SWIFT Operations Forum Americas

Banking Initiatives in focus for 2013

March 5, 2013

Agenda

• Introductions

• Industry initiatives

– Fed Perspective

– PMPG Viewpoint

• SWIFT update – RMB tracker

– SWIFTRef

– EBAM

– Trade/BPO

• Q&A

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Introductions

• Roy DeCicco, Managing Director, Corporate and Investment

Bank, Industry Issues Executive, J.P. Morgan

• Richard Dzina, Senior Vice President, Wholesale Product

Office, Federal Reserve Bank of New York

• Sean Rodriguez, Senior Vice President, Financial Services

Industry Relations, Federal Reserve System

• Stacy Rosenthal, Senior Business Manager, SWIFT

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Federal Reserve Financial Services – Strategic Direction

SWIFT Operations Forum – Americas 2013

March 2013

Federal Reserve Financial Services Strategic Direction

• Continuity with the past – Maintain our longstanding financial services mission: to foster integrity,

efficiency and accessibility of the U.S. payments system

– Continue to act as a major service provider to the interbank market

– Continue to collaborate with industry and emphasize innovations in electronic payments systems

• Shift in emphasis for the future – Additional focus on improving the efficiency and effectiveness of

payments system for end users (businesses and individuals)

– Seek opportunities to speed clearing, improve transparency of payment information and enhance security of payments from end-to-end

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Federal Reserve Financial Services New Areas of End-to-End Focus

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• Maintain and enhance FRB network security

• Enhance understanding of end-to-end security

• Collaborate and promote industry best practices

Safety and Security

• Develop solutions to enhance payment speed

• Understand market demand for faster payments

• Continue migration of paper to electronic Speed

• Develop solutions to promote efficiency

• Understand needs for and barriers to efficiency

• Promote standards to improve efficiency Efficiency

Federal Reserve Financial Services Industry Collaboration

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Payments users

select the most

effective and

efficient payment

method based on

their needs.

The Federal Reserve

Banks develop

services that align with

industry initiatives and

end-to-end needs.

Payments industry

stakeholders work

collaboratively to

develop

innovative and

reliable solutions.

Federal Reserve Financial Services Initial Industry Response

• Strong agreement that assessing and improving the effectiveness of payments should explicitly include the end user experience. Call for collaborative and inclusive approach and strong Fed leadership to help define and achieve the future vision.

• Improvements in interoperability, affordability and transparency of payments will lead to improved speed and efficiency.

• Interest in strategies to bridge the U.S. payments system from today's reality to tomorrow's vision (e.g., electronic payment orders (EPO) and directories).

• Smaller financial institutions value Fed leadership to ensure broad accessibility and benefits for participants of all sizes and capabilities.

• Larger banks and organizations supportive of strategy as well, with strong interest in collaboration on emerging payments and security issues.

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Banking Issues in Focus for 2013

Wholesale Service Perspectives

SWIFT Operations Forum – Americas 2013

March 2013

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Fedwire Modernization Overview

• Strategic decision to move

toward distributed

computing – Legacy applications developed in

the 1980s

– Lack of flexibility/long lead times

for changes

– Difficult to provide new

services/functionality that integrate

well with internet interfaces

– Support for legacy systems and

environment becoming more

challenging

• Fedwire Modernization consists

of 4 inter-related programs

– Custom development led by FRBNY

Funds Modernization

(2014)

Ancillary Systems &

Decommission (2015)

Infrastructure Projects (2013)

Securities Modernization

(2015)

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Prospective Fedwire Funds Service

Enhancements and Initiatives

• Evaluate opportunities to optimize the efficient use of liquidity

by Fedwire Funds participants

• Enhance the Fedwire Funds service as a platform for

conducting cross border transactions

• Consider opportunities to expand the use of net settlement

capabilities

• Drive adoption of recently introduced payment notification and

extended remittance information features

• Enhance information services to Fedwire Funds participants as

complement to transaction services

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• Evaluate opportunities to optimize the efficient use of

collateral by Fedwire Securities participants

• Expanded operating hours?

• Enhanced receiver controls?

• DVD as supplement to DVP functionality?

• Enhance capacity of issuers to market new instruments and

products

• Enhance account structure and sub-account structure

features to provide Fedwire Securities participants greater

flexibility in management of activity

• Enhance information services to Fedwire Securities

participants as complement to transaction services

Prospective Fedwire Securities

Service Enhancements and Initiatives

SWIFT Operations Forum – Americas 2013

March 2013

Roy DeCicco

Managing Director

J.P.Morgan

Global Market Infrastructures

Payments Market Practice Group – Co-chair

B A N K I N G I N I T I A T I V E S I N F O C U S F O R 2 0 1 3

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English_General

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Agenda

DFA 1073

HVP ISO 20022 Variant

Non-Latin Character Sets

ERI/Payment Notification

RMB Globalization

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DFA 1073

PMPG, in partnership with TCH Association, published a white

paper in October 2012 – www.swift.com/pmpg

Market Practice Guidance paper is still being finalized – missed

8th February deadline to retain the CCT codeword in the

Standards Release Guide 2013

Implications -

Reference to CCT code in field 26T deleted from updated SRG

User Hand Book will not reference the code or the MPG

26T allows for any 3 character code, with bilateral agreement

Market feedback – interest in using field 72 for this code

A baseline MPG paper will be published before the 1073 rules

are effective. Actual cross-border payment issues/practices,

where not addressed, will be included in updates to the paper.

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HVP ISO 20022 Variant – as markets develop roadmaps for 20022 implementation

PMPG and SWIFT Standards joint sponsorship –

payments ecosystem gap analysis

Focus on global interoperability – guidelines for HVP

with a cross-border leg

Use the like-for-like principle – to map an ISO formatted

payment message into a MT 103

Europe – T2 and EBA/EURO1 - are now debating the

variant message as a practical solution for 2017

U.S. should follow this debate and the outcome – what

will the format for incoming payment instructions from

Europe be after Big Bang in 2017?

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Non-Latin Character Sets

PMPG published a white paper in June 2010 –

proposed a 5 step process -

Agree on the characters and tags/fields to be used

Must be able to screen these characters

Must transport characters to next party electronically

Or - develop guidelines for translation or transliteration

Consistent definition across business domains

SWIFT DP in December 2012 did not receive

support from the industry

Opportunity for the broader SWIFT community to

work together on a way forward 4 S

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ERI/Payment Notification

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PMPG has solicited global industry interest in

both a remittance data repository and a

payment notification service

Enough interest to keep it on our radar

screen

In 2013, the PMPG will work with the CAG

and markets that have developed solutions –

e.g. U.S. for payment notification – to

determine what cross-border practices are

feasible and should be put forward for further

discussion

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RMB Globalization

China International Payments System (CIPS) -

opportunity for the PMPG to work with local market

participants – HK and potentially China - in making

recommendations for efficient cross-border payment

practices

Offshore CNY Cash and Trade Working Group paper

includes PMPG comments and will be submitted to

PBoC officials

Offer to the PBoC for the HK WG and the PMPG to

provide additional input as message standards are

developed for CIPS

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The U.S. Representatives to the Payments Market Practice Group

Roy DeCicco – JPMorgan

George Doolittle – Wells Fargo

Michael Knorr - Citibank

We welcome your input –

USNG/C&T Sub-committee

FRBNY Wholesale Customer Advisory Group

TCH CHIPS Business Committee

BAFT-IFSA Payments Committee

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SWIFT Banking Initiatives Update

RMB Tracker

What is it?

Monthly reporting and

statistics on renminbi

(RMB) progress

towards becoming an

international currency.

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RMB Tracker

January

• Chinese RMB payments fail to take

off in the United States

• In December, 95.5% of the

payments value between the United

States and China/Hong Kong was

still performed in USD, with only

0.3% in RMB

• RMB remains world currency #14

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Who’s the USD-

correspondent

of Afriland Bank Is this BIC

still active?

Reference data

Your needs..

Which BIC

belongs to

this IBAN?

What is the

national

clearing

code of

Bank of

Taiwan ?

Is Stuttgart

Bank SEPA-

ready ? Which IBAN and

BIC correspond

to my suppliers’

local account? What is the

BIC of

Banco

Real?

What do i

need to

build a Bank

master file?

Is this IBAN

valid?

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SWIFTRef Utility

Background

Beneficary’s BIC

Beneficiary’s acc.nb

Intermediary BIC

Intermed. acc. nb

Intermed. bank code

Payment system X

FIN service Y .......

ISO

SSI

SSI

sort

c.

SWIF

T

BA

EPC EBA

SSI

Beneficary’s BIC

Beneficiary’s acc.nb

Intermediary BIC

Intermed. acc. nb

Intermed. bank code

Payment system X

FIN service Y .......

ISO

SSI sort

c.

EBA

SSI

SSI SWIF

T

EPC

BA

Today

You maintain the data

Tomorrow

SWIFTRef Utility

• Yesterday

• you needed to worry about maintaining

payments reference data from different

sources.

• Today,

• with SWIFTRef utility,

• get consolidated data

• through a single channel

• At your choice:

• the delivery method fully automated or

manual

• the frequency

25

Distribution channels

5 channels available

26

data feeds

(daily

updates)

web services

(daily

updates)

internet

internet

File download

(monthly updates)

internet

SWIFTNet

FileAct

File delivery

(monthly

updates)

internet

manual query

tools

(daily updates)

SWIFTRe

f

utility

EBAM – Electronic bank account management

Current status

ISO Messages live and in production over FileAct & proprietary

channels

Adoption is still at early stages

Focus is on industry operational readiness

Vendor consolidation occurring

Corporate and FI demand to implement

for efficiency gains and to support compliance

requirements

Digital signing (3Skey) and account report are

main features of interest

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3SKey usage scenarios

Multi-banked Corporates

A single 3SKey personal

token to reach multiple banks

over SWIFTNet, proprietary

or domestic channels

Use of 3SKey to

strengthen security in

internal and external

approval workflows

(e.g. EBAM)

Approvals

Strong 2-factor 3SKey

authentication in on-line

services

User Authentication

Replace or enhance

proprietary solution

with the 3SKey PKI

service

Proprietary Security

3SKey as a standard

and shared market

solution amongst banks

Communities

Use of 3SKey

for individual approvals and/or

signatures on SWIFTNet or

proprietary channels

Market Infrastructures

3SKey

Roll-out status

65 countries (**)

32 subscribers

+2,000 corporates (*)

15,000 treasurers

27,000 tokens

50 vendors

(*) Estimated based on # of user groups (**) Source: SWIFT for Corporates Bank Readiness Certification Programme

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SWIFT’s expanding supply chain portfolio

Increased risk for

the buyer

Financing

instruments

SWIFT

portfolio

Increased risk for

the seller Seller

Buyer Seller

BPO

XML

BPO

MT101 Corporate

to bank

Bank

to bank TSU

XML

Open

Account Advance

Payment

Collections

FileAct

Collections

L/C

MT798

L/C

Guarantees

80%

New

New

New

L/C

MT7xx

Collections

MT4xx

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The Bank Payment Obligation (BPO) A new alternative instrument for trade settlement

A BPO is an irrevocable

undertaking given by one

bank to another bank that

payment will be made on a

specified date after a

successful electronic

matching of data according to

an industry-wide set of rules.

New ICC Uniform Rules for BPO

Target adoption: April 2013

Designed to complement and not

to replace existing solutions

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ICC Uniform Rules for

Bank Payment

Obligations

Rules and tools: past, present & future

Rules

Inter-bank

Infrastructure

Standards

ICC Uniform Rules for

Bank Payment

Obligations

Trade Services Utility 2.0

Service

Description

AVAILABLE NOW Q2 2013

FIN

MT700

TSU

TSMT TSMT

ICC UCP 600 SWIFT TSU BPO ICC UR BPO

TSU

Q&A

?

Thank you!

34