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SWIFT solutions for Liquidity risk management
Catherine Banneux, Senior Market Manager, SWIFTBart Claeys, Product Manager, SWIFT
Liquidity risk management: The drivers
• Global financial crisis
• More stringent liquidity risk regulations
– Global: BIS • Principles for Sound Liquidity Risk Management and Supervision (2008)
• Principles for sound stress testing practices and supervision (2009) International framework
• Higher global minimum capital standards (9/2010)
– Europe CEBS• Guidelines on Liquidity Buffers & Survival Periods (2009)
• Guidelines on Stress Testing (CP32 – 2009)
– US Interagency policy statement on funding and liquidity risk management (03/2010)
– FSA - Strengthening liquidity standards (Policy Statement19/6 – 10/2009)
• Related regulations: regulatory pressure towards central clearing for derivatives(e.g. Dodd – Frank act in the US – 2010)
Liquidity risk management - October 2010
Regulatory systems and control requirements
Liquidity risk management - 9 September 2010
Riskmanagement
Management capability
Position management,both current and predictive
• Flow control (identify, prioritize, re-route, block)
• Predictive analytics measure daily in/outflows, anticipate intra-day timing
• Global versus local• Increased focus on intra day
position management for both cash and collateral
• Regulatory reporting (i.e. daily in/outflows by counterparty)
• Stress tests: identify unexpected movements, set-up early warning indicators, calculate forward exposure
Bottom up risk strategy implementation
SWIFT 2010 Survey
Source: SWIFT survey, June 2010. 255 treasury, liquidity and liquidity risk managers at financial institutions. Full survey report available from swift.com
Liquidity risk management - October 2010
80% of Financial Institutions are investing in improving liquidity risk management
SWIFT 2010 Survey
Liquidity risk management - October 2010
Liquidity Risk Management 4 Major operational issues
Need to improve
Intra-day visibility
Global position
Analytics & forecasting
Data integration
60% have less than 50% transactions reported
intra-day
68% have difficulty building timely firm-wide position
87% want more traffic data and business insights
Need for:- Standardisation (80%)- Integration services (57%)
• Overdraft charges• Intra-day credit lines costs• Oversized liquidity buffers• Costly emergency funding• Risk non-compliance
TO REDUCE
SWIFT Services that can support your liquidity risk management
SWIFT solutions
Intra-day visibility
Global position
Analytics & forecasting
Data integration
• Intra-day reports• Early advices• Underlying process
automation
FINInformWatch
Consulting services
Liquidity risk management - October 2010
The Dynamic Interdependent ECO SystemLiquidity Management
Liquidity risk management - October 2010
Providers of liquidity information.Some monitoring tools, some without...
Providers of liquidity information.Some monitoring tools, some without...
Users of liquidity information. Need info online« As it Happens » Global Financial Institutions
Brokers Corporates Fund Managers other clients Banks
RTGS
ACHSecurities MI
CSDCCP Retail MI
Interoperability of standards & systems should achieve better liquidity management
SWIFT supports integrated & real-time liquidity management
Liquidity risk management – October 2010
Predictive• Notifications• Monitoring reports
Management
• Notice to receive• Trade notification/ Trade leg statement
• Pending transactions report • Pending/ forecasted balance report• Margin report/ Collateral &Exposure statement
• Monitor all in/out payments• Confirmation of debit/credit• Intra-day cash transaction report (*)• Intra-day securities holdings report (*)
(*) Including underlying cash & securities collateral
Liquidity Function• Payment flow control : cancel, modify priority• Modify standing order• Get/return reservation• Liquidity credit transfer• Limit management• Collateral substitution
Major Flows - Examples
Current
Overview of the high value payment market infrastructures using SWIFT
Liquidity risk management – October 2010
AfricaAngola Algeria BotswanaCentral African States (BEAC) EgyptGhana Kenya LesothoMauritius Morocco NamibiaSenegal Sierra Leone South AfricaSwaziland Tanzania TunisiaUganda Zambia ZimbabweWest African States (BCEAO)
Asia PacificAustraliaFijiHong KongNew ZealandPhilippinesSingaporeSri LankaThailand
Central & Eastern EuropeAlbaniaAzerbaijanBosnia & HerzegovinaBulgariaCroatiaHungaryRomania
North AmericaCanadaUS (TCH)
Central & Latin AmericaBahamasBarbadosChileDominican Rep.GuatemalaTrinidad & Tobago Venezuela
Western EuropeDenmarkEBA ClearingTARGET2NorwaySwedenSwitzerlandUK
Middle EastBahrainIsraelJordanKuwaitOmanUAE (DIFC)
Live systems as of September 2010
Systems with advanced monitoring
Improvement of RTGS liquidity management functions: A key challenge for the industry
Liquidity risk management – October 2010
For the MI operating the RTGS • MI liquidity movements• Forced payments• Queue management • Gridlock processing• Increase liquidity against collaterals• Change the limit
For the RTGS Direct participant • Monitor their queues and accounts • Suspend or cancel their own payments • Change payment priority• Change alerts• Transfer funds between their accounts
SWIFT Intra-day Cash-Reporting Service: Standardised Data - Improved liquidity visibility
Liquidity risk management – October 2010
Intra-day Reporting• Structured, granular information on
underlying transactions, transaction date/time
• Based on threshold
• Within specific time ,event-driven or periodic
Position Management• Additional account and currencies
balances/projected balance
SWIFT (ISO) Business Standards to supportintra-day/real time information
MT Debit /credit confirmation(MT 900/910)
Interim transaction
report (MT 942)
Interim balance report
(MT 941)
MX Debit/credit Notification (camt054)
Account report (camt 052)
Available November 2011
NotificationToReceive (camt.057) NotificationToReceiveStatusReport (camt.059)
NotificationToReceiveCancellationAdvice (camt.058)
• Business practice development (rule book)• New Third party application certification
SWIFT Collateral Management Service: Standardised Data - Improved liquidity visibility
Liquidity risk management – October 2010
Existing Intra-day Reporting Messages•MT535: Holdings of underlying securities collateral
•MT 942 /camt052: Holdings of underlying cash collateral
Predictive position ISO 20022
New Intra-Day/Real-time Messages•Cross Asset Class Margin Calls
•Margin Disputes
•Collateral Reports
Available•December 2010 (pilot)
•March 2011 (live)
Current position
New ISO 20022 messages to cover•Trade management•Position & settlement management•Margin management•Default funds contribution for equities and fixed income•Live: May 2011
SWIFT’s solution for CCP to clearing member messaging: Supporting a consolidated view on positions
Liquidity risk management – October 2010
Key (SWIFT flows)Key (SWIFT flows)
ClearingMember
ClearingMembers
Accord matching
CSDs
CCP1 CCP2
CCP to settlement (ISO15022)
CCP to Clearing Member (ISO20022)
Accord to CCP (ISO15022)
Interoperability flows (under review)
Exchangeor MTF
Exchangeor MTF
SWIFT Copy Service - FINInformStandardised, Scalable Data – Global liquidity View
Liquidity risk management – October 2010
Any bank Branch FIN Inform user
HeadquarterCopy destination
MT 900,910, 942,535
MT103, 202
MT096MT103, 202
MT 900, 910,942,535
• Monitor payments & intra-day reports on liquidity positions sent to branches
• Guaranteed real-time copy delivery, confidentiality of sensitive information through partial copy
• SimpleNo action or development by sender or receiver
• FlexibleFull or partial copy, filtering on message content
SWIFT Integration consulting services
Liquidity risk management – October 2010
Assessment
• Assessing cash and liquidity business / operational processes
– Intra-day position management
– Predictive position management
– Payment flow control
• Assessing underlying related processes
• Guidance for potential process improvements in line with new liquidity risk regulation
Implementation
• Business layer – Formal modeling of cash & liquidity processes and data flows (by type of instrument)
• Middle layer - Technical model representation
• Messaging layer – Data mapping with SWIFT messages and integration with your applications
• Connectivity layer - Configuration, deployment and testing support
Watch Value Analyser
• Ordering possible now!• First data publication (December 2010)
Liquidity risk management – October 2010
Online insights into amount & currency
Allowing you to: • Monitor the total value per currency of your cash flows• Identify your SWIFT market share from a value or currency
perspective• Measure your counterparty exposure• Perform customer risk analysis
Historical view of my business
Liquidity risk management - 9 September 2010
Watch Value Analyser – Business insights
Monitor Your Business
“What is the regional breakdown of the
Payments value that you exchanged over the
past years?…
Which currencies?”
Yearly evolution of Payments business in Europe per currency
• Perform a similar analysis for each business line, country, entity…
• More to come: daily peaks, average daily peak with timing
Monitoring of the evolution
Liquidity risk management - 9 September 2010
Watch Value Analyser – Market insights
Track Evolution
“How is our market share in EUR
payments from France evolving?
…Is the market
evolving in a similar way?”
Market share evolution of EUR Payments business from France
• Perform a similar analysis for other business flows, currencies…
• Preliminary alerting options
Counterparty exposure analysis
Liquidity risk management - 9 September 2010
Watch Value Analyser – Customer risk analysis
Customer Risk Analysis
“Who are your main counterparties?
…What is the direction of
exposure towards them?
Counterparty reciprocity analysis per currency
Monitor counterparty exposure over time
Liquidity risk management - 9 September 2010
Watch Value Analyser – Customer Risk Analysis
2010/Oct 2010/Nov 2010/Dec 2011/Jan 2011/Feb 2011/Mar 2011/Apr 2011/May 2011/Jun 2011/Jul 2011/Aug 2011/Sep 2011/Oct
Trend Analysis
“With which entities do you
have the biggest exposure?
…Do you see any
trends?”
Tot
al E
UR
am
ount
• More to come: analysis of daily in/outflow per counterparty
Monthly evolution of exposure with counterparties
Q&A
Liquidity risk management – October 2010
?
More info?
SWIFT experts• On overall liquidity (risk) initiative Catherine Banneux
• Intra-day reports & copy service Catherine Banneux
• RTGS liquidity management Stéphane Ernst
• Collateral Management Banu Apers
• CCP to clearing member messaging Joe Halberstadt
• Watch initiative Bart Claeys
• Visit our stand• Main conference session - Liquidity risk management: The challenges at hand- 4pm, room 2
• Other related SWIFT@sibos sessions
– “The power of business analytics” – Tue 26 Oct, 17 pm
– “SWIFT for Payment Market Infrastructures: Efficient support to successfullyrenew payment clearing and settlement systems – Wed 27 Oct, 14 pm
– “Transforming Collateral Management: How bi-lateral and tri-party messages can mitigate counterparty and credit risk” – Thur 28 Oct, 11 am
PowerPoint Toolkit – 23 October 2008 – Confidentiality: restricted
Thank you
Liquidity risk management – October 2010