Thousands descend to Toronto as Sibos 2017 gets underway

Thousands of delegates flew in from around the world to Sibos to network, debate and discuss topical issues relating to business, technology and finance. The four-day annual event is organised by SWIFT, the global member-owned cooperative and the world’s leading provider of secure financial messaging services.

Sibos has a track record in attracting the highest calibre of speakers, and this year is no different. David McKay, President and Chief Executive Officer at RBC, was the chief guest speaker for the opening SWIFT plenary. He addressed a full audience alongside SWIFT’s Chairman of the Board, Yawar Shah, and SWIFT’s CEO, Gottfried Leibbrandt. Between them, they touched on the key events during the past 12 months, the industry challenges ahead, and SWIFT’s role in addressing them.

Fintech, transaction banking, blockchain, SWIFT gpi and financial crime compliance all featured on the agenda for day one, and announcements from SWIFT relating to the latter two sparked the interest of a few observers.

Anyone working in the B2B payments space, be it a bank, a corporation or a technology vendor, will be aware of SWIFTgpi. It was announced today that SWIFTgpi surpassed two million payments last month – rapidly becoming the new standard in cross-border payments.

More than 120 leading transaction banks, representing over 75% of all SWIFT payments, are signed up to the service. By doing so, they are utilising the innovative payments Tracker, a cloud-based application accessible via APIs. Banks embed the gpi Tracker information into their payments flow applications and front-end platforms, allowing their customers to track gpi payments in real-time.

This addresses a serious bugbear. Traditionally, when a corporate treasurer sends a request for a cross-border transaction to a bank, they have no visibility of what actually happens with that request. Treasurers often liken this to a “black hole”; they have no view as to when payment finality occurs or its final costs. This can lead to problems with suppliers or end-customers, not to mention increasing financial risks resulting from payment delays or non-compliance with regulatory requirements.

For all of the blockchain aficionados out there, SWIFT also confirmed it will provide a sneak peek of the results from the DLT proof of concept (PoC) relating to SWIFTgpi during Sibos, ahead of its conclusion in November.

Harmonsing international compliance standards

A major announcement relating to SWIFT’s Compliance division also became a topic of interest. SWIFT’s Know Your Customer (KYC) Registry, utilised by thousands of banks around the world is being aligned with the new Wolfsberg Due Diligence Questionnaire (DDQ) for Correspondent Banks.

This is the latest in a long line of close collaboration between SWIFT and Wolfsberg to address a broad range of compliance challenges facing the correspondent banking community and beyond. The Wolfsberg Group is a member of SWIFT’s Financial Crime Compliance Advisory Group and is made of thirteen global banks. It aims to develop frameworks and guidance for the management of financial crime risks, particularly with respect to KYC, AML and Counter Terrorist Financing (CTF) policies.

The Wolfsberg DDQ has been updated in response to an increase in regulatory expectations. Aligning the Registry with the Wolfsberg DDQ ensures coverage of up to 90 percent of the information correspondent banks typically require for KYC compliance, delivering major time and cost savings. By answering every Wolfsberg DDQ question directly on the KYC Registry, members benefit from increasing transparency and streamlined due diligence processes.

So, all in all, it looks like a busy but successful day at Sibos so far. Stay tuned on all things related to Sibos by following @Sibos, @chatsworthcomms or search #Sibos2017.

FX trading volumes rebound from summer lull

CLS’s currency trading volumes saw a significant uptick, as volatility in the foreign exchange (FX) market bounced back in September.

Following a bumpy period in geopolitics over the summer, trading activity rose strongly to almost USD 1.750 trillion in last month, according to the largest provider of settlement services in the global foreign exchange market.

Data from CLS showed a 10.7 percent month-on-month increase in the number of trade instructions submitted in September from USD1.581 trillion in July 2017.  This also represents a very significant 15.9% increase from this time last year, when volumes totalled USD1,514 trillion.

CLS’s figures reflect the trend observed in the monthly figures from many of the major trading platforms. However, given its position as a central settlement hub for the wholesale market, CLS provides the most comprehensive snapshot of activity, encompassing data from 18 global currencies and approximately 21,000 trading entities around the world.

 

 

 

 

 

 

Mosaic shortlisted for fintech company of the year by City AM

Congratulations to the Mosaic Smart Data team which has been named in this year’s top five fintech companies in the City AM awards.

The awards celebrate the best of The City in an aim to identify ‘the most bold, successful, and principled companies and individuals’ of the year. The fintech category recognises some of the most innovative British fintech successes, and celebrates London’s role as one of the world’s centres of fintech excellence.

Mosaic was shortlisted as one of the top five categories by City AM’s editorial staff who, announcing the shortlist in the daily paper, described it as “one of the best financial services tech innovations of recent times”.

With financial institutions facing a challenging period in FICC markets, Mosaic allows banks to see how their entire FICC business is performing in real time and help traders identify much-needed liquidity in FICC markets.

As the volume of data linked to trading activity and interactions with clients increases, the challenge to harness and analyse that data in real time becomes ever more critical. Mosaic Smart Data understands that the true value of data comes not only from the intrinsic individual data streams themselves, but also from the correlations and inferences that can be drawn from the aggregated data from each client.

Its cutting-edge technology addresses the challenges facing institutions trading in today’s FICC markets, including change management, productivity, efficiency, restructuring and the growing automation of trading processes.

The final winners of the City AM awards will be chosen by a panel of prestigious judges from the world of business, including Virgin Money boss Jayne-Anne Gadhia, WPP’s Sir Martin Sorrell and Sky News’ highly experienced City Editor Mark Kleinman.

We wish Mosaic the best of luck for the awards ceremony, which will be held on 9th November at Grange St Paul’s Hotel.

SWIFT and Chatsworth leading the debate at SIBOS, 2017

The Chatsworth team is proud to be supporting SWIFT at SIBOS, the world’s premier financial services conference, exhibition and networking event. What started out as a banking operations seminar in 1978, has grown into the premier business forum for the global financial community to debate and collaborate in the areas of payments, securities, cash management and trade.

Organised by SWIFT for the financial industry, Sibos has brought financial leaders together, over four decades, to network, collaborate and make sense of changes in the industry, helping to build an understanding of the forces affecting the financial community. 

 SWIFT is all about connectivity. The organisation remains the world’s leading provider of secure financial messaging services, providing a platform for messaging, standards for communicating and products and services to facilitate access and integration; identification, analysis and regulatory compliance.

 The organisation connects more than 11,000 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories. Headquartered in Belgium, SWIFT’s international governance and oversight reinforces the neutral, global character of its cooperative structure.

 The Chatsworth team will be in attendance throughout the event in Toronto, where the team will be working to support SWIFT in highlighting the challenges facing the financial eco-system and how their connectivity and experience can help. Chatsworth’s CEO will also be moderating some of the panel debates.

Get in touch

Email: swift@chatsworthcommunications.com   

Twitter: @chatsworthcomms

We look forward to seeing you there. 

Compliance stream at Sibos will explore implications of rapidly changing geopolitical and financial crime environment

Experts and regulators to address the new normal in sanctions, counter-terrorist financing, anti-money laundering, fraud, and cyber security

Sibos introduces a stellar line-up throughout the Compliance stream at this four-day event in Toronto. Multiple sessions will address the profound impact of the shifting geopolitical, financial crime, and cybersecurity environment. Panel debates and deep-dive sessions will cover topics such as the future of financial intelligence sharing; counter terrorist financing in the ‘lone wolf’ era; the potential of artificial intelligence to improve sanctions and AML compliance; and the fraud and cyber-crime ‘new normal’.

An ‘in conversation’ panel with Wolfsberg Group members will unveil the coming year’s priorities and trends. A Latin America-focused panel will provide an overview of the region’s banking compliance challenges.

Notable speakers participating in this year’s Compliance Forum include:

  • Jennifer Calvery, Global Head of Financial Crime Threat Mitigation, HSBC
  • James Freis, Chief Compliance Officer, Clearstream Banking
  • William Fox, Managing Director Global Head of Financial Crime Compliance, Bank of America Merrill Lynch
  • Neil Isford, General Manager, Watson Financial Services Solutions, IBM
  • David Lewis, Executive Secretary, FATF
  • Jerry Perrullo, Chief Information Officer, ICE
  • Denise Reilly, Wolfsberg member, Global Head of Anti-Money Laundering, Citi

Must-attend sessions include:

Counter-terrorist financing- are we really stopping the bad guys – 17 October at 9:30

Panelists will explore how can banks – and governments – adapt to stay one step ahead of the bad guys, what is working and what needs to work better, and whether stringent regulations are pushing legitimate actors outside of the financial system without actually preventing acts of violence.

Fraud and cyber high alert: The new normal? – 18 October at 9:30

As high-profile security breaches continue to reverberate, this panel discussion of experts from a range of industries will discuss the benefits gained from collaboration, the landscape of payment risks, and the skills that must be developed and recruited to protect institutions and the industry.
“In conversation” with Wolfsberg – Pressing priorities and trends 18 October at 15:30

A lively discussion with Wolfsberg representatives will discuss the industry’s latest challenges, trends, and the coming year’s priorities.

Read more about the Compliance stream on Sibos.com.

The Sibos streams enable attendees to build their Sibos agenda around the topics of interest to them.

Other Sibos Streams and Tracks include:

Banking

Technology

Securities

Standards Forum

Artificial Intelligence

About Sibos

Sibos is an annual conference, exhibition and networking event organised by SWIFT for the global financial industry. Next month, some 7,000 decision makers and topic experts from financial institutions, market infrastructures, multinational corporations, and technology partners gather in one place to do business and collectively shape the future of payments, securities, cash management and trade.

When: Monday 16 October – Thursday 19 October 2017

Where: Metro Toronto Convention Centre (MTCC)

Website: www.sibos.com

Contact: JoAnn Healy | Press@Sibos.com | +1 212 455 1802

Get your complimentary Sibos Press Pass today

Accredited journalists are welcome to attend Sibos free of charge. To obtain your complimentary press pass for Sibos 2017 Toronto, contact: Registration@Sibos.com.

Don’t miss your chance to be right in the middle of the news at the premier financial services event of the year.

Follow us on Twitter: @Sibos #Sibos

Follow us on LinkedIn: www.linkedin.com/company/Sibos

Top Canadian FinTechs to feature at Sibos 2017

 32 FinTech startups have been selected to participate in Sibos.

According to figures highlighted by the Toronto Financial Services Alliance (TFSA), Canadian investment activity in the FinTech sector from angel investors, Venture Capitalists (VCs) and corporate VCs increased from US$87.21 million in 2012 to US$367.51 million in 2016.

This doesn’t come as a surprise – the country has long been a pioneer in the digital arena. This extends back to the creation of the first truly smart smartphone, and the establishment of the world’s first Bitcoin ATM in Canada in 2013.

There are now hundreds of innovative FinTech companies, spread across Canada’s major FinTech hubs – Toronto, Calgary, Montreal and Vancouver.

These hubs are making a name for themselves on the world stage. For example, Vancouver has moved up 16 spots on the Global Financial Centres Index (GFCI) from #33 in 2008 to #17 in 2017. And in 2016, The Banker magazine ranked Toronto second amongst North American financial centres and 8th in the world.

Meanwhile, in Montreal, over 2,000 students graduate each year with degrees in Finance, adding to the nearly 100,000-strong talent pool that drives financial services in the city. And there are 1,556 financial services businesses in Calgary, where the Top 10 investment banks all have a presence.

To help some of the best local FinTechs showcase their solutions to a global audience, the Canada Lounge at the Metro Toronto Convention Centre (MTCC) will host 32 Canadian FinTech startups throughout the Sibos week. The Canada Lounge will be located in the Discover Zone (Level 600).

The startups will rotate throughout the week. Each day, there will be eight startups present in the Canadian FinTech Corner section of the Canada Lounge. Delegates will be able to interact with them to learn more about their offering, and how they may be able to help your business.

 

 

 

 

Burberry continues to set the standard

Chatsworth stopped by Burberry’s take over of the Old Sessions House, soon to be London’s hottest new club and restaurant venue, near our office in Clerkenwell. 

The British brand is hosting a photographic exhibition curated by president and chief creative officer Christopher Bailey, entitled ‘Here We Are’, with the accumulated work of over 30 social and documentary photographers who made their aesthetic mark on the 20th Century.

Burberry remains a real case study for smart integrated brand communications, using digital channels, event space and marketing to remarkable effect. 

Marketing by association and advocacy is a clever technique and Burberry use this to the max by curating both new and established art and music to reinforce their own creative work. 

As they say, it’s the company you keep. Great brand, great reputation.

Closing speaker at Sibos 2017 confirmed: Microsoft CEO Satya Nadella set to take centre stage

Those that haven’t registered for the event now have an added incentive to do so

Sibos has an excellent track record of attracting the great and the good from the technology and business world. More than 8,000 decision makers and topic experts from around the world are expected to descend on Toronto next month from 16-19 October.

Over the years, Sibos has become known for attracting the highest calibre of speakers to lead and facilitate discussions on the future of business, technology, payments, securities and regulation –and the four-day event is now a staple on the calendar of many executives.

Those that haven’t registered for the event now have an added incentive to do so. Earlier today, it was announced that one of the most high profile executives from the technology world, Microsoft CEO Satya Nadella, will deliver the closing plenary address on Thursday 19 October.

Satya Nadella was named Microsoft’s CEO in February 2014, but has been with the company since 1992. During his 25-year tenure, he has established himself as a technology visionary who quickly became known as a leader across a breadth of technologies and business lines.

Under his direction, Microsoft has switched its centre of gravity from its Windows operating system to Azure – its global cloud computing business – which has grown to become the centre-piece of more than 100 data centres around the world.

Today, its technology underpins a range of web-based applications, bringing mobile devices to life and crunching data for artificial-intelligence (AI) services, according to The Economist, which published an excellent profile article on Nadella and Microsoft earlier this year.

His speech at Sibos will focus on how technology is profoundly impacting every aspect of our society and economies.

“For over two decades, Satya has been at the forefront of the tech revolution, and worked at the heart of one of the defining companies of this century. He knows what it takes to build an innovative and game changing company, and that harnessing disruptive technologies is crucial to enabling businesses to remain relevant and competitive in an ever-changing world.” said Sven Bossu, Head of Sibos.

“The financial services industry is currently undergoing its own tech revolution, which has created huge challenges but also opportunities. During the closing plenary, we look forward to Satya sharing his experiences with delegates to inspire them to build a stronger future for financial services.”

Microsoft’s share price has also risen by an impressive 60% under his leadership. With 8,000 people expected to walk through the doors of the Metro Toronto Convention Centre (MTCC), there will be plenty of ears listening intently to his words of wisdom.

Sibos 2017 is shaping up to be an unmissable event. To explore this year’s programme, and to register, visit Sibos.com.

The Clearing House and SWIFT move closer to instant payments in the US

US banks will have option to connect to The Clearing House’s real-time payments system via SWIFT gateway

A major evolution is underway in the US payment infrastructure. Many participants in the world’s largest financial market are keenly awaiting the development of a new clearing and settlement system from The Clearing House (TCH) to support domestic instant payments in the US.

Once complete, the service will allow consumers and businesses to send and receive payments in real-time, and directly from their accounts at financial institutions. It will also include data and non-payment messages that financial institutions can use to build digital commerce solutions.

As instant payments become more ubiquitous in the US, the world’s largest payment messaging system, SWIFT, announced it will provide US institutions with a gateway to The Clearing House’s real-time payments (RTP) platform.

SWIFT’s solution for the U.S. market will provide banks with the opportunity to leverage a single platform, Alliance Messaging Hub (AMH). This will provide an interface for managing the requirements of sending and receiving domestic instant payment transactions for both SWIFT high-value payments and low-value TCH real-time payments on behalf of customers.

AMH is an orchestration layer that includes a gateway to the TCH RTP network, as well as other gateways and API’s which allow financial institutions to connect to other non-SWIFT networks. Financial institutions can leverage AMH to support instant payments, simplifying adoption to our customers.

As reported by International Business Times, on the significance of the gateway, Ignacio Blanco, SWIFT’s director of strategic relationships said:

“SWIFT is working together with communities worldwide to support the global shift towards real-time payments, and we are pleased to be at the forefront as the U.S. market evolves. The Clearing House is making great strides in accelerating the speed of transactions, and we are committed to playing our part in helping the financial community to operate as efficiently as possible.”

Steve Ledford, SVP Product and Strategy at The Clearing House, also explained why TCH selected SWIFT as a partner:

“Given its reach and expertise in payments, SWIFT is a great collaborator as we bring a wide-scale real-time payments system to the U.S. market. Achieving our vision of broad adoption of real-time payments will only be possible when the majority of U.S. institutions are able to participate, and SWIFT will be instrumental in helping us meet this goal.”

The solution will be commercially available by early 2018. But as IBT notes, SWIFT’s global instant payments strategy is burgeoning, and the US announcement builds on SWIFT’s earlier success in Australia and in Europe.

In 2015, SWIFT was awarded the contract to deliver the messaging infrastructure to underpin Australia’s new payments platform, NPPA, which is expected to go live later in 2017.

Earlier this year, SWIFT announced the launch of an instant payments messaging solution, first for the European market, and elsewhere. It will allow instant payments to be made over the SWIFT network and provide customers with a single gateway to connect seamlessly to multiple instant payments systems.

It will offer connectivity to the Eurosystem’s TARGET Instant Payment Settlement (TIPS) and will support the delivery of the future Eurosystem single gateway to TIPS, TARGET2 (T2) and TARGET2 for Securities (T2S) platforms.

With new technologies and start-up companies emerging in recent years and seeking to transform the wholesale and retail payment infrastructure, it seems one of the original pioneers is taking promising steps once again to re-design the global payment infrastructure once again.

Financial services and the fintech opportunity

A new report from the Bank for International Settlements (BIS) claims that fintech can improve both financial stability and access to services, but requires significant changes in regulation in order to flourish.

This sector has exploded in recent years, with banks, regulators and VCs throwing their weight (and money) behind a huge range of start-ups. The BIS has waded into the debate with a well-researched paper assessing the potential impact of fintech on the financial services industry.

Despite financial services readily adopting technological innovations which have transformed other industries (such as the internet and automation technologies), the cost of managing assets has stayed almost unchanged in 130 years.

In a working paper entitled ‘The Fintech Opportunity’, the BIS explores why operating costs in finance remains so surprisingly high, and how regulation creates barriers to further innovation which could bring down costs.

The fintech opportunity

While there is substantial analysis about how regulation has impacted the financial services sector over the past decade, we think the most interesting section of this report relates to how a new breed of fintech companies can be nurtured.

Fintech startups seek to disrupt the status quo with innovative solutions to new and existing problems. The paper argues that regulators could take advantage of the fintech movement to achieve some of the goals that have so far remained elusive.

There are huge opportunities to be gained from this. The key advantage of startups is that they are not held back by existing systems and are willing to make risky choices. In banking, for instance, successive mergers have left many large banks with layers of legacy technologies that are, at best, partly integrated.

The provides the opportunity for fintechs to build the right systems from the start. Moreover, they share a culture of efficient operational design that many incumbents do not have.

There are, however, many challenges to overcome. This includes the ability to correctly forecast the evolution of the industry, encouragement or interest from potential customers that can result in viable, widespread adoption, preventing a new company being swallowed up by incumbents and making sure that the new system does not create new inefficiencies or suffer from the flaws of incumbents.

Four guiding principles

The onus is on regulators to provide the right environment and incentives if they want fintechs to flourish.

The paper suggests four guidelines for regulators to consider:

  • Encourage entry and beware of a narrow approach to level-playing-field
  • Promote low leverage from the beginning
  • Keep incumbents in check with high equity ratios and be mindful of acquisition
  • Perfect is the enemy of good

These guidelines are discussed at length by the author, and we encourage you to read about them here.

But what’s interesting is that the guidelines do not require regulators to forecast which technology will succeed or which services should be unbundled, nor require regulators to force top-down structural changes onto powerful incumbents.

The reality is that no one knows when the ‘Uber’ of wholesale financial services will emerge or what it will look like. What we do know, however, is that a combination of restrictive regulations and powerful incumbents can certainly prevent entry.

While there have been promising fintech companies emerging across a range of sectors, creating and maintaining an environment that fosters creativity and innovation, and balancing this with systemic risk controls, is crucial for both financial stability and access to services.

A Reuters bon voyage… and welcome

So it’s bon voyage to Reuters’ Patrick Graham who is moving to India after almost four years covering the FX market.

Patrick covered the largest and most liquid financial market from its main trading centre in London through a period of profound change.

He now heads to Bangalore, where he will be overseeing over forty journalists at Reuters’ largest news bureau.

Chatsworth has worked closely with Patrick for many years and we wish him well as he embarks on this new stage of his career.

We also extend a warm welcome Patrick’s colleague Saikat to London, as joins the London FX team from his previous role covering Asian financial markets.

The rise and rise of artificial intelligence

Recent announcements from some of the largest banks show artificial intelligence (AI) working its way further into financial markets.

Credit Suisse has announced it is to deploy 150 new ‘robots’ over the course of the year, with an overall aim of cutting CHF 4.8 billion (GBP 3.7 billion).

UBS has unveiled a new AI system which uses machine learning to develop strategies for trading volatility on behalf of clients. The bank claims that this is the first ‘adaptive strategy’ product offered by an investment bank.

J.P. Morgan is developing a machine learning technology called LOXM which aims to improve execution quality in the bank’s European equities business. As the buy-side increasingly focuses on execution quality, this is driving ever greater adoption of algorithmic trading across asset classes. LOXM is programmed to learn from historical trading patterns and tweak its algorithmic strategies accordingly, using a technique J.P. Morgan calls ‘deep reinforcement learning’.

The ability to adapt and learn without human intervention allows LOXM to optimising the execution gains of algo trading.

Mosaic Smart Data is looking at how AI can improve trading across asset classes, taking on the challenge of providing machine learning capabilities to the FICC markets, which have far less standardised data and a greater portion of voice trading.

Mosaic provides both real time and predictive analytics insights for sell-side FICC traders, giving them a view of their market in a way that takes in far more data than a human being is able to comprehend. This augments the human trader’s capabilities and could lead to significant performance gains for sell-side FICC departments.

While initial uses of AI focused on process improvements, it is significant that the technology has reached a level where its insights are now helping to influence trading itself.

Although we are still some way from a fully automated robo-trader, this represents a significant increase in confidence in AI technology.

Cobalt closes investment from former Deutsche Bank COO Henry Ritchotte who also joins as Strategic Advisor

Cobalt, the FX post-trade processing network based on shared ledger technology, has closed an investment from Henry Ritchotte, the former Deutsche Bank COO who will also become a member of Cobalt’s strategic advisory board.

Henry Ritchotte spent over two decades at Deutsche Bank where he was a member of the Management Board and Group Executive Committee acting as Chief Operating Officer and Chief Digital Officer. Since leaving the bank at the end of 2016 Henry established RitMir Ventures, a principal investment firm focused on investing in products and services transforming finance through disruptive regulatory and technology driven business models.

Cobalt delivers a private peer-to-peer network that significantly reduces post-trade costs and risk for institutions operating in today’s FX markets. The platform is designed to create a single, shared view of a transaction on shared infrastructure and allows clients to reduce reconciliation and operational costs by up to 80%. With its production beta now live, Cobalt is ramping up to launch its live platform later this year.

Adrian Patten, Co-Founder of Cobalt, comments: “Henry’s investment reflects the increased interest our platform is receiving from the wider financial industry. With our innovative technology and his experience and knowledge, we are strongly positioned to redesign post-trade.”

Henry Ritchotte, Founder of RitMir Ventures, comments: “There has been comparatively little investment in post-trade over the past few decades. Cobalt’s network is an elegant solution that provides significant benefits for users and will reshape the industry as we know it. I look forward to working with the leadership team on their fresh approach to the post-trade challenges shared by all FX participants.”

ECB publicly endorses FX Global Code

The European Central Bank (ECB) has become the latest central bank to endorse the Bank of International Settlements’ (BIS) FX Global Code, joining others including the New York Federal Reserve and the Reserve Bank of Australia. This signals that currency-trading institutions who do not sign up may well find their counterparties limited in future.

Whilst the ECB did not issue a legal mandate for its currency market counterparties to sign up to the Code, market participants have been invited to publicly declare commitment to the Code by May 2018, one year on from its publication. It is clear that the central banks are taking the Code very seriously, and rightly so.

The Code sets out a comprehensive set of best practice guidelines which outline how all market participants, regardless of institution type, should behave in order to uphold the highest standards of transparency and ethics in the wholesale FX market.

Since the final version of the Code was published two months ago, many institutions have already committed to adopting it. Those that haven’t will likely be spurred into action by the ECB’s firm encouragement.

This advocacy for an important set of principles is to be welcomed.

Bank of England to boost fintech by opening up RTGS

The Bank of England (BoE) announced a framework to open up its interbank payment system to fintech firms.

The UK interbank payments landscape is currently dominated by CHAPS, a same-day sterling settlement service used to transfer large amounts between businesses, as well as for property purchases.

CHAPS’s central position in the market, processing 92% of interbank payments, however, represents a degree of risk to financial stability. In 2014, the system was suspended for several hours due to technical problems. This resulted in payments being held up and caused delays for house buyers as payments were not processed on time.

Newer fintech companies and challenger banks are also concerned that they will be at a disadvantage when working with the company, as it is owned by the UK’s four biggest banks.

In response to these concerns, the Bank of England last year announced a plan to widen access to its real time gross settlement (RTGS) payment service, the system which enables large sterling transfers on a real-time basis. This will allow non-banks to bypass systems like CHAPS and access a range of payment services directly from the BoE.

This week, the Bank took the next step with the release of a detailed technical framework for how the new system will operate.

Under the plans, a payment service provider (PSP) will be given access to the RTGS system) if it can demonstrate appropriate anti-money laundering checks and can keep customers money safe.

The Bank hopes this new approach will relieve some of the financial stability pressures from CHAPS, while giving smaller PSPs more confidence in their payment service relationships.

The move is a further boost to the growing retail fintech sector. Combined with the European Union’s second payment services directive (PSD II) next year, it will help to put these companies on a more even footing with their bigger competitors and open up competition in retail banking services.

With greater access to customer data through PSD II, and the ability to transfer large payments in real time, fintechs will now be able to compete far more effectively with their larger rivals.

The effect could be to push greater innovation from both banks and fintech companies. This can only be a good thing for end users.

SWIFT’s blockchain PoC could transform international payments

SWIFT has just added 22 new members to its Global Payments Innovation (GPI) project.

Banks have, for some time, been looking at a way to monitor their intraday payments, global positions, and liquidity exposures more effectively. This is in line with rules set out by the Basel Committee on Banking Supervision (BCBS), which require banks to take into account metrics such as currencies and intraday exposures at correspondent banks.

Currently, a lack of intraday reporting coverage means banks have no way of monitoring the position of their Nostro accounts in real-time throughout the day.

If this vitally important sector is to be revitalised, finding a solution to monitoring payments in real-time, which can give banks more control and more confidence in managing their correspondent and corporate banking relationships, is vital.

There has been significant progress made on this front from one of the utilities at the center of the international financial system. SWIFT, the global provider of secure financial messaging and compliance services, has just added 22 new members to its Global Payments Innovation (GPI) project.

This could help transform the nature of international payments as we know it.

SWIFT launched a proof of concept (PoC) for its blockchain initiative earlier this year with six partner banks, as part of the SWIFT GPI, to provide the first system enabling real time monitoring of Nostro accounts.

There is growing momentum behind the project. Last week, a further 22 banks, including Lloyds in the UK, JPMorgan Chase in the US, Standard Bank in South Africa and Westpac Banking Corporation in Australia, all joined the PoC.

There is a lot of enthusiasm and anticipation about the outcome of the PoC. If banks could manage their Nostro account liquidity in real-time, it would allow them to accurately gauge how much money is required in each account at any given point. This would enable them to free up significant funds for other investments and reduce the cost of correspondent banking.

This PoC is a key example of the way in which industry leaders across the financial markets have been bringing the industry together to collaborate on projects using new technologies to tackle industry wide problems.

Although there are other companies launching similar initiatives, SWIFT benefits from its long-standing position of trust and neutrality at the heart of the financial sector. As a result, it is able to bring together banks, technology providers (such as Hyperledger which developed the blockchain technology for this PoC) and other industry stakeholders to find innovative and meaningful ways of introducing potentially transformative technologies.

“The proof of concept is about the accounts banks hold between themselves,” says Wim Raymaekers, Global Head of Banking Market at SWIFT. “Banks are exchanging information today; what we want to see with blockchain is those status information reports being exchanged, as banks don’t always know the levels of their Nostro accounts on a per transaction basis. Most often, banks get that information at the end of the day but they also want to know how much money is in their accounts in real-time.”

The results of this initial PoC are due to be announced at Sibos later in Toronto in October. We look forward to seeing them with great interest.

 

Chatsworth congratulates Pragma and Cobalt on FX Week e-FX Award wins

Leading industry trade publication FX Week has announced the winners of its prestigious e-FX Awards, which included two of Chatsworth’s foreign exchange clients.

The awards recognise firms from across the foreign exchange industry for their excellence and innovation in the world’s most liquid financial market.

Announcing the award winners, FX Week editor Eva Szalay said technology in the market was “booming”, pointing out that “innovation has been extended to small start-ups, as well as the largest players” and highlighted the market’s “genuine desire to become more transparent, more competent and highly innovative”.

Innovation was certainly in evidence from algorithmic trading technology provider Pragma Securities, which was named Best independent algorithmic trading technology provider, and post-trade distributed ledger technology company Cobalt, which was awarded e-FX initiative of the year award.

Pragma

Reflecting on the increasing sophistication amongst the buy-side and the push for best execution in FX, Pragma has seen rapid growth and expansion over the past 12 months.

The company serves banks, brokers and sophisticated buy-side institutions, and identifies its value proposition around transparency and control as differentiating features.

It added a number of new capabilities to its Pragma360 algorithmic trading platform. This includes algorithmic trading non-deliverable forwards (NDFs), which offers traders better execution when investing in popular emerging market currencies.

It has also expanded its international client base through a new connectivity presence at Equinix’s LD6 data centre in London, providing lower latency connection to London based FX matching engines.

Cobalt

Cobalt has a very eye-catching proposition – it uses distributed ledger technology to cut 80% of the costs of post-trade reporting.

Founded by former Traiana executive Andy Coyne, and Adrian Patten, the company is offering to completely revolutionise the costly and time-consuming way in which post-trade FX services are conducted, cutting out duplication by storing records of all transactions on a single distributed ledger.

“I think if we are successful, the biggest impact will be on trading and Cobalt will increase volumes. Post-trade costs are a tax on trading and the idea that you can charge someone 50 cents to a buck for sending an unencrypted message to the back office is ridiculous.

“So if we can reduce those costs by dollars per transaction, that will feed into increasing volumes,” Patten tells FX Week.

The team at Chatsworth would like to congratulate both Cobalt and Pragma on their well-deserved award wins.

Previse secures backing to end late B2B payments with the help of AI

Small businesses are the backbone of the UK economy, generating some 50% of private sector turnover and employing three out of five private sector workers.

However, these businesses are held back by late payments from their large corporate clients. With 60% of SMEs paid late by corporates, businesses are left strapped for cash to meet their own payment obligations, such as wages, stock and rent. This cash flow crisis forces 50,000 UK companies a year to go to the wall. 

Banks play a role in easing the problem, offering larger suppliers short-term financing or buying the invoices directly from suppliers for a substantial discount, a practice known as factoring. Both these solutions are expensive for the supplier, however, which pushes up prices for the whole payments chain. In addition, given the fragmented and high-risk nature of the SME credit market, only the largest suppliers are able to secure credit.

This means that, according to the world bank, there is $2.4 trillion in unmet demand for financing from SMEs globally.

Enter Previse. The company, which this week announced the successful completion of a £2 million seed round, is harnessing the power of artificial intelligence (AI) technology to allow banks to meet the financing needs of SME suppliers in a scalable and low-risk way.

Previse uses advanced AI and hundreds of millions of data points to score the likelihood that a corporate buyer will be able to pay a supplier’s invoice. This score is then provided to banks and other funders who use that information to instantly pay the SME on behalf of the large corporate. The supplier receives their money the day they issue their invoice, giving them complete cash flow confidence.

The effect is that “instant, frictionless and efficient payments become the new standard for B2B payments,” according to Paul Christensen, co-founder and CEO of Previse.

The rest of the payments chain benefits as well. By offering such a service, buyers can negotiate a discount on their purchasing costs and banks can reach much deeper into the SME credit market without blowing their risk exposure. The net effect could be a several billion-pound boost to the UK economy every year.

To find out more about Previse seed funding please click here

Chatsworth is proud to support London Tech Week and Sadiq Khan’s vision for ‘the world’s leading smart city’

Chatsworth is proud to support London Tech Week and the vision to create the world’s leading smart city.

With Brexit and an uncertain outcome in the UK election this month, a cloud has continued to loom large over the UK economy. Frankly, we’re a little over all the doom and gloom so we’re happy to report that one industry that continues to thrive in the midst of uncertainty is the UK’s financial technology (fintech) sector.

London remains Europe’s leading city for foreign direct investment into the technology sector, attracting significantly more investment projects than any other European city, in each year during the last decade.

The Chatsworth team knows “a bit” about FinTech. We’ve specialised in it for over a decade and it remains our pinpoint focus.

We set up in London before expanding across the pond and we’re delighted that international investors rank London as a leading global tech hub, with London featuring in the three highest ranked cities with the potential to produce the next global tech giant.[1]

This week, the sector received a further boost of confidence from Sadiq Khan, Mayor of London, who launched London Tech Week, a week-long celebration promoting London’s role at the epicenter of innovation and technology.

This year’s festival is expected to be bigger than ever before and attract more than 50,000 visitors to hundreds of events across London. Artificial Intelligence (AI), connected vehicles, and regtech are just some of the events on the agenda, alongside a range of networking opportunities. The full program of events for the week is available here.

Speaking at the annual event, the Mayor outlined his vision for London to maintain its influence and expertise, and become “the world’s leading smart city”.

He also reassured the global tech community that London remains open to talent and investment from all over the world, pledging to do everything in his power to safeguard London’s global competitiveness and status as a leader in innovation…

Since its launch in 2014 London Tech Week has included more than 700 events and has welcomed delegations from around the world. Congrats once more to all involved.

Chatsworth supports global push to restore trust to the world’s largest financial market

 

Foreign Exchange is the world’s largest and most liquid market and it has taken a repetitional battering over recent years.

Now the final part of the Bank of International Settlements’ (BIS) FX Global Code has been published, following a two-year, industry-wide effort to rebuild trust in the FX market following a series of scandals and market challenges over the past decade.

The Code sets out a comprehensive set of best practice guidelines which outline how all market participants should behave to uphold the highest standards of transparency and ethics in the wholesale FX market.

Chatsworth is proud to have played our part through our work with CLS and its CEO David Puth – Chairman of the BIS’s Market Participants Group and one of the principal authors of the code. This included an extensive engagement campaign to educate the press and FX market on the Code’s aims and objectives.

More than 1,500 people have had input to the Code and have helped to shape a set of high-level principles that will impact their day-to-day business practices.

The final document has received widespread support across the FX industry. A number of industry participants – banks, platform providers, technology vendors and trade associations – have backed it.

Now it is the time for the FX industry to adopt the Code’s principles and all FX professionals to read, understand and apply it to their everyday trading and transactional activity.

David Puth speaks to Bloomberg TV about the Code

 

Chatsworth client R3 secures record-breaking USD 107 investment in distributed ledger technology

We are delighted to announce that Chatsworth client R3 has secured one of the largest ever Series A investments in the global fintech industry, raising USD 107 million from over 40 institutions across the globe.

R3 is leading a consortium of banks and other financial institutions working together to develop a new operating system for the financial services industry based on distributed ledger technology (DLT), which was borne out of blockchain – the infrastructure that enables the transfer of virtual currencies such as Bitcoin.

Chatsworth has handled global PR for R3 since its launch in September 2015. During the last eighteen months we have worked closely with the financial, business and technology media to raise awareness and understanding of R3’s unique approach and technology as it sought to grow its network of members and investors.

Drawing on R3’s team of expert spokespeople, Chatsworth positioned the company and its members as thought leaders in this revolutionary technological field, securing thousands of pieces of coverage including tier 1 outlets such as the Wall Street Journal, FT, Bloomberg, Reuters and the Economist. R3 is now widely seen as the leading voice on distributed ledger technology, with its spokespeople regularly called upon to provide expert commentary in the press.

The awareness generated by this coverage helped fuel the momentum to drive R3’s growth from a fintech startup with eight finance and technology veterans and nine bank members to a global team of 110 professionals serving over 80 global financial institutions and regulators on six continents.

This massive investment marks the next stage in R3’s evolution. Many of the world’s largest financial firms have come together not just with capital support, but with a robust commitment to work with R3 in developing foundational industry solutions that will be the building blocks of the new financial services infrastructure.

We look forward to continuing our work with R3 as they take distributed ledger technology off the drawing board and onto the trading floor.

Cybersecurity: Is a flaw in human psychology to blame?

A fascinating analysis of cybercrime and cybersecurity this week from Michael Daniel, the president of The Cyber Threat Alliance.

Writing in the Harvard Business Review, Mr Daniel postulates that we have only just begun to comprehend the scale of the issue and that it is our perception of the online world versus the physical which is to blame.

Cyberspace operates according to different rules than the physical world and is more than just a technical problem, but is as much about economics and human psychology.

“The borders in cyberspace don’t follow the same lines we have imposed on the physical world –  they are marked by routers, firewalls, and other gateways. Proximity is a matter of who’s connected along what paths, not their physical location. The same principles of cyberspace that allow businesses to reach their customers directly also allow bad guys to reach businesses directly”

He poses six key framework questions which he argues need answering before we can effectively tackle the problem:

  • What is the right division of responsibility between governments and the private sector in terms of defence?
  • What standard of care should we expect companies to exercise in handling our data?
  • How should regulators approach cybersecurity in their industries?
  • What actions are acceptable for governments, companies, and individuals to take and which actions are not?
  • Who is responsible for software flaws?
  • How do we hold individuals and organisations accountable across international boundaries?

In our experience, financial firms which are typically hyper-competitive are highly adept at solving industry issues when they recognise the group threat and work together.

Co-operation and co-ordination across borders backed by resolve, human capital and investment is key to solve these issues is critical.

The financial systems, both systemically and at the individual firm level, remain at risk and it is clear that any system is only as strong as its weakness link.

Chatsworth is proud to support Clerkenwell Design Week – 23–25 May

This week sees the best of London’s design crowd descend on our hood for Clerkenwell Design Week.

This is a world-class showcase of the leading UK and international designers, brands and companies across showroom events, exhibitions, live talks, workshops and installations.

Chatsworth is showcasing the best of our design for business. We help connect financial technology brands with audiences and users through our digital design and user experience.

Contact us for more information and don’t forget to register for the event.

The potential benefits for corporates in algorithmic trading

Curtis Pfeiffer, Chief Business Officer at Pragma Securities, explains to FX-MM how corporates could stand to benefit from using algorithms for FX execution.

Why should corporates consider using algorithms for FX execution?

Corporations want to maximise profit, and a penny saved is a penny earned. Algorithmic trading can contribute to the bottom line by significantly reducing FX trading costs. Corporations trade on the order of $70 trillion a year – roughly the same as the total global GDP. On such large amounts, basis points matter.

That’s why, to fulfil their mission, corporate treasurers are increasingly focused on ensuring that they get best execution on their FX transactions, which includes using the best available trading tools and practices.

What advantages do algorithms have over other trading techniques?

With the speed at which trading is conducted today, the proliferation of trading venues, and sheer levels of information that is processed, it is simply impossible for a human trader to stay on top of all the data that the market is generating.

There are four core benefits to algo execution:

  • Breaking up a large order into multiple smaller pieces means, on average, paying less than trading in a block
  • Building algorithms on top of an aggregated liquidity pool effectively narrows the spreads being traded on
  • Building algorithms on top of an aggregated liquidity pool effectively narrows the spreads being traded on
  • Algorithms have the ability to provide liquidity as well as to take prices, allowing patient traders to capture part of the bid-offer spread
  • Automation frees treasurers and traders to focus more of their time on those issues where human intelligence and judgement add the most value.
What factors should investors consider when choosing an FX algorithm?

First, corporations should understand the bank’s liquidity model for their algorithmic offering – principal, agency or hybrid.

Bank algos access liquidity differently depending on the model. A pure principal algo accesses just the host bank’s liquidity, which also provides indirect access to other liquidity pools in the marketplace. Agency models do not interact with the host bank’s liquidity, but are able to provide liquidity on ECNs as well as taking prices, potentially capturing part of the bid-offer spread for the customer.

Hybrid models can offer the best of both worlds, though customers should understand how the bank manages its dual role as principal and agent. Corporations should assess the liquidity pool underlying each bank’s algorithms to determine which model will be most effective.

Second, corporations should be satisfied that their bank provider has first class algorithmic trading tools – either through a major investment it has made in algorithmic trading research and development internally, or by partnering with an algorithmic technology specialist. Smart algos have sophisticated order placement logic, change their behaviour based on pair and time-specific liquidity patterns, and make intelligent and dynamic use of the real-time liquidity available across venues – for example based on order fulfilment rates.

Provided liquidity and investment checks out, corporations can consider algorithmic trading as another service their banks provide, and direct flow as part of the overall banking relationship.

Finally, best practice is to use TCA after the fact to track performance across bank providers and make sure all is as expected.

To read more, please visit the FX-MM website here.

Flying the nest – twenty years of independence for The Old Lady

Twenty years ago this month, buoyed by a historic landslide victory in the 1997 general election, Chancellor of the Exchequer Gordon Brown made the surprise announcement: the Bank of England (BoE), affectionately referred to as The Old Lady, would become independent for the first time in its history.

The plans for independence were made in great secrecy. According to Mervyn King, the BoE governor at the time, Eddie George, was only told about it the day before Brown announced the decision. However, the move was hailed by both the BoE and financial markets, strengthening its credibility and creating more stability around monetary policy decisions.

Coping with crisis

However, perhaps the most volatile period over the past twenty years was the 2008 financial crisis and the subsequent fallout. This transformed the Bank’s way of working both internally and in its relationship with the politicians, financial markets and other stakeholders.

Some accused the Bank of being slow to respond to the crisis, and Katie Barker, a member of the BoE’s Monetary Policy Committee for nine years, described a “terrible group think” which prevented it from seeing the crisis emerging.

However, the Old Lady’s response to the crisis proved to be defining. A major quantitative easing (QE) programme and a prolonged period of record low interest rates have been the central pillars of the UK’s post-crisis recovery program. Many have since acknowledged have played in underpinning stability and economic growth.

Although there have been changes in personnel and processes in subsequent years, overall, the Bank emerged from the crisis with its reputation enhanced. Post-crisis reforms have further centralised its power, including returning responsibility for prudential oversight to the bank from the now-disbanded Financial Services Authority.

Looking forward

With the arrival of its new governor, Mark Carney, from Canada, the Bank has also improved its working relationship with government and strengthened internal management practices.

This is good news, as major challenges lie ahead for Mr Carney and the central bank. He has already come under unprecedented criticism from some Parliamentarians for his outspoken warnings in the build-up to the EU referendum in 2016.

Managing the markets and the economy as Britain exits the EU will require a careful touch and Mr Carney will no-doubt face high levels of scrutiny from both the press and politicians.

In addition, the Bank is not immune to a growing scepticism in the political class around the whole notion of central bank independence. The response of banks to the financial crisis, particularly QE, has become a political issue in the US, Europe and now the UK Prime Minister Theresa May has argued that it has meant “people with assets have got richer” while “people without them have suffered”.

Given its enhanced role in overseeing banking and monetary policy, some, such as former Strictly Come Dancing star Ed Balls, believe that the blame for the next financial crisis will be placed, fairly or not, squarely at the door of the Bank of England.

Despite the ups and downs, the Bank has helped to successfully steer the UK economy since flying the nest. It is now also transforming itself into a global leader in fintech regulation, setting up a fintech accelerator last year. Recently the bank also launched a plan to de-risk Sterling payments with its blueprint for a new real-time gross settlement system to improve sterling payment.

With careful management and this continued focus on evolving with the rapidly changing financial services market, we look forward to another twenty years of an independent central Bank.

Mark Carney on realising the potential of fintech

Regulatory support for the growth of fintech in London has certainly been evident in recent years.

Democratisation of financial services, greater consumer choice, lower costs and greater resilience of financial infrastructure are just some of the reasons why the Bank of England (BoE) is encouraging financial technology (fintech) development in the UK.

That’s according to Governor Mark Carney, who addressed an audience of fintech entrepreneurs, regulators, politicians and banks at the UK Treasury’s inaugural International Fintech Conference in London.

Regulatory support for the growth of fintech in London has certainly been evident in recent years. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have changed their authorisation processes to support new business models, and the BoE also established a fintech accelerator last year.

To date, it has worked with a number of firms on proofs of concepts relating to cyber security, using artificial intelligence (AI) for regulatory data, and distributed ledger technology.

But what is interesting in this speech is the BoE’s focus on ensuring “the right hard and soft infrastructure are in place” – a central plank of the Governor’s vision of maintaining London’s role as the centre of fintech excellence.

“Over the centuries, we have learned that markets and innovation thrive with the right hard and soft infrastructure”, he said. “Hard infrastructure ranging from transport links to broadband and payments architecture; and soft infrastructure from the rule of law to market practices, codes of conduct, and regulatory frameworks.”

So how does this relate to fintech, one may wonder? Governor Carney continued: “With respect to soft infrastructure, the Bank is assessing how fintech could change risks and opportunities along the financial services value chain. We are then using our existing frameworks to respond where necessary.”

On developing the right “hard infrastructure”, Carney pointed to how the BoE is working to develop the financial system’s hard infrastructure to allow innovation to thrive while keeping the system safe. In particular, he highlighted how it is widening access to some of its systems to include Payment Service Providers (PSPs) in order to boost both competition and system resilience.

“The UK has led the world in innovation in the wider payments ecosystem. And we are committed to keeping pace with customer demands for payments that are seamless, reliable, cheap, and ubiquitous. Our challenge is how to satisfy these expectations while maintaining a resilient payment systems infrastructure.

“That’s important because the Bank operates the UK’s high-value payment system ‘RTGS’ (Real-Time Gross Settlement) which each day processes £1/2 trillion of payments on behalf of everyone from homeowners to global banks. Understandably, we have an extremely low tolerance for any threat to the integrity of the system’s “plumbing”.

“Currently, only 52 institutions have settlement accounts in RTGS. Indirect users of the system typically access settlement via one of four agent banks. These indirect users include 1,000 non-bank PSPs at the front-end of the financial services value chain. As they grow, some PSPs want to reduce their reliance on the systems, service levels, risk appetite and frankly goodwill of the very banks with whom they are competing.”

Interestingly, the BoE has decided to widen access to RTGS to include non-bank PSPs in order to help them compete on a level playing field with banks, and is working with the FCA and HM Treasury to make this a reality.

This ties in with Carney’s final example of the “soft and hard infrastructure” – coordinating advances in hard and soft infrastructure ensure the Bank can help the industry realise the true promise of fintech.

“New technologies could transform wholesale payments, clearing and settlement. In particular, distributed ledger technology could yield significant gains in the accuracy, efficiency and security of such processes, saving tens of billions of pounds of bank capital and significantly improving the resilience of the system.”

A full copy of Mark Carney’s speech is available here.

Regtech is booming, but is the UK missing out?

Regtech (n). Short form for the regulatory technology being created to meet regulatory monitoring, reporting and compliance.

Regtech is booming, with USD 2.99 billion invested globally across over 400 private investment deals in the last five years. 

Yet despite its predominant position in almost all other areas of financial technology, the UK is still lagging behind the US when it comes to regtech investment. 

Just 9% of the almost three billion invested since 2012 went to UK based companies, according to the CB Insights figures. This put it a distant second behind the US, which scooped up 78% of the total investment.
 
Banks are looking to reduce costs to cope with a tougher investment market and find ways to handle the flood of new rules which the January MiFID II deadline will unleash. In this environment, it is little wonder investors see the potential for technologies which promise to make compliance easier, more efficient or more reliable for the financial sector.
 
UK regulators appear to have spotted the opportunity as well, and the Financial Conduct Authority (FCA) is looking to do what it can to help the UK’s regtech sector catch up with its transatlantic counterpart.
 
The regtech industry spans a wide variety of technologies and the industry which promises to make compliance easier, more efficient or more reliable. Some companies are using artificial intelligence to help banks comply with regulation, while the R3 group of over 40 banks is looking at how distributed ledger technology (DLT) can make reporting to regulators simpler.
 
Some regtech firms believe that Brexit could be a big boost to the UK’s regtech industry.  With the UK’s financial sector’s relationship with the EU now in flux, both in terms of regulatory equivalence and cross boarder trade, ““Brexit is a brilliant opportunity”, sais Diana Paredes, CEO of regtech start-up Suade.
 
The UK regulator, the Financial Conduct Authority (FCA) has also been working to encourage the UK regtech sector. The FCA’s executive director of strategy and competition, Chris Woolard, is keen to stress the role regtech companies can play. Talking to Financial News, he said, “It’s something quite positive where firms are taking quite seriously how they apply technology to their own compliance question.”
 
The FCA has also been leading the way when it comes to nurturing innovation. “There are other regulators around the world that have more funds and resources, and other regulators with more powers. But it was really only the UK financial regulator that has built into its governance a mandate to promote innovation and competition, as well as the traditional mandates of financial stability and consumer protection,” Imran Gulamhuseinwala, EY’s global leader for fintech, told the Financial Times.
 
Most notably, in 2015, the FCA launched its ‘sandbox’ to help companies developing new technologies. The sandbox allows banks firms which require regulatory approval before being able to operate their technology to test in a live environment. This allows firms which would otherwise need to develop their full technology and achieve FCA approval before fully testing their product, to develop their technology in a way which is responsive to both the FCA’s requirements and the demands of live operation.
 
So far, the sandbox service has proved popular with 69 companies applying for the first cohort in 2015 and a further 77 applying for the second cohort, according to a recent statement from the FCA. Following the success of the first cohort, the FCA has begun helping regulators across the globe to develop their own sandbox programmes, including in Japan, Canada and China.

It is heartening to see the UK regulator supporting this process and creating an environment where the next generation of firms who using technology to enhance the regulatory environment and reporting/confirmation/validation processes. 

Financial markets have been buffeted by scandal and repetitional damage of late. It is time to programme some trust into the source code.

TRACE and Reg ATS: the changing face of US Treasuries regulation

Nichola Hunter, Chief Operating Officer at LiquidityEdge, explores new regulation coming down the track which will significantly impact broker-dealers in US Treasuries.

Regulatory changes are afoot in the US Treasuries market. While reporting transaction data to regulators has been the norm in the equities market for decades, in October last year the SEC approved FINRA’s new reporting rule requiring UST trades to be reported by the end of the day on which they were executed.

Starting in July this year, all broker-dealers registered with the SEC that are FINRA members must report transactions through the Trade Reporting and Compliance Engine (TRACE) system. This is a major development for the UST market and one that will cause no small number of headaches amongst participants. The cost and resourcing implications of such a major change to regulatory reporting cannot be underestimated.

Broadly speaking there are two camps that argue for and against more transparency. While it would be difficult to find anyone willing to argue that increased transparency shouldn’t be encouraged for the purposes of improved regulatory oversight, less certain is the path to real time public dissemination.

Typically, professional trading firms will argue that transparency is required to enhance liquidity, improve best execution processes while reducing overall transaction costs. However, many of the dealers will argue the exact opposite, citing experiences in other markets that attest to a reduction in overall liquidity, widening of the bid/ask spread and the negative impact of transparency on their hedging strategies.

Trade reporting is not the only regulatory burden on the horizon for UST market participants. While the SEC has traditionally exempted platforms that solely trade government securities from its regulatory regime for alternative trading systems, known as Reg ATS, changes in market structure have recently prompted it to change its stance.

Reg ATS was introduced in 1998 to enhance regulatory oversight of off-exchange equities trading and improve the transparency of operations and protections for investors, with the aim of promoting a fair and competitive market. It requires platform operators to register as a broker-dealer and disclose significant details about operations, as well as committing to providing market participants with fair access to its services and liquidity pool.

UST platforms were excluded from the rules at the time due to the unique regulatory framework for government securities in the US, which involves the SEC, Department of the Treasury and federal banking regulators. However, the SEC now believes that market conditions and the broader regulatory environment have evolved to a point where it is appropriate to extend Reg ATS to the UST market. It remains to be seen if the acting or any new SEC chair will pick up the baton and move forward with this change.

At LiquidityEdge we are well positioned to adapt to a potential extension of Reg ATS to UST venues. Our platform is built on tried and tested technology, widely used in the FX market to ensure robust performance and efficient market access. Thus, the technology need to meet many of the requirements of Reg ATS is already built into the fabric of the platform.

LiquidityEdge was designed to meet the evolving needs of US Treasury market participants and facilitate a more orderly and efficient trading environment. Transparency and fair market access play crucial roles in achieving this end goal, and if regulators consult closely with both platform operators and all types of market participants before putting pen to paper, they will help build an appropriate legislative framework for today’s complex US Treasury Market.

For more information, click here for Nichola’s full article.

Sterling reigns over euro amongst central banks

Central banks view the UK as a safer prospect for investing their currency reserves, despite the uncertainty created by the Brexit vote and Article 50.

That was the key revelation from a survey of reserve managers at 80 central banks, conducted by trade publication Central Banking and HSBC.

According to the FT, concerns over political instability, weak growth and negative interest rates mean reserve managers consider sterling as a long-term, stable alternative to the euro.

This is significant for several reasons. Firstly, reserve managers at 80 central banks are responsible for investments worth more than GBP 5.1 trillion and are tasked with ensuring the value of their domestic currency is maintained. Their decisions will be closely followed by currency traders and investment managers around the world. 

Secondly, sterling’s post referendum plunge was widely noted last June. However, it gained against the US dollar during the first quarter of 2017 – the first quarterly gain since June 2015 – and the bullish bets from central banks suggests a further upward correction is on the horizon. 71 per cent of respondents said the attractiveness of the pound was unchanged in the longer term.

The prospect of an imminent resurgence in sterling is backed by analysts at leading investment banks, which predicted an unwinding of near-record bets against sterling if a constructive tone was adopted by the UK and Brussels continued over Brexit negotiations. Japanese bank Nomura in particular, believes the pound is undervalued against the dollar by as much as 25 per cent.

Thirdly, the survey’s findings highlight concerns over the stability of the monetary union, which was identified as the greatest fear for 2017 for reserve managers. Some central banks have reportedly cut their entire exposure to the euro, unprecedented for the world’s second most popular currency, while others have reduced their holdings of investments denominated in euros to the bare minimum.

The survey found that the ECB’s negative interest rate policy was also key factor causing bearishness on the euro. The policy was designed to boost growth across the Eurozone but has impacted profits at banks and financial institutions across the Eurozone.

While these conclusions give reasons for both optimism and trepidation – it’s a matter of perspective, after all – they highlight the fluid and interlinked nature of politics and the currency markets.

More than GBP 3 trillion of currencies are traded every single day around the world, and its impact stretches far beyond the trading floors of the largest international banks. 

Currency movements affect everything from individual pensions to the cost of daily household goods, and with politicians on both sides of The Channel spinning dealing with multiple, complex challenges, currency markets will listen intently to their every word. 

Brace yourself for a period of excitement, nervousness and volatility over the next 24 months.

London’s post-Brexit future as a financial hub

UK Prime Minister Theresa May finally triggered the formal process for Britain leaving the European Union (EU) on March 29.

While the EU referendum and a post-Brexit scenario may have been something of a blow to confidence in the City, it still has plenty going for it as a financial hub. This year’s Global Financial Centres Index, an international ranking of the world’s leading financial centres, placed London top of the pile.

“London’s rating has been influenced by not knowing what will happen after the UK’s departure [from the EU],” Mark Yeandle, associate director of Z/Yen and author of the report, told The Financial Times. Despite this, London remains top of the list and, over the period which the report tracks, has even recovered some ranking points.

London also remains the world’s biggest FX market by a huge margin, according to the latest BIS Triennial report. While Brexit may result in some jobs being relocated, the industry still believes London will remain front and centre and a key financial hub.

One of the key factors which will insulate London’s FX market is its concentration of trading infrastructure and activity. “When trading becomes concentrated in a particular region and is supported by a comprehensive legal and regulatory environment it develops natural strengths that enable that particular market to function well.” says Dan Marcus, CEO of ParFX, talking to Finance Magnates. “By leaving that pool of liquidity, a firm could disadvantage themselves and their clients.”

This means that, far from vacating the city, many businesses are investing further in London’s future.

Algorithmic trading technology provider Pragma is one such company, with the New York-based firm expanding its equities and FX business to London. “Our investment in the data center at Equinix’s LD6 site offers Pragma360 clients access to state-of-the art technology and the largest ecosystem for foreign exchange trading globally,” says Pragma’s Chief Business Officer, Curtis Pfeiffer.

“Despite the uncertainty caused by Brexit, we are moving forward with this large capital expenditure because London, as the largest FX trading centre in the world, hosts the largest datacentre ecosystem for low-latency FX trading applications and we do not see that changing any time soon,” he explains.

While nothing in the negotiations has been determined at this early stage, the City will also weigh up the potential challenges of Brexit.

Continued access to the European single market through financial passporting and the ability to attract skilled technology professionals from across the EU to work in London top the list for many institutions.

“77% of my staff in London were born outside the UK. We need those people. People are very mobile. I just worry that tough negotiations will send the wrong signal.” Michael Kent, CEO of remittance service Azimo, told Financial News.

In addition, J.P. Morgan has reportedly spent the last nine months weighing up various EU cities as a potential new continental home for their operations, according to The Wall Street Journal.

Looking beyond the headlines, however, the picture is more nuanced. Most of the relocation plans announced over the past few months involve relatively small numbers of staff. For many banks and financial institutions this may be a hedging exercise rather than a wholesale exodus.

Going forward, the UK government is determined to ensure London remains a central part of the international financial landscape, and it’s worth remembering London has a number of strategic advantages which mean it is likely to continue to be the city of choice. It uses the global language of business, English; it is situated in the perfect timezone between Asia and America; and has a legal system that is world-renowned for clarity and reliability.

None of this will change; in fact, it will continue to ensure London remains open and attractive to business.

In search of FX liquidity

Foreign exchange (FX) is one of the world’s most liquid markets, with around USD 5 trillion exchanged across borders every day.

However, there is a perception in the market that liquidity is on the wane.

This is not necessarily true, according to David Puth, CEO of CLS. Speaking to Euromoney, he said “There is a tendency for market participants to believe that liquidity was better in the past. From what we see at CLS, liquidity appears to be very strong. It is, however, different, with liquidity widely dispersed over a number of different trading venues.”

The pessimism may in part be as a result of the increasing difficulty in defining exactly what liquidity means in the modern market, and measuring it accurately.

This was one of the questions which a recent report on liquidity in the Americas from the Bank of International Settlements (BIS) attempted to address.

Traditional liquidity metrics, such as cost metrics, quantity metrics and trade impact, have their uses, but the report finds that none are a perfect way to measure liquidity in the modern market.

This is important because one thing which is clear is that the modern FX market is becoming increasingly complex, making understanding liquidity more difficult.

The market, like many others, is fragmenting as electrification proliferates the number of trading venues and sell side participants put more emphasis on internalising trades.

Whether this fragmentation is having an impact on traders ability to trade, remains an open question.

The BIS report indicates that fragmentation does appear to be having some impact on liquidity measures, particularly when it comes to periods of market stress.

It gives examples such as the 2016 British EU referendum and flash crashes, where traditional liquidity metrics appear to have been impacted across a number of currency pairs, at least over the short term.

Dan Marcus, CEO of ParFX, points out that sometimes individual metrics don’t always give the full picture. “It may be the case that volumes are down from where they were… [However] on ParFX we do not see evidence of a problem with market depth or the ability for traders, who need to trade, fill orders.”

This is in part because, while technology is driving fragmentation, it is also creating opportunities to aggregate liquidity in more efficient ways.

“Buy-side traders have responded [to FX market fragmentation] by turning to algorithms and taking on more execution risk themselves”, says Pragma’s CEO David Mechner.

Liquidity is the lifeblood of the FX market, it is vital that the market can measure it in a way which gives an accurate representation of what it is like to trade. One solution, suggested by Mechner, is a consolidated tape, much like in equities. Until then, the market should think carefully about the metrics used to measure the market and ensure they are fit for purpose.

Mosaic Smart Data named Best Use of Data and Analytics Innovation at the 2017 FStech Awards

Data analytics technology specialist Mosaic Smart Data has won the Best Use of Data and Analytics award at the annual FStech Awards, held in London on Thursday 23rd March.

Regulatory changes and advances in technology are revolutionising fixed income, currencies and commodities (FICC) markets and driving the need for intelligent data analytics and reporting.

MSX delivers a next generation data analytics platform for FICC market participants. By delivering the insights and real-time intelligence they need to harness exponentially increasing data as well as meeting regulatory requirements, it enables trading and sales teams to significantly enhance their workflow productivity.

The platform standardises and aggregates multiple data sets to enhance audit trails and reporting, enabling banks to comply with mounting regulatory requirements.

Mosaic has fully integrated predictive analytics into MSX, enabling financial institutions to more accurately determine future market activity based on sophisticated algorithms and historical data.

After collecting the award, Matthew Hodgson, CEO and Founder of Mosaic Smart Data, said: “In today’s digital world, banks need to have a deep understanding of the business they are handling in real time. The data is there, but it needs to be standardised and have intelligent analytics applied to it. It is an incredibly intensive undertaking which requires both innovative technology and thorough insight into the bank’s business needs.”

Read more about this story at Mosaic Smart Data’s website here.

Adherence to FX Global Code will reform conduct and behaviour

As we near the final stages of the development of the foreign exchange (FX) Global Code, the ACI Financial Markets Association (ACIFMA) is leading efforts to support education and adherence. We will start by making commitment to the Code mandatory for ACIFMA members, and encourage members to prove their adherence in future. This could prove to be a turning point in reforming conduct and behaviour in foreign exchange, writes Brigid Taylor in FX Week.

As a member of the MPG, ACIFMA has both contributed and witnessed the extent to which market participants and policymakers have engaged, discussed, debated and worked together in the best interests of the wider market. This is an industry that transacts more than USD5 trillion of currencies across borders every single day. Its ability to operate smoothly is crucial to the international economy.

There was of course a broad range of views on how best to address a series of topics, such as governance, information sharing, last look and pre-hedging. An array of views is expected in any large consultation, but consensus has been achieved with the best interests of the market in mind.

The final Code will, in my view, outline principles and guidance that is effective, appropriate and strike the right balance. I expect it to act as an essential reference for market participants when conducting business in the wholesale FX markets and when developing and reviewing internal procedures.

Hardwiring adherence – the third objective

This brings us to the final objective set out at the beginning of the process: develop proposals to promote and incentivise adherence to the Code.

For this to happen, it is essential that individuals (i) commit to adhering to the Code; (ii) receive the appropriate training and education so they are clear on what is expected and understand how to comply; and (iii) sign up to a solution where senior managers are able to observe and address any training and educational gaps amongst their subordinates.

This is where the ACI Financial Markets Association (ACIFMA) can play a central role. With a track record in delivering training, education, attestation and best practice principles that stretches back more than half a century, we represent more than 9000 individuals in 60+ countries.

There are several ways we intend to achieve this. Firstly, we will make it a prerequisite for individuals to commit to adhering to the FX Global Code as part of their membership. This means a meaningful proportion of the market – over 9,000 FX professionals around the world – will sign up immediately after the code is launched and commit to understanding, implementing and abiding by the new principles.

There is an urgent need to restore ethics in financial markets and the FX market is aware of its responsibilities to its clients and stakeholders. The significance of the enormous effort undertaken over the past three years should not be underestimated; to date, the level of leadership and engagement has been exemplary. I expect the FX Global Code to be a turning point in reforming conduct and behaviour in foreign exchange and develop a renewed sense of trust in this important sector of any economy.

To read the full article by Brigid, please visit the FX Week website here.