Why Banks are Being Forced to Turn Away Business

In a new report, Sibos 2013: One Thousand and One Reflections, which summarises key takeaways from this year’s Sibos conference, Aite Group analysts indicate that banks are actually being forced to turn away business because complying with regulations requires so much bandwidth.


An audience poll at Sibos suggests that many have turned away a lot of business (32% of respondents) or a small amount (62%) over the last 12 months because of banks' increased concerns about risk and reputation resulting from regulatory requirements.


Considerable attention was paid at Sibos to the ongoing costs and challenges facing SWIFT's payments and securities clients as a result of regulatory compliance. Further, more than half of audience survey respondents (55%) strongly agree that it is more challenging for smaller players, which have more limited resources than their larger peers, to keep up with continually evolving regulations. These firms could therefore potentially require a form of shared service in areas such as financial crime compliance. This mirrors SWIFT's ambitions to establish itself as a neutral provider of industry-wide shared services in non-competitive areas.


Aite Group believes one hurdle ahead of the industry in establishing such a shared service will be dealing with the issue of liability. Regulatory compliance is an area not easily outsourced because individual financial institutions must ensure that the data they report to regulators and the wider market is correct. SWIFT will therefore need to consider data privacy in particular, especially when it comes to providing an aggregate view of activity for business intelligence purposes.


The Alliance Messaging Hub (AMH) was presented at Sibos and is the newest component of SWIFT's Alliance products that provides users access to SWIFTNet.  AMH is a modular, multi-network, high-volume financial messaging hub, currently used by 17 large financial institutions. It is differentiated in the market by SWIFT's ownership, including applying SWIFT's models and discipline around development, testing, and implementation.


Sibos also highlighted that corporate treasury offices are influencing IT spending on bank connectivity. Banks must avoid poor connectivity to their back-office systems, which represents a barrier to entry for their corporate clients. Rather than building software solutions internally, banks should identify technical partners that can help build a data-connectivity hub on top of which the bank can provide value-added services to its corporate clients.


The network also must provide aggregate information from external data sources, such as Bloomberg, in a way that allows it to be easily consumed by network participants. The future added value of network connectivity is to extract data from the documents surrounding B2B transactions.


Bank (and especially corporate) awareness of the business process outsourcing remains low, and SWIFT and the International Chamber of Commerce must increase their communication efforts to build the business case of this instrument as a fully fledged tool that supports corporate clients' post- and pre-shipment finance needs.


"At Sibos, we saw that banks and non-bank providers of supply chain finance products must understand the value proposition of these services for their corporate clients. Fundamental to this is an understanding of the impact of the clients' supply chain on their risk and funding positions," says Enrico Camerinelli, senior research analyst in Wholesale Banking at Aite Group.


"In terms of securities and investment, firms we spoke to at Sibos are now beginning to get much more practical about Target2-Securities," says Virginie O'Shea, senior analyst in Institutional Securities & Investments at Aite Group. "Those that opt for direct connectivity to the platform must consider a number of integration requirements, including the adaptation of systems to support ISO 20022 messaging. Putting potential costs aside, Aite Group expects a relatively limited number of firms to opt for this route due to the potential complexity and high ongoing support costs involved."

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