I had the pleasure of chairing at three conferences in the last month – ACTS/ATC in Singapore, SIBOS in Geneva and EuroFinance in Vienna. When I look through my notes, my head spins. My only conclusion is that we are at a confusing point. Here are some observations.

Regulatory tsunami

A major theme at the recent EuroFinance conference in Vienna was exponentiation – change has become exponential in line with Moore’s law. Feeding on exponentiation (and the murky mistakes of our simpler past), we have exponential growth of regulation. One source cited 400 new regulations per day affecting global banks. The regulations get more complicated so we need more complex systems and processes to work within and around them, then the regulators combat complexity with more complex regulations … hard to see a happy ending.

And from what the experts say we are barely in the warm up phase! “We are drowning in basics” set the tone for the corporate panel at SIBOS. No tech hype, no market gee-whiz, all we want is visibility and standards.

SWIFT for Corporates since 1996

At the same conference SWIFT for Corporates celebrated being 20-years old. So, treasurers who still think SWIFT is some new-fangled bleeding edge solution might need a re-think. SWIFT itself is 43 years old.

SWIFT’s target is to double corporate membership to 3,000 by 2020. On the one hand that sounds suitably exponential. On the other hand, it should be more like 30,000 corporates. This would make sense for all players. Banks created this utility (SWIFT) in 1973 to reduce costs and risks, and it has served them well; now they need to use it to save costs and risks in corporate connectivity. Corporates complain about lack of transparency and standardisation; SWIFT is the ideal solution.

SWIFT is also progressing its Global Payments Initiative (GPII) which addresses concerns about transparency and visibility by guaranteeing same day crediting of funds, up-front fee visibility, and payment tracking through the correspondent network. GPII has the advantage of leveraging the incumbent solution; rivals such as Ripple aim to bring these benefits with a clean slate.

At least at the moment. Plenty of fintech and bank owned challengers are working on new payment technology and maybe blockchain in some of its variants will take over the financial world (that is probably a subject for another article).

I had assumed that all central banks are revving up on blockchain, but I learned that only the Bank of England and the Monetary Authority of Singapore have specific fintech teams. Both countries are also front runners in implementing regulatory sandboxes for fintech.

KYC

We seem to be no closer to solving the KYC mess, and in fact the problem is getting worse. Corporates complain – banks ask for much more information than they need, each bank (and sometimes branch and/or department) dreams up its own requirements, it can take a year to change signatories, “you cannot automate a broken process”.

Banks don’t like unhappy customers but are terrified of massive fines if they don’t comply with regulators’ nebulous demands. Regulators want to avoid KYC becoming a box ticking exercise, so they leave the details to banks – which means banks dream up their own boxes to tick.

KYC is of course necessary, but there has to be a smarter way. Currently we are imposing a huge burden on the real economy, wrapping legitimate businesses in red tape, and barely affecting the criminals and terrorists.

Singapore is showing pragmatism in building a multi-bank KYC platform. Hopefully, they will align and share their solution with other countries.

Trade

I had an interesting experience at SIBOS when I innocently asked what is the capital weighting for letters of credits. After all, SIBOS is an assembly of 10,000 transaction banking experts, so they ought to know – right? Wrong! A really helpful board member finally provided me with the correct answer – which is first “it is not clear yet” and second “it depends”.

Trade remains profitable for banks despite being paper bound. Trade is way behind its digital potential even though there are several working solutions.

Being a big trade hub, and needing to do more with less, Singapore has also launched a blockchain based trade solution to speed the paperwork around all those containers. Singapore processes the physical containers within twelve hours. It makes no sense for the paperwork to take days or weeks.

Fintech and regtech

Fintech is maturing. The technologies are better understood (although there remains a lot of confusion about blockchain, resulting in some hilarious panels). It is becoming clear that non-tech factors like liquidity, regulations and humans will determine the success or failure of fintech efforts.

Given the regulatory tsunami I mentioned above, it will come as no surprise (in hindsight) that regtech is the new buzzword.

I am not sure that more tech to deal with more regulation is such a great idea in the long term, but it fills a need in the current mess.

It was interesting to learn that distributed ledgers are not new – they have been around for 25 years – and they are in use already in industries like insurance and government.

Recognising that improvement will take more than tech, it is interesting to see the advance of API banking. For example, many of the new clearing systems being rolled out around the world have open APIs that are intended at least in part to allow non-bank players to enter the payments market. This might be more significant than all the pure tech hype.

Some banks are re-branding themselves as tech companies. Some are saying they have always been tech companies. Real tech companies say the whole world is going digital, so maybe the issue is moot. Certainly, finance is more amenable to digitisation than physical goods (in fact money is just information beefed up by varying degrees of credulity). UBS’ Sergio Ermotti said his bank is just a bank that is a heavy user of technology – which seems about right.

Cybersecurity

If exponentiation was the dominant theme of EuroFinance, then cybersecurity was the dominant theme of SIBOS. The now infamous Bank of Bangladesh incident got everyone’s attention. Just to clarify, SWIFT itself was not hacked. Bank of Bangladesh was hacked. And, although the hackers gained access to Bank of Bangladesh’s servers (inter alia to spoof some reports so that reconciliation would not trigger alarms), the critical hack was social hacking to users’ credentials.

Needless to say, SWIFT is vigorously sharing the learnings and best practices to beef up security amongst its members.

One of the most interesting views I heard was that “you will be hacked, in fact you are probably being hacked right now”, so cybersecurity has to be more like building an immune system than (fire) walls. It’s about resilience not impregnability.

Of course, technical security has to be in place and up to date. That is generally an IT responsibility. The CEO has to own cyber-resilience – training and awareness for all staff, cyber response plans, cyber drills, and so on. When business goes digital, cybersecurity becomes everyone’s responsibility.

Resilience

Interestingly, both keynote speakers at EuroFinance were asked what they feared most. The first answered cybersecurity. The second answered pandemics. For me, the commonality is immunity. We cannot avoid hackers any more than we can avoid germs. We need to maintain basic hygiene, but we also need a few germs and viruses to train our immune systems. A strong immune system makes us resilient.

Both keynote speakers were also asked about education. Both refused to opt between STEM and humanities but rather emphasised the need to learn. Whatever we learn in formal education will probably be out of date very soon, so we need to keep learning throughout our careers (and lives). This makes us professionally and personally resilient.

Treasurers see how their jobs are changing. As said, we do not know what the future holds. We do not know what future jobs will look like. It is critical to avoid fear, and to embrace and prepare for change. The world of education is moving to enable this – apparently, MIT has committed to put all its courses online.

On the one hand, we need speed to thrive under exponentiation. On the other hand, we need organisational and societal resilience to survive the unknown future. Balancing these will require skill. Things like regulatory sandboxes are a step in the right direction that can be mirrored within organisations, in project teams and the like. This is a mind-set challenge.

Scenario planning is also a resilience booster that came up several times. Best practice treasurers make plans for macro, liquidity, and other risk scenarios to prepare for the unexpected.

Contradictions

One keynote in particular was emblematic of this confusing situation. Its title was Renaissance 2.0 and the yet “history is not a good guide to the future”. We were told that if you are not making money now, you have only yourself to blame because corporate profits are at historically high levels. And then reminded that mean reversion will apply. We were told this is the best of times in terms of life expectancy, poverty reduction, etc. The Renaissance was a period of opening minds and ideas that ended in a fundamentalist backlash – Savonarola’s bonfire of the vanities.

A strong reminder that the future will surprise us.