SWIFT Business Forum 2016: (Mostly) looking forward

Financial messaging services provider SWIFT launched the annual Business Forum London as its biggest regional event five years ago and the 2016 show attracted around 1,300 delegates to Tobacco Dock in East London, in the shadow of the Canary Wharf financial district.

This year ‘Build The Future’ was billed as the common theme and Javier Pérez-Tasso, SWIFT’s chief executive officer (CEO), America & UK, cited the main challenges for financial institutions as staying compliant with regulation, cost-resilient and innovatory. As he noted, talk that society is entering a Fourth Industrial Revolution in which technology will fundamentally transform financial services-and life generally-was taken up this year by world leaders when they met in January for this year’s Davos summit.

Pérez-Tasso sees the UK as strongly placed, thanks to its leading position in the financial technology (fintech) revolution and the support given to innovation in the payment services industry by the Payment Services Regulator. “The UK has been a pioneer of faster payments,” he said. “The industry now faces a clear choice-either adapting and improving its existing systems, or introducing radical new technology.

“I haven’t even mentioned blockchain, which holds the promise of transforming the securities and transactions landscape.” Another speaker, Marion King, director of payments for Royal Bank of Scotland (RBS) also mentioned the fact that the UK is one of only six countries where the volume of electronic payments has now overtaken the number of cash transactions.

Other positive developments for the UK cited by Pérez-Tasso is the Open Banking Working Group (OBWG), set up last September at the behest of HM Treasury, which published its report two months ago that proposes an Open Banking Standard (OBS) to be operational within three years from now. London has further reasons to look forward to 2019, when the high-frequency high-capacity Crossrail transport system will be operational and the city is also playing host to the Sibos annual conference.

The Bank’s role

In a morning panel session, Andrew Hauser, executive director – banking, payments and financial resilience at the Bank of England (BoE) spoke of the central bank’s role at a time of “intense activity”.

He suggested that the BoE served three main functions: as the architect or master planner setting the ground rules and framework on which innovation could flourish safely; as the plumber providing and maintaining the system’s central infrastructure; and as the health and safety inspector ensuring that the system remained safe – a role that frequently required it to say ‘no’.

“Change will happen whether we like it or not,” said Hauser. “Some are mistrustful of innovation, but too little innovation means that the market is overly concentrated.

“The question we must ask is how we can use these technologies to do our job better. The BoE has already launched a fundamental review early this year of where the real-time gross settlement (RTGS) system goes next and we’ve already received a range of opinion.”

However, SWIFT’s chief executive officer (CEO), Gottfried Leibbrandt, pointed out that talk of fundamental change can overlook the obstacles often involved. Achieving business process change is hard “particularly in a cross-border setting”, with areas such as correspondent banking in evident need of improvement and items such as letters of credit (L/Cs) “invented 500 years ago, so ripe for redevelopment”

Long-established infrastructures can thwart innovation. “The UK is highly innovative, yet all hell broke loose when it tried to scrap cheques (plans to phase them out by 2018 were abandoned), showing that old infrastructures don’t go away that easily,” said Leibbrandt.

The ability to ‘get it right’ on payments was more likely to be achieved through segmentisation, he suggested, while King noted that UK contactless payments only gained traction when introduced on the London Tube system; “an application that really worked for customers”.

Beyond hype on blockchain

A strongly-attended workshop session entitled ‘Blockchain – Beyond the Hype’ might have been helped by SWIFT’s newly-published position paper on distributed ledger technologies (DLTs). Developed in partnership with professional services company Accenture, existing DLTs were assessed against the key requirements they must meet before being widely adopted by the financial services industry.

Session panellists agreed that while blockchain has attracted considerable hype – last May it made the front cover of The Economist – it promises to make an impact in several areas. A poll of audience members found that nearly one in three chose securities settlement and reconciliation as the most likely, while others voted for payments, trade finance and reference data with a number of optimists believing that it will make a difference in all four areas.

“We’re already seeing short-term tangible benefits and software companies developing interesting technologies,” said Simon Taylor, vice president – entrepreneurial partnerships for Barclays, who cited the Australian Stock Exchange’s (ASX) recent contract award to DLT developer Digital Asset, to work on DLT-based solutions for the market.

Barclays is one of nine major global investment banks that originally formed a partnership last September to explore DLT’s potential in the capital markets; a consortium headed by fintech R3, which has since managed to attract many more banks.

However, Taylor added that a term such as ‘blockchain’ is a misnomer. “Five years ago the talk was all about ‘Big Data’, but the language and terminology has changed and is likely to change again,” he stressed.

“Blockchain is more a range of different concepts to solve various business problems – rather like a box full of different building bricks.”

Panellists generally agreed that the promise of DLT can be realised once it achieves the scale needed to establish value. Despite significant progress over the past year, unknowns and uncertainties remain. These can be overcome if there is collaboration between the various players and standardisation, although as Matthew Hampson, chief technology officer (CTO) for Nomura remarked: “Our industry has a poor record when it comes to collaboration.”

Hampson also questioned the ability of DLT to be truly transformative. “Take Bitcoin, which has been around seven years, but hasn’t seen the demise of notes and coins and has yet to change the world.”

From the future to the past

After much talk about the future of the financial services industry, the event concluded on the vexed issue of the UK’s engagement with the rest of Europe and membership of the European Union (EU), which has remained unresolved since the original European Economic Community was formed nearly 60 years ago.

Asked whether London’s financial district was better off in or out of the EU, 68% of the audience who stayed for the debate voted for ‘in’ and 32% for ‘out’; which was similar to the result when the UK last held a referendum on the issue back in 1975.

Two veteran politicians made their respective cases: Sir Vince Cable, secretary of state for business innovation and skills in the UK’s coalition government of 2010-15 supports the UK’s continued EU membership while John Redwood, member of parliament (MP) for Wokingham and former Cabinet minister is committed to the ‘Brexit’ cause.

Cable, who has been a master of the acerbic phrase in the past, seems subdued out of office. He observed that the Brexit camp has this week brought some clarity to the event, with Michael Gove, the former education secretary and chief Brexit spokesman confirming that a UK no longer in the EU would follow the so-called ‘Albanian model’, in which a number of non-EU smaller states have a free trade agreement with the 28-member bloc.

He also acknowledged that the EU has its flaws and is in need of reform, but argued that its single set of regulation had generally worked well for London’s financial district, the City, “even if not all of them are hugely popular”. Cable also said that he agreed with David Cameron’s argument that Brexit represented a ‘leap in the dark’. “We’re in a world that’s full of risk and we needn’t – and shouldn’t – add to it,” he concluded.

Redwood’s presentation was more passionate – if not necessarily more convincing – in arguing the case for Brexit. “When we leave, we’ll be freer, more democratic and more prosperous,” was his opening salvo. He added that even the EU’s defenders acknowledged that the UK did well in not signing up to the single European currency.

“The euro is an orphan currency,” said Redwood. “Every successful currency has a central bank and central government to love it, but the EU has a lopsided and asymmetrical structure.” He was also unconvinced by the suggestion that by tearing up the common rule book, the UK would no longer have a say in future regulation of financial services in the EU.

“We’re the largest financial centre in Europe and a world centre – at a time when the world’s centre of gravity is moving east,” he responded. “So why should we stay hitched to this dysfunctional institution?”

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