Navigating Sibos - Preview to Sibos Toronto 2017

Feature | 20 September 2017

Binyamin Ali looks at what you can expect from Sibos Toronto 2017 and the key developments in the industry over the last year

The Sibos Geneva 2016 show was stolen by one piece of technology that dominated every discussion around trade, payments and digitising processes, and no matter how hard any of the speakers tried, just could not stop themselves from going back to - blockchain.

Unfortunately for those showcasing their blockchain proofs of concept (PoC), as well as all the other technology companies that were demonstrating their products at the event (from solutions capable of detecting dual-use goods to those designed for treasury management), in the words of one banker, "the event became more of a tech-show rather than a banking conference".

Blockchain and digitisation

Nevertheless, the need to innovate persists and since last years' event, banks, fintechs, large commodity trading houses, and logistics companies have all invested in the technology.

"Digitisation of trade - including blockchain and machine learning - is gaining momentum and what this means in practice will continue to be discussed," Michael Lim, head of trade and supply chain at ANZ, told TFR as he looks forward to Sibos Toronto 2017.

"Compliance issues, such as financial institutions' obligations to prevent financial crime and trade-based money laundering continue to be hot topics. And we must not forget growth as we all look for growth opportunities both in emerging sectors and regions."

The momentum blockchain has gathered is best demonstrated by the number of initiatives that are all currently in the works, involving the likes of IBM, HSBC, Trafigura, Maersk and most recently, SWIFT.

"The key challenge now is not on developing a successful PoC,
but on how to transform a PoC to a real commercial usage that delivers client value," says Gautam Jain, global head, digitisation and client access, transaction banking at Standard Chartered.

Looking more broadly at the digitisation of trade, the 09:30 Thursday session on 'Digitisation in trade finance' and the 14:00 Thursday session entitled 'Building a new industry blueprint in trade and supply chain', will offer insights from banks and corporates.

For Michael Crowford, senior corporate treasury manager at The Mosaic Company, the challenge of getting the most out of the existing systems his company use is the most pressing issue to resolve at this years' event (Crawford will be speaking at the 13:00 Thursday session on 'Swift for corporates).

"Resolve is very challenging in the fast pace of change in technology. I'd like to see and understand the continued evolution
of banking communication through SWIFT, says Crowford.

"At Mosaic, we have taken many steps to maximize our SWIFT partnership, however we continue to find new ways to use it in concert with our ERP system."

Correspondent banking

The effects of banks' severing or markedly reducing their correspondent banking relations (or derisking) in more challenging markets was high on the agenda last year. Where the industry goes next will be a recurring point of debate in Toronto too (10:00 on Monday and 14:00 on Thursday for the two best sessions).

"Risk implies that you do some sort of assessment to decide if something is risky and yet, what we see is banks derisking their relationships even before evaluations are done, so that implies to us that there is also something else going on here," said Julie T Katzman, executive vice president and chief operating officer at the Inter-American Development Bank, at Sibos Geneva.

"We seem to have developed a kind of zero tolerance on that risk spectrum. I think that part of that is going on because people are operating in an environment where they are not quite sure what the regulators are going to do, and that creates fear and when you create policy out of fear, you tend not to optimise."

Banks have certainly cited increasingly stringent regulatory demands as the reason for exiting certain jurisdictions (although this has been called a 'convenient excuse' by others), but with regulation going nowhere, solutions need to be found to bring excluded markets back into the global financial sector.

SWIFT has heralded its global payments innovation (gpi) as the "biggest thing to happen to correspondent banking in 30 years", and the payments platform has certainly received positive feedback from the industry. Six Swiss international corporates (namely ASEA Brown Boveri (ABB), Nestle, Roche, SBB, Swiss Re and Wurth) issued a joint open letter on 18 July 2017 urging banks to adopt gpi to address the "overdue, essential improvement of the customer needs for higher cross-border payment speed, transparency, and end-to-end tracking."

Of course, a payment solution is not all that is required to update the correspondent banking model.

"Hopefully the market will be infused with fintech, backed by meta data that will reduce trade and other financing gaps," said Steven Beck, head of trade finance at the Asian Development Bank (ADB) (see the March issue of TFR for Beck's full interview).

"To get there, we need leadership to coordinate all the parties required to develop the technology, regulations, laws and other elements needed to realise our full potential. A shared vision for where we want to go and how to get there is critical. To ensure we marshal our comparative strengths to do just this, we need an open conversation."

Sibos is certainly the place to have this open conversation and respondent banks need some positive movement soon, because there has not been anywhere near enough done over the last year to tackle the effects of derisking.

Trade barriers

It was shortly before Sibos Geneva that the WTO (in June 2016) warned against the "trade-restrictive barriers" that had been put in place by G20 economies - between October 2015 and May 2016 a monthly average of 21 new restrictive measures were put in place. Along with the anti-globalisation sentiment that culminated in the UK's withdrawal from the EU and the election of President Donald Trump in the US, trade and the promise of trade has increasingly been used as a weapon over the last 18 months.

"The remarkable thing about the financial crisis is that we did not see a significant rise in protectionism. But all of sudden, we're starting to see the language of economic protectionism and economic nationalism, and here's the reason why. It's very simply because the relationship between trade and GDP has broken down," said Rebecca Harding at TFR's Cross Border Trade forum in March 2017.

"Now all of a sudden, to a politician, we've got to start defending domestic trade because trade is an important part of GDP. That's what all of our economists and all our experts tell us. So that's when the protectionist barriers go up and that's what we're starting to see."

Though an important issue for trade finance professionals, the rising number of barriers to trade will receive limited exposure at this years' event, but the 09:00 Monday session on 'Trumping regulation' and the 09:30 Thursday session on 'The retreat from globalisation' should offer some insights.

Sustainable trade finance

International finance institutions have really picked up the sustainable finance gauntlet over the last 12 months, providing over US$3bn in financing for renewable energy projects. Sustainable commodity trade finance deals have been very few and far between however.

"We must discuss sustainable trade. If trade banks are to bridge the trade finance gap and strengthen the long-term resilience of supply chains, they should raise the 'business case question' for sustainability to all stakeholders in the global economy," says Ruediger Geis, head product management trade, at Commerzbank.

"They must talk about evaluating the commerce they finance
by adding reputational risk criteria. The industry also needs to discuss adopting sustainability standards and principles, and transparent reporting."

It was at the Felaban Annual Assembly in November 2016, where Elliot Harris, UN assistant secretary general and head of the New York Office of the UN Environment Programme (UNEP), said one the biggest obstacles to greater levels of sustainable finance is the way risk in fossil fuels is assessed.

"Since we know that certain types of policy will change, we don't know when but the time will come, it is prudent to start taking those possibilities into account now. It is better to put money into the renewables now," Harris said.

"If we know all of this [that sustainable energy and products are the future], it is clear that an investment in an old technology is risky. There is a greater likelihood that this investment will lose its value. The way we assess the risk of old technology has to change."

Binyamin Ali is editor of TFR

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