Foreword
The world’s economy is changing. How we do business, where we do it and how we finance it are shifting. Amid these changes, the theme of this year’s Sibos, Collaborative finance in a fragmented world is ever more relevant.
At Standard Chartered, we have set our sights on Tomorrow’s Banking. In this journey, we are actively partnering with financial institutions, fintechs, service providers, and most importantly, you, our clients. Together, we are forging innovative solutions to power the real economy of tomorrow.
Our conversations in Toronto, at Sibos 2023, delved deep into a range of critical topics, from digitalisation to sustainability, payment transformation to trade and supply chain finance innovations. In this special Sibos edition of Bankable Insights, you will find our perspective on these subjects and more. We hope this magazine inspires you as we come together to embrace Tomorrow’s Banking in an ever-changing world.
This edition is packed with takeaways from select panels we participated in at Sibos 2023 and other features tackling some of the most interesting topics and conversations explored by industry participants. From the importance of standards in creating a common language among stakeholders, and the balance between technology and trust, to the need to modernise the cross-border payment experience, and how banks can address emerging risk and compliance challenges as digital transformation disrupts traditional business models.
Across these discussions, a common thread emerged: the transformative opportunity for the global financial community to unite in driving forward a new era.
Tokenised assets have seen significant interest and experimentation in recent years. Pilot projects, such as Standard Chartered’s ground-breaking issuance of USD50 million of trade finance asset-backed security tokens on the blockchain, have proven the technology can revolutionise financial markets through increased efficiency, liquidity, and access.
However, there are still challenges that must be addressed before this potential can be fully realised – and the results of an audience poll during Sibos on the key barriers to adoption put regulatory issues at the forefront.
As a first step, the industry needs common standards and definitions for digital and tokenised assets, said Waqar Chaudry, executive director, innovation, and digital assets product at Standard Chartered.
“There is a lack of clarity around the distinction between cryptocurrencies and digital assets, and this is a deterrent to adoption. Some of the regulatory actions in the US, for example, have centred around crypto assets that were deemed as a security. We need to start standardising the language to better enable regulators to understand the market,” he said on a panel titled ‘Tokenisation: The future of securities or just a digital dream?’.
Because regulatory responses tend to approach digital assets from a domestic perspective as opposed to taking a cross-border approach, collaboration across borders will be important to drive forward consistent progress globally – and end-to-end use cases and value propositions must be demonstrated to convince regulators of the benefits.
“Regulators are not necessarily incentivised to unilaterally start drafting regulation on digital assets,” said Chaudry. “A tokenised security must have a legal framework at the national level, as well as at the supranational level where the treatment of the asset and the protections around it are very clear. Once that’s done, the regulators can then work on the activity around that, such as primary issuance, secondary market activity, settlement capability, and fungibility.”
Progress is already being made: when polled on which region was at the forefront of tokenisation, Sibos delegates overwhelmingly chose the Asia Pacific, where forward-thinking regulators are already engaged in global initiatives to support the development of this exciting space.
The trade finance industry now has a set of standardised APIs that could revolutionise how banks and corporates interact digitally. Developed by International Chamber of Commerce (ICC) and Swift members, including banks, corporates, fintech platforms, and service providers, the market-leading API industry standards provide a common language and format for exchanging crucial messages around bank guarantees as well as other instruments.
By establishing one way for these messages to be structured and transmitted, the standards aim to cut processing times significantly, enabling corporates to benefit from easier connectivity to any bank or platform supporting the APIs. The standards therefore promise to revolutionise how trade is financed globally, enabling much higher levels of straight-through processing, connectivity, and optionality.
Early adoption is underway, but education will be key to drive uptake more widely, as Samuel Mathew, global head of documentary trade at Standard Chartered and ICC Banking Commission steering group vice-chair, explained to the gathered audience at Sibos.
“Now that Guarantee API standards have been announced, there’s an element of educating people what they entail. There’s also an element of the technical departments of corporates and banks digesting how they are going to be implemented,” he said, adding that he hopes to see key players using the standards within 6-12 months which would drive further take-up.
Once the new Guarantee APIs are commonly used, the industry will look to expand standardisation to other areas like letters of credit and potentially whole trade lifecycles and start speaking a common language. However, as Mathew pointed out, all stakeholders must be involved when deciding next steps, following the blueprint laid out by the ICC’s continued collaboration with Swift and the wider trade finance community to create a future-ready digital trade ecosystem that is anchored in common standards and interoperability.
Faster, more reliable cross-border payments are a vital component in supporting the growth of digital commerce and an increasingly globalised economy. However, making payments across borders as fast and seamless as domestic transactions remains a longstanding challenge for the global financial industry.
Speaking at an industry session during Sibos, David Rego, global head of payments at Standard Chartered outlined how factors such as inconsistent data formats, liquidity issues, and complex regulations in different markets have contributed to delays and inefficiencies in the cross-border payments process.
“While regulations aim to reduce risks, they can add friction to the payments lifecycle if not managed well,” he said, adding that by removing these pain points, banks can strengthen their relationships with corporate clients undergoing digital transformations and better support new business models.
New technologies and industry partnerships are helping pave the way for improved experiences. Standards like ISO 20022 allow richer data to travel with payments, addressing past problems with fragmented information.
Meanwhile, services enabling pre-validation of critical payment data let banks resolve issues proactively – reducing the need for clients to come up with workarounds. “For example, in India years ago, we learnt that some clients were doing a one-rupee transaction to validate the account number and name,” said Rego.
As customers increasingly demand real-time payments globally, payments players delivering speed, transparency and low costs will gain competitive advantages, while cooperation across the industry can help all players keep pace with evolving client expectations.
“Addressing legacy banking platforms and the lack of standardisation has been a major barrier to adopting new solutions,” said Rego. “Collaboration is required to help all banks modernise. As global banks, we need to create a bridge for smaller financial institutions to participate, leveraging tools such as Swift’s Transaction Manager to seamlessly work together – so every payment can flow faster and further.”
From SME and e-commerce transactions to remittances, low-value payments are essential for inclusive economic growth, and demand for these small-ticket remittances is growing. Low-value payments across the Swift network are increasing by 6 per cent each year, while, during an industry session at Sibos, Swift says it expects cross-border SME payments – already a USD8.5 trillion market – will rise by as much as 5 per cent a year over the coming years.
While new entrants to the space have disrupted traditional financial institutions that have relied on slow legacy rails, the landscape remains fragmented, and when polled by Swift, four-fifths of consumers and SMEs said that they would prefer to use their bank if it matched the ease, speed and cost of the alternative offering.
Progress is underway as the global banking industry ramps up efforts to modernise how small-sum international payments are processed. Speaking during Sibos, Rajesh Vedantham, head of cross-border payments products at Standard Chartered, explained how real-time domestic payment networks are being tapped for their potential to speed up cross-border flows, while initiatives such as pre-validation and mutualised screening utilities aim to streamline compliance checks.
“We are working towards a holistic approach to improve the client experience along the end-to-end low value payment chain,” he said. “By packaging all of these solutions together, we can offer a frictionless and seamless payment experience for our clients as well as our financial institution clients’ clients.”
The evolving payments landscape presents new challenges for financial crime compliance. As digital payments grow faster and more interconnected, with new technologies like CBDCs and cross-border payment rails in development, the ability to monitor transactions and screen for sanctions risks or prohibited entities in real-time is becoming increasingly difficult.
At a Sibos session titled ‘Instant, atomic, digital: How do you solve a problem like sanctions?’, Stevenson Munro, global head of sanctions compliance and financial crime emerging risk at Standard Chartered, outlined how siloed operations cannot keep pace with near-daily changes.
“Compliance requires looking beyond any single organisation,” he said. “The types of risks and prohibitions have become much more complex, and this has a direct impact on how we must think about delivering our products in a compliant way.”
Where institutions once focused on sanctions screening within their own walls, the complexity of risks crossing multiple jurisdictions now demands greater collaboration.
“No bank can combat financial crime and comply with sanctions effectively unless it’s able to build a wider perspective of what's happening. We need end-to-end transparency. And that requires every participant end-to-end to be insisting on that transparency,” said Munro. “This will require partnerships and it will require banks to engage in the development of new technologies to ensure that compliance is built in as part of the design, and not as a bolt-on after the fact.”
As new payment methods develop with promises of speed and connectivity, open dialogue, and practical collaboration on challenges at the convergence of financial innovation, crime and geopolitics will be needed to increase the effectiveness of risk management – ultimately benefitting public sector participants, private sector stakeholders, and society at large.
