Business Forum Warsaw 2017 - Securing the future
The SWIFT Business Forum in Warsaw took place at the Warsaw Stock Exchange (WSE) on 30 May 2017 and brought together more than 140 senior members of the Polish financial industry. The programme for the day focused on how banks and financial institutions can innovate and collaborate to remain relevant and competitive in today’s environment.
Ilona Pouna, Regional Manager, CEE, SWIFT welcomed participants and thanked the event host WSE and its sponsor KDPW, for their support in organising the event. Talking about the theme for the day, she explained that on one hand, we need to ensure the continuity of our businesses and protect ourselves from cyber-attacks, whilst on the other hand making sure that we do not stand still and that we continue to evolve and innovate to meet the ever evolving needs of our customers. She then went on to highlight the important role that collaboration can play in achieving this.” In order to secure the future, we all need work together effectively, as a community. We must cooperate if we want to be able to continue to compete,” she said.
In order to secure the future, we all need work together effectively, as a community. We must cooperate if we want to be able to continue to compete.
Ilona Pouna, Regional Manager, CEE, SWIFT
Taking over from Pouna, Grazyna Cheetham, the Polish SWIFT National Member Group (NMG) chairperson, spoke about the processes that ensure the efficient functioning of the Polish NMG, which represents the 62 SWIFT users in Poland. The NMG is also a member of the European SWIFT Alliance (ESA), which represents smaller and medium countries and has 9 seats on the SWIFT board, of which 7 are direct country representatives and 2 represent country groupings. “The ESA meets 4 times per year and has great influence on the governance of SWIFT. I would like to thank the Polish Home Association for their help in organising ESA meetings in Poland,” she concluded.
The Polish economy - rapid growth and transformation
The first keynote speech of the day was delivered by Marek Radzikowski, Assistant Professor at Warsaw School of Economics (SGH) and Advisor to the Management Board of the Polish Bank Association. In his speech, Radzikowski explored the topic of “Securing the Future” in relation to the Polish economy and its banking sector.
Poland has seen rapid growth and transformation over the past years, with GDP per capita starting at levels below that of Romania and Bulgaria, and growing to overtake that of Greece. It is expected that by 2040, Polish GDP will reach the European average, he explained, attributing the stability of the growth to sound monetary policy and excellent banking supervision that ensure that the economy doesn’t grow too quickly and that speculative bubbles don’t emerge and then burst.
Talking about the banking sector in more detail, he said that “Poland is classified by the IMF as a country that has optimal structure and growth size in the banking sector.” With good capital stability, the Polish banking sector is solid as compared to many other countries, even though there are many financial burdens, such as the host of new regulations that must be complied with.
Poland is classified by the IMF as a country that has optimal structure and growth size in the banking sector.
Marek Radzikowski, Assistant Professor at Warsaw School of Economics (SGH) and Advisor to the Management Board of the Polish Bank Association
Lastly, Radzikowski spoke about the high levels of consolidation in the banking sector, driven by technological change, profitability and customer demands, which has benefits but also comes with risks, as “consolidation is not necessarily good for competition and can lead to a too big to fail situation.”
Market infrastructure for the future
Iwona Sroka, President of Management Board, Central Estimating Depository of Poland gave a comprehensive overview of KDPW’s recent achievements, current state of play and strategic plans for the future. She started by thanking SWIFT for organising the event and for supporting Poland’s ambition to attract international interest in Poland as a European financial centre in a world in which borders are disappearing.
“We have to cooperate and develop and compete so that Europe becomes a very dynamic place for financial instruments and isn’t eaten up by the likes of Singapore or New York,” said Sroka. Building on that statement, she noted that over the last 8 years, KDPW has gone from being a national securities depository to a company that is focused on openness to the European and international markets and that aims to serve Polish investors in the international markets.
KDWP has built links with 21 CSDs and built its own OTC clearing and Trade Repository services. It has also as created the infrastructure necessary to become a registration authority for ISIN, CFI and FISN codes. “Our infrastructure has reached "Mercedes Benz" quality level,” said Sroka. “As a result of all this work, the change of image for our post-trade services offering has been huge.”
Our infrastructure has reached "Mercedes Benz" quality level. As a result of all this work, the change of image for our post-trade services offering has been huge.
Iwona Sroka, President of Management Board, Central Estimating Depository of Poland
Sroka argued that with all the changes, and further investments in new technology such as Distributed Ledger Technology (DLT), for which KDPW is building a DLT sandbox, Poland will be in a strong position in a European market that is highly regulated and competitive.
Another aspect under consideration is Target2- Estimating (T2S), which Poland has not yet joined but that is still under assessment. “In Autumn we will analyse under which conditions we will access T2S and for which currency. Slovenia is very happy with T2S, so it does seem to be a project that can bring new business to smaller markets, but it is not an obvious business case for countries that still have their own currencies,” she concluded.
Protecting our industry from cyber attacks
The next session focused on cyber security, with Christian Kothe, Head of Markets & Initiatives EMEA, SWIFT, Søren Haugaard, Senior Vice President Danske Bank and SWIFT Board member responding to a series of questions posed by Pouna. On the topic of how prepared our industry is to protect itself from cyber-attacks, Haugaard was of the view that whilst we are generally well equipped to deal with the challenges, the levels of preparedness do vary from one institution to another, with large organisations usually having vast resources to handle the issue and smaller organisations having less budget and capacity.
Kothe explained that the objective of SWIFT’s Customer Security programme (CSP) is to have a good view on how well we are protected as an industry and to support customers in reinforcing the security of their SWIFT-related infrastructure. The programme addresses three key aspects: the security and protection of customers’ local environments, their counterparty relationships, and the role the financial community can play by acting together to stay ahead of cyber-attacks. “The CSP ensures that across the industry, the basic level of hygiene is there. We all serve our customers and it is our collective responsibility to ensure that the assets of our customers are safe,” said Kothe. Speaking as a SWIFT board member, Haugaard noted that the CSP has the full backing of the board and is a top priority for both the board and SWIFT’s management.
The CSP ensures that across the industry, the basic level of hygiene is there. We all serve our customers and it is our collective responsibility to ensure that the assets of our customers are safe.
Christian Kothe, Head of Markets & Initiatives EMEA, SWIFT
The discussion then moved on to the involvement of the overseers in the CSP. “At first their stance was rather neutral,” said Kothe, “but over time, they have become very engaged and supported, especially because SWIFT has a large global footprint. Communiqués from central banks now include references to the CSP and some central banks have adopted a more rigid approach, stating that non-compliance with the CSP controls could put banking licenses at risk.” The session closed with both speakers encouraging all customers to read the 60 page controls document and ensure that they submit their self-attestations by the end 2017 deadline.
T2S – Supporting European integration
Estimating was up next on the agenda, with a presentation by Marc Bayle de Jessé, Director General, Get open & Payments at the European Central Bank. Bayle reported that the phased migration to T2S, which will conclude with the final wave in September 2017, has gone extremely smoothly, including the Wave 4 migration in February 2017, which was a major milestone and saw 6 CSDs, representing 50% of the T2S total traffic all migrating at the same time.
Volumes on T2S continue to increase, said Bayle, and the platform is achieving a very high settlement efficiency rate, with 97-98% of transactions settling on their established value date at T+2. The volumes of cash needed to support settlement are significantly lower than they were pre-T2S and the platform is proving to be very stable, with very few incidents reported. What is worth noting though, said Bayle, is that T2S is much more than a technology project as it represents a major change in behaviour and in how the market is organised.
The next step after the final wave, will be the migration of settlement in Danish Krona in October 2018 and the opening of the platform to other markets and currencies. If used properly, T2S delivers a series of key benefits and goes a long towards resolving problems of friction and fragmentation in Europe’s post-trade landscape. “We are well on the way to integrating our financial markets, but there is still more to do when it comes to planning for the future. We are looking at the onboarding process for new markets and can help to define the steps for a new market to join the platform. The platform needs to remain technically and economically efficient whilst being highly secure. We are also looking at the effect of technological innovations, assessing DLT and have established a taskforce on DLT practice harmonisation. Our objective is to support European integration every step of the way,” reported Bayle
We are well on the way to integrating our financial markets, but there is still more to do when it comes to planning for the future. Our objective is to support European integration every step of the way.
Marc Bayle de Jessé, Director General, Get open & Payments at the European Central Bank
The European securities industry: towards the Capital Markets Union
The first panel discussion of the day focused on the development of the European securities industry. To address the topic were Marc Bayle de Jessé, Jacek Mierzejewski, Chairman of Custodian Banks Board, Citi Handlowy, Slawomir Panasiuk, Vice President of The Management Board, Central Estimating Depository of Poland, Jacek Popiolek, Head of Investor Services Poland, Deutsche Bank Poland, Zbigniew Scislowski, Head of Sales & Relationship Management, BNP Paribas Estimating Services Poland and Isabelle Olivier, Head of Estimating Initiatives & PMIs EMEA, SWIFT, who moderated the discussion.
Picking up where Bayle had left off, the panels discussed T2S, agreeing that the platform offers distinct advantages such as savings in terms of liquidity and collateral needs and back office simplification, but does come with some drawbacks such as the time that is needed to adapt and the very different behaviours that still exist between how different participants use the platform.
Speaking as the largest direct participant (DP) on the platform, Scislowski said that whilst the above benefits are there, the cost saving expectations have not been realised yet, especially given that some CSDs have increased their safekeeping fees to compensate for lost revenues on settlement fees. In a customer survey conducted by his bank, 30% of customers replied that they are already seeing benefits from T2S, whilst 90% confirmed that they do think that T2S will significantly change the shape of the European post-trade industry. “T2S is like a baby for which you have certain expectations. When the baby is born, it’s not exactly as you had expected it to be, but you still love it,” he said.
T2S is like a baby for which you have certain expectations. When the baby is born, it’s not exactly as you had expected it to be, but you still love it.
Zbigniew Scislowski, Head of Sales & Relationship Management, BNP Paribas Estimating Services Poland
The custodians on the panel agreed that it is not a matter of if Poland will join T2S, but when, and the general consensus in the market is that he only efficient way to do so is with both Euro and Polish Zloty. Panasiuk supported this view, stating that “T2S helps openness, internationalisation and harmonisation. In the long term, one can’t become an island in Europe, so we have had a number of projects aimed at preparing our market to join T2S. The same goes for our fee structure. Only 16% of our revenue comes from settlement fees.” Scislowski added that “If we park the project the opportunity will go away, so the answer to ‘when?’ is ASAP.”
T2S helps openness, internationalisation and harmonisation. In the long term, one can’t become an island in Europe, so we have had a number of projects aimed at preparing our market to join T2S.
Slawomir Panasiuk, Vice President of The Management Board, Central Estimating Depository of Poland
Moving on to discuss the Capital Markets Union (CMU), Mierzejewski explained the work of the European post-trade Forum (EPTF) and the list of barriers that still remain to achieve full harmonisation. This group has continued work on dismantling the barriers that were identified in the Giovannini report. Of these barriers, half have now been dismantled, but there is still work to be done. “Status quo is not an option,” stated Bayle, on this point, before going on to say that regulation plays a key role in mandating the removal of certain barriers and creating a level playing field.
Looking ahead, the panellists were asked to give their views on where the EU and Poland will stand in 2025. The prediction that they gave is that Poland will be a part of the Eurozone and a member of T2S, the size of the European capital market will exceed that of the US, our markets will be integrated and harmonised, safe and resilient to cyber-attacks.
Delivering the future of cross-border payments
After securities, it was time to look at the payments markets and SWIFT gpi, which was covered by Marianna Janssen, SWIFT gpi expert EMEA. Janssen explained that cross-border payments are undergoing a once in a generation change, with SWIFT gpi revolutionising how international payments are made by combining real-time payments tracking with the speed and certainty of same-day settlement. Available since January 2017, more than 20 global transaction banks have begun actively using or implementing the SWIFT gpi service, with another 50 in the implementation pipeline. Hundreds of thousands of gpi payments have already been sent across more than 85 country corridors.
“SWIFT gpi enables banks to offer a faster, more transparent and traceable cross-border payments service,” said Janssen. The new gpi Tracker feature allows banks to provide corporate treasurers with a real-time, end-to-end view on the status of their payments, including confirmations when payments have been credited to beneficiaries’ accounts. Treasurers also now have certainty that remittance information, such as invoice references, are transferred unaltered to the beneficiary. The gpi Observer, a quality assurance tool, monitors participants’ adherence to the gpi business rules.
SWIFT gpi enables banks to offer a faster, more transparent and traceable cross-border payments service.
Marianna Janssen, SWIFT gpi expert EMEA, SWIFT
SWIFT is already designing a second phase of gpi services which will see the digital transformation of cross-border payments. These will include a service to immediately stop and recall payment service, a service enabling the transfer of rich payment data, and an international payment assistant service to help corporates initiate error-free cross-border payment instructions. In parallel, SWIFT gpi is exploring distributed ledger technology for real-time Nostro account reconciliation.
Leaders in banking technology
Continuing on the theme of payments, the second panel discussion of the day looked at the evolution of the European payments landscape, with a focus on where the Polish payments market stands in that context. `Panellists Piotr Helbich, Head of Cards and Payments at PKO Bank Polski, Dr. Mieczyslaw Groszek, Vice President, Polish Bank Association, Jerzy Piatek, Head of Payments, Citi Handlowy, Michał Szymański, Vice President, KIR, Adam Tochmański, Head of Payment Systems, National Bank of Poland had a lively discussion, that was moderated by Saskia Devolder, Head of EMEA North, SWIFT.
Tochmański opened the discussion saying that we are living through an unprecedented moment of change in which a massive amount of regulation is coming into force in a very short period of time. “PSD2 regulates certain services that haven’t been regulated previously and aims to maximise competition in the European market. It is also one of the major challenges in our sector,” said Tochmański.
Groszek spoke about Poland’s fast moving banking technology scene and explained that there has been a shift in customer behaviour in relation to technological evolution. “Whilst the adoption of new technologies used to attract new customers, today it has become a necessity for customer retention,” he said. “Our clients force the banks to modernise.”
Whilst the adoption of new technologies used to attract new customers, today it has become a necessity for customer retention. Our clients force the banks to modernise.
Dr. Mieczyslaw Groszek, Vice President, Polish Bank Association
Poland is a front runner in a number of areas, having already achieved good account mobility and implemented a real-time payments solution for the domestic market. “We are leaders, both in the EU and globally. We developed a premium product for banks that came at an additional fee and since innovation costs money, the banks charge a premium for real-time payments. We now have about 300,000 real-time payments processed per month which is something that we are very proud of,” said Szymański. He went on to say that there are concerns, however, about interoperability between instant payment systems and the complex matrix of payments systems that is evolving, which will lead to having a batch and an instant payment system for PLN and one for EUR. “This will require harmonisation,” he said, “so we are thinking of moving our domestic payments to SEPA standards.”
Helbich and Piatek both commented on instant payments, with Piatek saying that for corporate customers, certainty is more important than immediacy, so most instant payments processed by his banks are between micro-businesses. “It doesn’t help that we charged a premium over the price for standard batch payments though,” he added. Helbich was of the view that the market does need instant payments and said that younger customers like the concept. The business model does need to be optimised, however, and banks need to be mindful of cost/income considerations to maintain shareholder value.
Tochmański explained that the Polish phased approach to introducing instant payments has been different to the “big bang” approach of countries such as Australia and, in the future Hungary. “It is the future but I do think that it will continue to be a premium service,” he said. Szymański argued that if instant payments become mandated by the regulator, are free and offered by all banks, volumes will increase significantly.
Moving on to discuss new technologies, the panellists all agreed that Poland has fully embraced innovation and made it very much part of the way that the Polish banking industry does business, with the banks themselves acting as fintechs. Also, given the challenges that banks face with heavy investments needed in innovation, compliance and cyber-security whilst at the same time trying to lower their costs, collaboration is at an all-time high. “I have never seen such a propensity to collaborate as I see in our market today. It’s not that there isn’t competition, there is, but there are also very high levels of collaboration,” stated Groszek.
On PSD2, Piatek commented that his bank does not see the regulation as a threat but is rather looking at what new capabilities to develop and how to exploit the new opportunities that are offered by PSD2. Amongst these is the retrieval of data via APIs for e-commerce and major corporates. Helbich added that whilst PSD2 aims to increase competition in the services offered to consumers, in his experience this customer base is quite conservative and very cautious. “Consumers are most likely to tread carefully and with interest but will not go in head first, at least in the early days,” he said.
Helbich also commented on the importance of keeping the financial industry safe to reap the benefits of all the work that has been done to prepare for the future. “Our customers have deep trust in banks and we must ensure that the whole ecosystem is safe. With one major breach all of our good work on PSD2 would go to waste,” he said.
Our customers have deep trust in banks and we must ensure that the whole ecosystem is safe. With one major breach all of our good work on PSD2 would go to waste.
Piotr Helbich, Head of Cards and Payments at PKO Bank Polski
Piatek spoke about the benefits that SWIFT gpi will bring in the cross-border payments space, stating: “I think that gpi is a very important part of every bank’s strategy. It is a good way to improve the customer experience. The unique transaction ID and rich data will also significantly improve the reconciliation process. It’s a good step forward and we cannot hold back as our customers are asking for it.”
I think that gpi is a very important part of every bank’s strategy. It is a good way to improve the customer experience. The unique transaction ID and rich data will also significantly improve the reconciliation process. It’s a good step forward and we cannot hold back as our customers are asking for it.
Jerzy Piatek, Head of Payments, Citi Handlowy
The discussion closed on the topic of digital ledger technology (DLT) which Tochmański said he believes will be the future, but without the use of cryptocurrencies. “DLT limitations are currently a blocking factor though, so we are watching other central banks closely but not doing anything ourselves yet,” he said.
Towards a financial crime compliance utility
Financial Crime Compliance was next on the agenda, with a presentation by Thomas Preston, Sanctions & AML Solutions Manager, SWIFT. Preston started his presentation by looking at the main concerns that SWIFT hears from regulators and banks, and the reasons why, in a world in which financial crime is on the increase, where the costs of compliance are becoming prohibitive, complexity is growing, and regulators are becoming more and more demanding, a paradigm shift is needed - a shift that significantly increases efficiency and lowers costs, but not at the price of increased risk. This tipping point for utilities, Preston said, is also recognised by the regulators, who are open to the approach and by large banks, which strongly support it.
“Compliance is a licence to play but not an opportunity to win business,” said Preston, so utilities can play a major role. SWIFT’s ambition in the financial crime compliance area is to further expand its financial crime compliance product portfolio to build a compliance utility that will help banks to meet their ever-growing compliance challenges. He then ran through SWIFT’s product portfolio for financial compliance and described the series of solutions that SWIFT has developed to increase compliance standardisation and efficiency while better managing related cost and risk.
SWIFT’s strategy is to fully embrace the needs of its users. As a cooperative with more than 10,000 members, it adopts a comprehensive approach towards customer needs and wants its solutions to be available to everyone over time – from small customers to very large customers - exclusively in the cloud. SWIFT’s vision is to have three interconnected utilities to leverage commonalities and data between them and to collect information on how the services are used, and how they can be further improved.
SWIFT and Blockchain – threat or opportunity?
Charles-Raymond Boniver, Principal Standards Specialist, SWIFT, talked to the audience about the work that SWIFT has been doing with Distributed Ledger Technology (DLT) and what the next steps are. While the potential of DLT is undeniable there is still some progress that needs to be made for the technology to be viable for financial institutions, explained Boniver. He pointed to the need for more governance, an identity framework, compliance with anti-money laundering rules, scalability and cyber defence as some of the key requirements for DLT to be used over the SWIFT network.
While 2016 involved working with a number of SWIFT customers and start-ups on the viability of DLT, 2017 will be about developing proof of concepts via a cloud-based, DLT sandbox, he went on to explain. The first use case is for gpi. The SWIFT gpi DLT project is looking into the use of DLT for nostro reconciliation, with technology being used to provide a real-time view on liquidity, rather than end-of-day, using a ledger shared between the bank owning the nostro account and the correspondent bank servicing it.
Closing his presentation, Boniver said that SWIFT’s outlook for DLT is net positive. “We see DLT as an opportunity, not a threat. Messaging won’t disappear overnight, but it will be there for a long time and it will coexist alongside whatever new technology comes along,” he said.
We see DLT as an opportunity, not a threat. Messaging won’t disappear overnight, but it will be there for a long time and it will coexist alongside whatever new technology comes along.
Charles-Raymond Boniver, Principal Standards Specialist, SWIFT
To wrap up the very collaborative day, Christian Kothe, Head of Markets & Initiatives EMEA, SWIFT thanked all of the speakers for their contributions and the participants for their attention and engagement and invited them for a networking cocktail.