
GC: What led to expanding the compliance services team?
LM: Clearly we see a lot of appetite from our members of SWIFT to step up a bit in the field of financial crime compliance. It’s a combination of attracting talent to SWIFT…and a need to invest to deliver new products. So we are doing exactly that…This is the beginning, not the end. It’s going to be a journey for us, but we are really committed to significantly increasing our reach in that field.
GC: What types of products are you working on in this area?
LM: In terms of key products, we have a number of which that are live. The two main ones are Sanctions Screening, where we have just reached the threshold of 200 users in 85 countries. That’s a service meant for relatively small financial institutions where we help them do the screening of their transactions. For large banks, we launched almost two years ago Sanctions Testing, where the whole idea is not to do the screening for them but to help them test the effectiveness and efficiency of their own filters. We really help them assess the quality of their filters and processes linked to that, and at this stage we have 12 very large financial institutions using that tool.
In terms of new products, there are two important ones. One we are launching next week called compliance analytics. There what we try and do is help a financial institution get a much more comprehensive view on all its activities on the SWIFT network. A big challenge which financial institutions face today is to really get information from all their subsidiaries and analyze that in a kind of central place. At SWIFT, the advantage is having centralized information; that’s the way SWIFT is organized. Therefore, we can help a bank get a picture of their exposure across all their subsidiaries, across all their correspondents or counterparties, and across all currencies. And also we can put that in the context of what we see at the total industry level. As one example for financial institutions, assume you want to do a country review of say Algeria, to take one example from the World Cup. You would see with the tool that you are receiving X transactions from Algeria, that those transactions are coming to you through four of your subsidiaries in Paris, London, New York and Zurich, for instance, and that those transactions hitting your four subsidiaries are actually coming from five different counterparties in all of those countries. So you would be able to see all of that in one single tool. So that’s information about yourself, and that information in terms of context is that you could also see, taking the example of Algeria: how big am I in Algeria for euro or U.S. dollar transactions versus the total market? Is there a risk that I could soon become the last man standing in that corridor, or can I guess that there are many players given my market share in that market? So it’s a combination of your information and the context using industry total numbers.
The interest is very strong because the difficulty in collecting information for financial institutions is not to be underestimated. A lot of them have gone through acquisitions, there are many specific data privacy laws in some countries that make it difficult to exchange information, and in some cases they don’t own the majority of the subsidiary. So a lot of that makes it quite complex for a financial institution to get a full comprehensive view on all their activities. This is a really important development, and we see a lot of appetite from banks, coupled with the fact that we have invested significantly in visualization tools. So we make it extremely easy for a financial institution to spot unexpected patterns.
And then the next initiative that is very important is the Know Your Customer (KYC) registry. At this stage, we’re focused on correspondent banking. We said we would deliver this service by the end of the year, and we are on track. Actually, we have more large institutions working with us than anticipated. We have added six large institutions in the first phase of the project, and we now have 12 of those working very closely with us. The momentum is very strong; there is an obvious need. To look at what’s happening as well on the security side, you see the same needs. It’s really a major concern for all financial institutions, and you see a number of initiatives happening in the market. We have decided to start with correspondent banking, which we know best at this stage.
GC: You had mentioned at an earlier phase of the KYC utility development that there could be some consolidation among various organizations’ solutions in order to reach a broader base. Do you still think that will happen?
LM: I still believe it will happen. The premise of a registry is basically you would want to make sure, as a financial institution, whether you’re a correspondent bank or a fund or another kind of player, you ideally want to give your information to one or two kinds of central repositories that you trust and have that information leveraged from those registries. If you have 10, 15, 20 different registries and you need to provide your information to 10 or 20 of those, I think you undermine the whole logic behind having a centralized solution. You undermine the scale economies as well. To me, the scale economies are important because if you have fewer dedicated players in the segment, then those players can really get specialized and get much better at checking the quality of the information provided by everyone. I would rather invest money and time to further check the quality of the information submitted by each bank and made available to the rest of the community, as opposed to multiplying the number of initiatives. That being said, don’t get me wrong. Multiple initiatives in the early stage of the market is very good from a creativity and innovation perspective, but over time, I would expect some consolidation.
GC: How long do you think it would take for the market to consolidate?
LM: It will take I think 2-3 years for the markets to really decide which are the best solutions. As I said, there could be a few, but not 10 or 15. There will be some experimentation and then people will pick the best solutions.
GC: How would SWIFT deal with consolidation? Would you look to partner with or acquire other utilities?
LM: We are committed to providing solutions to our community, but that doesn’t mean that SWIFT [needs to] be the one building the solution or controlling the solution. I think if we feel comfortable that other players are providing the service that the whole community needs, then there is no point for SWIFT to further get into that or buy those companies if the market is well served by other companies without issue. If we think that either some needs are not covered or that there are ways to make it better, then yes, it’s possible SWIFT may decide to step up its portfolio including other acquisitions of companies in that field.
GC: What else is the industry focusing on around compliance and cybercrime?
LM: We’re seeing a lot of folks spend on effectiveness by which institutions are really trying to ensure they’re catching the bad transactions and the bad guys, etc. We’re starting to see that the cost/benefit ratio is huge and that therefore there’s significant desire from these players to work on efficiency, and that desire is growing. We see KYC sanctions and AML are hot topics. We increasingly see FATCA as being a very important topic as well and whatever evolution that it could take in other countries. And interestingly as well, something that the world correspondent banking community has been the center of a lot of attention, and that is happening for many financial institutions, we’re starting to see much more discussion in the security field across all dimensions. I think the industry is progressing to the conclusion that yes it’s important to monitor the control of cash through the correspondent banking activities, but also the transfer of securities assets is quite relevant as well. And while the regulation is less clear on what is expected of securities assets, discussions are picking up on that, so I would watch that space in the coming quarters, because I would expect more activity there. And then one last trend we’re starting to see is increasingly the topic of de-risking being talked about. Clearly de-risking is happening. We see banks getting rid of some counterparties which they believe are not as suited as they’d like them to be. And you link that to the growing discussions around the unintended consequences of de-risking, which is increasingly being talked about in forums. So are we getting to the exclusion of some countries or some kinds of players from the financial community as an unintended consequence of further regulation and de-risking that is happening?