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Liquidity in a Real-time Environment

15 October 2015

Liquidity in a Real-time Environment

Deborah Souter,
Head of Content,

The impact of the Basel III capital adequacy regime (BCBS 248 rule) on intraday liquidity management and payment practices at banks was debated on Thursday 15th October, as was the interplay between liquidity and real-time payment infrastructures. The last day of Sibos 2015 also featured a closing plenary with concluding thoughts from the show.   

“When payment systems move to 24x7 you need to be prepared,” said Matthew Loos, Executive Director, Treasury Services, J.P.Morgan, during an update session on ‘Intraday Liquidity Reporting’ on Day 4 of Sibos 2015 at Singapore’s Marina Bay Sands resort.  

“The topic of real-time payments has been a constant here all this week at Sibos. You need to start thinking about a real-time dashboard,” added Loos. “As banks, we all deal in multiple currencies, time zones, and so on so you might need liquidity alerts.”   

The driver for this, of course, is not a payment platform but rather the BCBS 248 rule from the Basel III capital adequacy regime, which requires banks to implement monitoring tools for intraday liquidity management by January 2017. 

Real-time platforms do have consequences for liquidity and settlement, however, especially if ISO20022 adoption does enable cross-border interoperability, so it was an important element of the wider debate during the Sibos 2015 session. The key focus, however, was on how the banking industry is doing with its BCBS 248 compliance drive. 

ISO20022 standards usage in real-time infrastructures would allow data-rich services to be offered to corporates and other end users which could aid bank liquidity. 140 characters enable mobile, email and other functionality to be added, meaning banks’ can sell information to businesses, as well as speed.     

BCBS 248 Liquidity Requirements
Just prior to the start of Sibos 2015 the Payments Market Practice Group (PMPG) endorsed the use of SWIFT messages for intraday liquidity reporting. These will underpin a rulebook created by the Liquidity Implementation Task Force (LITF) to support compliance with the BCBS 248 requirements (the PMPG has made the decision to endorse the LITF guidelines and work of BAFT/IFF). 

Real-time Liquidity Impacts
In a real-time environment you need to think about time-outs, the irrevocability of payments and the likely associated rise in remediation services, which may be necessary to cover misplaced payments. How many settlement cycles you should have per day or the impact of an almost instant payment on the bottom line were also issues addressed during the morning’s Sibos liquidity update session.  

“SWIFT is putting a time stamp on its 900 series of messages (MT 942s, etc), which is the kind of thing you need to do in a real-time environment,” said J.P.Morgan’s Loos. Equally, the ISO20022 harmonisation drive that is underway to improve functionality and enable cross-border interoperability on real-time platforms for multinational corporations is an important element to come out of this week’s show. 

“Let’s be honest liquidity is abundant now, but it won’t be in the future [under Basel III],” added Loos. Liquidity will be priced accordingly, with those corporates providing it at the right time rewarded by banks, and those providing it at the wrong time, or in the wrong amount, penalised. “Corporates may not realise it yet, but in the future they may have to pay more for a faster payment.” 

Closing Plenary & Key Show Themes   
As the final afternoon of Sibos 2015 got underway attendees gathered to hear an update about progress towards creating more political and economic integration in the ASEAN regional economic group. In some ways the Southeast Asian trade bloc wants to ape Europe in terms of a single payments area and common economic framework. However, it is not interested in creating ‘ever closer union’ or the development of a pan-regional political class, instead targeting GDP growth. A blueprint for future ASEAN development was laid out with financial technology at the forefront of spurring economic growth in the region, alongside trade finance and so forth.  

The ASEAN Day at Sibos 2015, as Day4 was officially declared to be, was further reinforced by the closing plenary at 4-5.15pm, which contained the concluding thoughts of Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS). He spoke about global FinTech trends and specifically ASEAN challenges, as well as trialling his City State’s new FTIG innovation hub. “We’ve committed $225m over the next five years to look at the blockchain; data analytics; FinTech and so on,” he said, while outlining his vision for a smart financial sector in Singapore.    

“Common standards and seamless operation are two things necessary for technological advancement,” added Menon, before going on to cite FAST, the Singaporean real-time payments platform, which runs on VocaLink technology, as an example of the benefits that cooperating on projects can bring. “FAST has had had 18m transactions since its launch in March 2014 and now has 19 participating banks.” 

According to Menon the FAST banks are now working on a mobile addressing system to enable mobile numbers and the like to be used as a mechanism for payments, instead of bank account numbers alone. 

Menon’s mentions of real-time infrastructures; data analytics; FinTech disruptive innovation; the blockchain; and the rise of the East versus the West was mirrored by SWIFT’s regional A-P & EMEA head, Alain Raes, who agreed that they had been the key themes of Sibos 2015. The ever-present liquidity management challenges of banks in a strengthened regulatory environment shouldn’t be forgotten either. 

“Everyone here wants to be in real-time,” added Raes later, while also declaring the Singaporean event to be the second biggest Sibos ever with in excess of 8,200 attendees, “and our biggest ever show in Asia.”  

Raes mentioned the Innotribe technology innovation stream here at Sibos too, letting attendees know that the winner of the 2015 Innotribe startup challenge, announced last night, was Hyperledger. The blockchain technology company uses a distributed ledger to allow banks and other financial institutions to clear and settle transactions in real-time. Yet another instance of the blockchain dominating the technology-centric discussions at this year’s show. Hyperledger received a $50,000 prize.

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