are a good vehicle for that.”

Aggarwal said that there is evidence that the changes in the industry are receptive to this approach – in fact, he would argue that the industry is asking Swift to take this position.

“There is no question in our mind that we see a trend of the industry recognising and moving to collaboration, to sharing costs and reducing investments. The boundary line between what is collaborative and what is competitive is shifting, and the collaborative space is becoming much bigger,” he said. “We see a lot more in terms of consortium initiatives and outsourcing, which is a form of collaboration – you collaborate by using a standardised service model, which means you have to conform to a standard approach.”

But this raises the perennial question of Swift’s role in the industry: where do its collaborative/competitive boundaries lie?

“One of the areas I’m very much involved with is the post trade services side for securities, and one of the things we are doing there is electronic trade confirmation using standard Swift messages. It is a classic Swift product that has been around for ever, but that is now gaining huge traction, and gaining a lot of ground against Omgeo or other methods of confirming, because people are saying they are fully connected to the Swift infrastructure and they may as well leverage that.”

Whatever Omgeo and others might feel about it, Swift always has its ultimate defence to fall back on: “At the end of the day we are a member-owned consortium and member driven. Our governance structure is pretty formidable, and we don’t do anything on a hunch or a whim. It is done on the basis of deep consultation and members buying into it – we are not doing it from a desire to compete,” he said. “Ultimately we don’t do anything unless a sizeable part of the industry is telling us we should do it. Why are we competing with Omgeo? It’s because the industry wants us to compete with Omgeo.”

Ironically, perhaps, Swift’s expansion into territories that have hitherto been the preserve of others stems largely from the “stick to the knitting” philosophy that has been a hallmark of Leibbrandt’s management. .

“The stick to the knitting piece is one thing that Gottfried has re-emphasised: we do stuff that is for the good of the industry, and we make sure that we are totally driven by that. It is very much part of the 2015 strategy, of which Gottfried was the architect. The core is the messaging and networking, but around that core we are adding applications like sanctions screening, and ETC is a manifestation of that,” said Aggarwal. “In general, the situation we find ourselves in is that the industry wants us to do more than we are doing. We are being pushed to take on more areas of functions, applications and processes. We are being conservative, because we have a strong governance structure that needs to be convinced, and in general our challenge is how to select what to do from a fairly large list of opportunities.”

Which implies that there are areas that Swift will not step into? “In a very general sense, we will do things that are on the core or that are adjacent to the core,” he said. “If we are doing things that are not related to messaging, or data transfer and network connectivity, then the question is why would we be doing that? There is a bunch of application areas that we think that we could help the industry with, but why would we?”

A more nuanced example comes from Swift’s plans in the collateral management area, which is, roughly, “so far and no further”.

“Collateral management is clearly a hot topic in the industry, and we have a whole suite of collateral management messages that are perhaps not being used as much as they might be,” he says. “There is a need for a lot more standardisation in collateral management and clearly data has to be moved around, and the reporting plays to the collateral management messages. “We think that we have strengths in that, but why would we go further and create an application? There are plenty of those out there.”

Trade repositories are another area where Swift sees a role for itself. “There are trade repositories springing up all over for every asset class, and you have to report into them; one of the mechanisms for reporting into them is Swift,” says Aggarwal. He points to the FX trade repository run by the DTCC, for instance Firms can send data to this either directly over the DTCC’s own network, using FpML-formatted messages or over Swift either in FpML format or using a Swift standard message that can be translated by the network into the appropriate format.

“Where Swift would come into its own is where a firm has to report into multiple trade repositories, allowing them do it once even if they have to go, to multiple destinations,” he says. “That looks like an interesting area for us, though it is early days.”