Strike swiftly

The financial services industry is facing many challenges, and the SWIFT Business Forum wasted no time in cutting straight to the heart of them

Tackling cyber security, disruptive technologies and the dreaded topic of politics, SWIFT’s Business Forum London went straight for the vitals of financial services, putting the pressure on big industry names and delegates alike, and striving to sort the complex traumas from the flesh wounds.

And the opening plenary panel did not allow for any gentle warm-up, with attendees immediately urged to take a more holistic and communicative approach to tackling cyber crime.

Jean-François Legault, global head of cyber security operations at J.P. Morgan, warned that the threat landscape has changed.

Malware is targeting wholesale platforms, and criminals are going after higher-value payments, where there is more yield on the crime, he said.

Legault suggested that at J.P. Morgan his focus is on helping the business to innovate and approach risks in a different way. Analysts, who are usually focused on technology and security controls, must also understand the payments space and communicate with those who work within it.

The future in terms of cyber security, he said, is to bring those resources together to create an environment of controls that will “address the risk holistically”.

This is “an evolution”, as the industry moves towards “better communication” and “integration in the business”.

Another panellist, Baroness Denise Kingsmill, chair of the board at start-up bank Monzo, added that this is the kind of culture that can be built in to such start-ups.

Monzo’s business and cyber security teams are within “shouting distance of each other”, she said, adding that that bank is very “fleet-of-foot” in that respect.

SWIFT CEO Gottfried Leibbrandt went on to suggest that many cyber security challenges arise because “everything is connected to everything”. Cyber criminals exploit the ecosystem, looking for weak points in the whole chain, he said, and so the response should be for the entire ecosystem to work together.

The industry should present an in-depth response with “multiple lines of defence”, accepting that sooner or later a breach will occur, and having processes in place to identify and stop malware when it does.

This does not only involve fixing the weakest link, Leibbrandt said, but taking a full end-to-end view.

While financial technology may be part of the solution here, another panel suggested that, while fintech may change the way the financial market work, no solution will provide the “wonder cure” for all ills.

Mark Beeston, a partner at Illuminate Financial and panellist in the conference’s securities stream, said: “We are at a moment of generational change in terms of capital market infrastructure.”

He named the main four drivers for change as cost, control, capital and compliance, and added that, if institutions do not address these areas, they will be at a competitive disadvantage.

Gavin Wells, head of Europe at Digital Asset Holdings, added, however, that fintech can provide this change, but only if providers respect the financial markets, working with existing regulation in a “prudent and steady manner”.

Fintech is not a panacea but could act as an enabler, he said.

A poll asked attendees at the session whether they think technologies such as blockchain, artificial intelligence and machine learning are a solution looking for a problem or transformative for business.

Some 50 percent of respondents said fintech will change the way we do business, while 25 percent said they consider it a solution looking for a problem, and 25 percent called it “evolutionary, not revolutionary”.

Dirk Schrade, deputy head of the department of payments and settlement systems at the German Federal Bank, said it may be significantly affected by fintech as “we have a lot of functions”.

The central bank must consider how changes will affect business and what will be best for financial stability.

Schrade argued that these technologies may offer potential, but should not be considered as the “wonder cure” for all problems.

Currently, it can be difficult to see concrete consequences of technological change, he said, with many innovations having not yet moved past the pilot phase. The bank tries “to base our considerations on solid ground”, he said.

Schrade added that, while technology may not be the be-all and end-all, it is an “important catalyst of change”, and that not just one innovation, but a mix of new technologies could shape the future.

Elsewhere, a session in the compliance stream addressed the changing geopolitical landscape and how this is likely to affect financial crime compliance strategies.

Attendees to the session identified the Trump administration’s approach to regulation as their biggest concern with regards to financial crime compliance, however, the panel of experts suggested that there are bigger fish to fry.

The US, and President Donald Trump’s approach to regulation and deregulation was highlighted as the biggest concern by 34 percent.

This was followed by the Middle East conflict and issues around Syria, Iraq and North Africa, selected by 19 percent of the audience, and the UK’s exit from the EU, named by 13 percent.

Issues around weapons of mass destruction—specifically in North Korea and Iran—and “Eastern front tension”, that is the situation with Russia in Crimea and the threat of Russian hacking, were each named as the biggest concern by 11 percent of respondents.

Finally, China’s search for “predominance in Asia” was considered the biggest geopolitical concern by 9 percent of the audience.

Jennifer Shasky Calvery, global head of financial crime threat mitigation at HSBC, said she doesn’t see the US as a big issue at the moment.

Currently, the US government is committed to using sanctions and anti-money laundering as a means to political leverage, she said.

Rather, Shasky Calvery drew attention to the conflict in the Middle East, suggesting that this creates new know-your-client challenges with regards to looking out for the possibility of clients becoming radicalised.

She also noted that, for HSBC specifically, which has huge operations in the US and Asia, a difficult relationship between the US and North Korea “starts to raise some pretty complex questions” around financial crime responsibilities.

From a European perspective, Olivier Kraft, a research fellow at the Centre for Financial Crime and Security Studies of the Royal United Services Institute, said that, despite the Brexit negotiations, there is a “strong political will” among the “divorce partners”, to limit any negative impact on the fight against financial crime.

Kraft also suggested that good will in this respect is not enough, and questioned whether it will possible for the UK to maintain its current level of cooperation. There are likely to be legal challenges in this, he said.

Another speaker, Justine Walker, director of financial crime at BBA, added that the UK is currently tied to the EU framework, including the fourth AML directive. While the UK may see a change in priorities and enforcement, changes in regulation around financial crime compliance will likely be minimal, and will take some time to enforce.

“If anything, we’ll see more action,” Walker said, suggesting that the UK may strive to catch up to the US in terms of regulatory enforcement of financial crime compliance, including more focus on white-collar crime, more enforcement and a generally more active regulator. The day’s final keynote speak also focused on the Brexit negotiations, with former head of the Conservative party and former remainer Lord William Hague extolling the virtues of Brexit to the financial services industry and arguing that, as long as the industry remains open for business, it will remain strong.

But attendees were not so easily convinced. A poll of revealed that 60 percent of respondents believe the UK financial services industry will merely survive outside of the EU, while 40 percent believe it will thrive.

In his speech, Hague reminded delegates that a Brexit deal will be based on the “overall architecture”, saying “there isn’t going to be a brilliant deal for financial services and a terrible one for the car industry, or the other way around”.

The EU is strongly opposed to a sector-by-sector outcome. The overall architecture means ending free movement as it now exists, and therefore leaving the single market, and this will necessarily apply to financial services.

While there should be concern about any threat to the UK’s industry, Hague said: “it would be a mistake to be defeatist about this.”

There is “critical mass” in UK financial services that cannot be easily replicated elsewhere, he said, adding that this is “one of the most sophisticated and liquid markets in Europe”.

Hague said: “The key for the UK will be remaining open, whatever the outcome of the negotiations, to talent and business and markets from all over the world, while maintaining a highly competitive environment at the same time.”

If there is a free trade agreement between the UK and the remaining 27 EU member states, there is a chance of a deal on financial services that would allow for broadly equivalent regulatory regimes.

If not, however, if the UK remains open to the rest of the world, then it could benefit in other ways.

“In the event of no deal with the EU, then it would be open to the UK to adopt a different model focusing on preventing systemic risk but also on ensuring that Britain has a highly competitive model drawn on best practice from around the world.” AST

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