Swift: capitalising on customer collaboration

Raymaekers: renewed interest in intraday liquidity

Intraday liquidity is a hot topic at the moment, and it is one of the areas where industry co-operative Swift sees a role for itself as a neutral provider of services – the third phase of its existence, as laid out by chairman Yawar Shah and chief executive Gottfried Leibbrandt at the recent Sibos event.

Away from the abstract talk in conference plenaries, the organisation increasingly finds itself approached by member banks keen to find collaborative solutions for a range of problems, says Wim Raymaekers, Swift’s head of banking market. Intraday liquidity monitoring is a natural for Swift, he says, because it can be derived from the Swift messages themselves to a large degree.

This is the sort of thing that has been discussed in many of the Swift Standards meetings and forums for several years now, and it is reaching the point of becoming a reality in a number of areas, such as sanctions screening, which Swift has moved to capitalise on.

In the case of intraday liquidity, it has been available from Swift for a couple of years now, but Raymaekers says that it could move to a new level, where instead of simply supplying the data to the banks for them to incorporate in their own risk analytics, Swift would create pre-formatted reports, removing much of the effort involved in regulatory reporting.

“Only 15% of payments are reported intraday,” he says. “Nobody bothered too much before the crisis about getting debit and credit confirmations, but now there is a renewed interest. The messages were all there in the past, but people didn’t ask for them – or even asked not to have them because they couldn’t do anything with them.”

The Basel Committee on Banking Supervision’s increased focus on liquidity, and the regulatory requirements that stem from that, are one factor driving this change, but let’s not forget the profit motive: “Within banks there is a renewed focus on intraday liquidity because the regulatory buffers that they have to adopt mean that is money is being tied up – money that is not being put to good use,” he says.

The BCBS issued a report in April that described liquidity monitoring tools “very elaborately”, he says. “For a regulatory paper it is remarkably readable, and fully describes exactly what you have to do hour by hour so that you can make a liquidity run-off curve. For now, the regulators are asking for retrospective hourly reports that you need to show the curve throughout the day.”

He sees this as one of a number of strands coming together. “The messages are there; the technology is there; we have seen companies making dashboards to monitor liquidity, but if you don’t feed the systems, you are looking at a blank screen. Asking for the information in the first place and then feeding it in is necessary. You need to make the integration,” he says. “Increasingly Swift itself is providing integration services to assist our customers who have come to us and asked for it. We have even had banks ask us not to integrate their systems, but just to give them the output.”

This is where the step to the next level comes: “We can give it to them in a nice format such as Excel because banks do need to add other information such as credit positions, which is information that is not in the payment messages, and timed payments, such as to CLS, or salary payments that have to be made at a certain time.”

Initially, Swift had assumed that this would be attractive primarily to medium-sized banks, but Raymaekers says that even large institutions are adopting it. “We’d thought large banks would have figured it out, but they have been focusing on their main currencies, which they have covered, but they have to demonstrate for the regulators that they have all the other currencies covered as well, and they already have many IT projects on their hands.”

It is relatively straightforward. “At Swift we are very familiar with these messages, of course – we know their structure – so we can parse them and feed them in to a database, which is built using the Microstrategy business intelligence suite,” he says.

Currently Swift has a group of five banks that it is working with to develop this into a product. “We are working with customers to decide on the shape, size, scope and pricing,” says Raymaekers. He declines to name the banks, saying only that they are “medium-to-large European banks from Scandinavia, the Netherlands, France and the UK”. It is not a closed group, and discussions are under way with institutions in Asia and the US.

He said that a “go/no-go” decision is slated internally for the middle of this month:. “We need to move quickly on this because the regulation becomes effective in January 2015.”

But the whole thing won’t work if the underlying data is fragmented, and Swift is also now addressing this through its services offerings. “The thing that we have realised is the importance of data quality assessment,” he says. “We are now providing consultancy services to help banks assess the data quality from their nostro correspondents. Not all payments are reported, so the first thing you have to do is to take your end of day balance and the payments during the day and ask if they actually match up. We are finding that in some cases it doesn’t and banks have to phone the correspondents to ask for confirmation – you could say that is also leading to better market practice.”

This can get quite detailed, as it covers different markets and different institutions that will by their nature have adopted different procedures. “Some banks are using it MT 103 messages, rather than an MT 900 or 910, for instance. We can take those messages and provide an assessment of the quality in the coverage of the reports – then we can talk about the integration.”

As well as using the messages themselves as a source of data for monitoring purposes, Swift is also redeploying existing applications to solve different issues, such as aggregated reporting for branch networks.

“We have tier one banks subscribing to this portfolio of assessment for branches using our FINinform service, which was originally developed for central banks,” says Raymaekers. “All we are doing is copying messages to branches to the central liquidity manager so they can see what is happening.”

Intraday liquidity, regulatory reporting and compliance are just one part of the picture, of course. Swift also wants to have a role in helping banks grow their transaction business, says Raymaekers.

“We can do that in two ways,” he says. “We have good information about the payment volumes out there in the market and we can use business intelligence to help our member banks understand the new growth corridors and help them penetrate those corridors. That’s a whole new area that we are focussing on alongside compliance.”

One specific area that has attracted a lot of attention is the growth of the Renminbi. “My team produces the Swift RMB Tracker – I wrote the original RMB White Paper when we were looking at the impact of the Renminbi on the financial markets, both in terms of growth and on the way payments are settled,” he says. “Today there are many trade corridors between countries that use neither of those countries’ currency – they use the US dollar, so what is a two-country trade flow is actually a three-country payments flow, with one leg in the US. If the RMB becomes used to pay for goods, then it might become a two-country payments flow. That might be an opportunity for one financial institution and a redirection of business for another, so banks are really keen to understand how RMB internationalisation is panning out. We have seen it grow from nothing to knocking on the Top 10 of payments currencies – and it is already at number eight in terms of foreign exchange trading. In trade, for letters of credit it is already number three. For many institutions it is a growth opportunity – Huawei, the telecoms company, is actively encouraging its suppliers to use the Remnibi – so it is a very interesting area.”