Cathy Hayes, head of payment system oversight at the Bank of England (BoE) and Sylvie Matherat, deputy director general at Banque de France (BdF) and chair of the liquidity group on the Basel Committee, certainly put participants at IPS 2014 on notice that stability is the new watchword in the fast emerging post-crash regulatory environment affecting treasurers, bankers and other finance professionals.
Matherat said she’d noted a lot of talk about unintended consequences while at the trade show, before adding: “I can tell you there are a lot of intended consequences in these new regulations. The intention is to change the way some business is transacted.” That is the point and it is right, post-crash, she implied.
“Less return, less bank profits [and more stability]. That is clearly what we wanted with the new incoming regulatory regime,” she added. “Previously we saw a return on equity (RoE) of 10 times what you’d find in the real economy with real businesses. Is that right [and sustainable]?” – the implied response being ‘no’. “Banking is there to finance the real economy.”
“I have a feeling now that there is a [belated] acceptance that banking will be less profitable than in the past [as intended]. Perhaps it’ll be less fun in future and banks will look more like utilities,” said Matherat, before confirming that again this is largely the intention. Central bankers around the world were working towards more financial stability in the future, because, “we don’t want to see the volatility we saw during the recent financial crisis.”
According to the BoE’s Hayes – who is the individual charged with supervising systemically important UK financial payment systems in Britain such as Bankers’ Automated Clearing System (Bacs) – the UK central bank – is still a fan of the derided principles-based approach to regulation. This follows the BoE taking on much more regulatory power in the past year since the
demise of the Financial Services Authority (FSA)
“But although we want collaboration with the industry, we must get the outcomes we desire,” she added. “Also under the new Prudential Regulatory Authority (PRA), now under the BoE’s auspices, what’s changed is that the focus is now on much stronger, more focused assessments of big systemic risks,” rather than 30 pages of tick-box regulations, as once was the case in the UK. A new payments regulator, replacing the
now defunct UK Payments Council
, is also now coming into power in the UK’s reshaped post-crisis regulatory regime, completing a process that started two years ago.
In possibly a slight difference of opinion between the UK and French central bankers’ approach to regulation, BdF’s Matherat commented that “we don’t supervise, we do oversight”, as the two women answered questions. Both were asked by the IPS session moderator, Chris Skinner of the Financial Services Club, whether they prioritised the collaborative or the combative regulatory approach
“We want a stronger focus on liquidity risk, which was not priced correctly previously,” concluded Matherat; hence the need for Basel III. As she is on the Basel Committee that in November will sign off the final wording of this regulation ahead of the autumn G20 meeting, her words to IPS attendees carried weight
Regulatory Tsunami: Basel III
Other key regulatory initiatives forming part of the ‘tsunami’ of regulations shaping the future for the world’s finance community were also discussed at IPS 2014, including Dodd Frank and equivalent European Market Infrastructure Regulation (EMIR). In addition, there were presentations on the EU Payment Services Directive (PSD) II, which could give alternative payment service providers (PSPs) permitted access to bank accounts, further opening up the market; and the single euro payments area (SEPA), which was also addressed during
While corporate treasurers’ concerns over the potential impact on trade finance pricing, collateral pricing and bank lending practices were again on the agenda, the key regulatory theme for day two was undoubtedly Basel III and the emerging liquidity risk regime.
Basel III threatens to impact treasurers as the key aspects of the leverage coverage ratio (LCR) and net stable funding ratio (NSFR) come into effect in future years. The most likely effect will be to drive banks to prioritise multinational corporations (MNCs) as customers, in order to meet their large collateral requirements, consequently neglecting small-to-medium sized enterprises (SMEs) and mid-sized MEs. This could starve economies of investment money to fund future growth and jobs creation; precisely the opposite of what politicians around the world insist that they seek to achieve as Western economies slowly recover from the economic downturn.
Breakfast Briefing: Liquidity Risk and Treasury Impacts
Liquidity issues were also discussed at the breakfast briefing on day two of IPS 2014. The briefing panel consisted of Ludy Limburg, a vice president of financial institution (FI) transaction service products at RBS and Christian Goerlach, director of FI cash management, GTB, at Deutsche Bank, who were joined by CGI’s payments and transaction banking director, Simon Bailey and Harry Newman, head of banking initiatives for Europe, Middle-East and Africa (EMEA) at SWIFT.
Moderated by Richard Pattinson, an ex-Barclays banker and now independent consultant, the panellists focused on how the interbank market will look under Basel III and the new post-crash collateral requirements. However the impact on treasurers was also much discussed, with one panellist noting there was “a third element to the new regulations covering intra-day liquidity management”, under the anonymous ‘Chatham House’ rules of the morning’s breakfast briefing.
Intra-day liquidity in the evolving regulatory landscape means that some corporate treasuries payments at particular times of the day could attract additional fees, while other large payment runs outside of the usual end-of-month payroll may be treated differently as well. The charging structure for liquidity risk and real-time collateral and reporting tools for the new regime are all still to be developed.
This evolving landscape was much discussed during the morning’s panel debate, with one panellist noting the difference “between reporting and liquidity itself”, while another commented that: “MNCs get it. Their payment flows are as big as some banks anyway, so naturally they should be part of the debate.”
Africa and Emerging Markets and Payment Technologies
Day two of IPS 2014 also included an intense focus on emerging technologies, such as mobile, social media, online and how collective ‘digital’ payment methodologies might change the payment, billing and financing world of the future. There were presentations from Zapp, Visa Europe, payment processors such as VocaLink and France’s STET, talking about real-time infrastructures, and many others discussing mobile wallets. The mobile point of sale (MPoS) arena was addressed by iZettle and numerous banks outlined their future payment plans and what they intended to do to try and avoid being disintermediated.
For treasurers there was a presentation from IBOS Association, the international banking alliance, on whether the correspondent banking model can survive in the new regulatory and payments environment which is developing. In addition, a special interest session focused on Africa, which should have been of interest to corporates as it outlined the future economic prospects and payments landscape of the continent, via Standard Bank’s global head of cash management, Sachin Shah, and the emerging mobile money scene.
Arthur Cousins, the payments project coordinator at the Southern African Development Community Payment Project (SADC), which seeks to ape SEPA to some extent, also illustrated the evolving regional payment infrastructures in Africa.
“The challenge is how do you get the bank to the people; not the people to the bank,” explained Brian Richardson, co-founder of Wizzit, the mobile money service that now has 6m customers across nine African countries. The same could equally be said of the corporate to the consumer, or the bill to the payee or vice versa, during Richardson’s mobile banking IPS presentation.
A strategy roundtable on partnerships enabling business in Africa was also included in the special interest session, including Peter Crawley, treasury and trade solutions head for sub-Saharan Africa at Citi; Rweyunga Kazaura, director of transaction banking at Standard Chartered Bank; and the mobile money advocates Edward George, head of soft commodities research at the Ecobank start-up; and Paul Makin, head of mobile money, at the Consult Hyperion consultancy.
Unfortunately, Innocent Ephraim, product manager for VodaCom’s M-Pesa, which has taken Africa by storm and garnered 50% of the payments market in its home Kenyan market, was unable to join the panel as scheduled. This was a shame as news broke that M-Pesa is bringing its non-bank mobile m-banking and payments offering to Europe, starting in Romania with the aim of expanding beyond.
Regardless, the existing panellists provided a fascinating discussion about the interaction between technology, the mobile channel, consumers, banks and businesses. As Ecobank’s George stated: “Mobile banking will, and is, transforming banking in Africa”, citing the partnerships his firm already has with Nedbank, Standard Chartered and Barclays among others as evidence.
It obviously has impacts for corporate treasurers at retail MNCs wanting to reach consumers or indeed just to do business in a country such as Kenya, where 50% of the money flows in the economy are now on a non-bank mobile money platform like M-Pesa.
Citi’s Crawley provided more of a macro overview for the treasurers in the audience pointing out that “gross domestic product (GDP) in sub-Saharan Africa is up there with the BRICs [Brazil, Russia, India and China]” and growing quickly, “as are the middle classes, who will have US$950bn of spending power by 2020”. Reasons enough for corporate treasurers to increase their focus on emerging markets (EMs) such as Africa, and the emergent payment technologies to be seen there. They potentially point the way to the payments world of the future.
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