Transformation of payment & settlement systems in ASEAN presentation at the SWIFT Business Forum Philippines 2014

1. Enabling New Payment Frontiers in
ASEAN & the Asia Pacific
SWIFT Business Forum, Manila, The Philippines
Chris Flanagan
Head of Markets, Asia Pacific, SWIFT
May 27th 2014

2. Rapid transformation in payment system development
• Fighting Financial Crime & SWIFT Compliance Services roadmap
• CPSS-IOSCO, Sanctions, FinInform, Intraday liquidity
• The trend to real-time payments
• RMB internationalisation
• ASEAN Economic Community (AEC) 2015
• ISO 20022 and market practice
• Reliability of systemically important payment systems
Regulatory
Developments
Resiliency
Renminbi
Regionalisation
Real-time innovation
Philippines Business Forum, May 2014

3. Regionalisation, Real
Time & Standards
Connecting The Dots..
Philippines Business Forum, May 2014

4. The Macro Context - ASEAN growth is high and tightly
coupled to China
0%
20%
40%
60%
80%
100%
120%
140%
2006 2007 2008 2009 2010 2011 2012 2013
ASEAN
CN
Rest of APAC
SWIFT Total
CARG
ASEAN 9.5%
China 10.2%
Rest of APAC 7.3%
SWIFT Total 6.65
Customer Payments: MT 103 sent in volumes (2006 – 2013)
Philippines Business Forum, May 2014

5. -2%
4%
Volume Value
Within ASEAN Countries Payments Sent YOY Change
Customer initiated (MT103) and institutional payments (MT202 excluding cov), excl. central banks
1%
5%
Volume Value
-1%
-6%
Volume Value
10%
3%
Volume Value
7%
-3%
Volume Value
3%
-12%
Volume Value
-2%
-1%
Volume Value
-16%
29%
Volume Value
37%
27%
Volume Value
132%
12%
Volume Value
Source: Watch growth in 2013 compared to 2012 in volume and in value

6. Between ASEAN Countries Payments Received YOY
Change
Customer initiated (MT103) and institutional payments (MT202 excluding cov), excl. central banks
25%
71%
Volume Value
10%
-5%
Volume Value
6%
-9%
Volume Value
11%
12%
Volume Value
3%
-19%
Volume Value
-3%
-7%
Volume Value
-16%
5%
Volume Value
21%
84%
Volume Value
4%
7%
Volume Value
6% 6%
Volume Value
Source: Watch growth in 2013 compared to 2012 in volume and in value

7. Regionalisation - Developments in the Financial
Infrastructure will facilitate economic activity
Common
Standards
Interoperability
Common
Platform
Single system
and process
Central system
and currency
Philippines Business Forum, May 2014

8. Towards AEC 2015: the role of standards and a common community
8
AU
Zengin,
JP
CNAPS2,
CNIN
Low-
value
High-
value
CIPS, CN
BOJNet,
JP
Live
NZ
TH
PG
BN
SG
MA
Live
ISO 20022 movers Payment systems
ASEAN:
• Thailand
• Singapore
• Philippines
• Brunei (2014)
• Malaysia (2015)
These systems use SWIFT today:
Asia Pacific:
• Australia
• New Zealand
• Taiwan
• Macao
• Hong Kong
• Fiji
• Sri Lanka
• Papua New Guinea
• India (end 2014)
Philippines Business Forum, May 2014
Live

9. Real Time - ASEAN Countries have opportunities to “Leap
Frog” their payment infrastructures and work across borders
Philippines Business Forum, May 2014
Deferred Net
Settlement (DNS)
Real time Gross
Settlement
(RTGS)
ACH
(Automated
Clearing House)
Real time Low
Value
Batches Single Payments
High
Value
Low
Value
Time Criticality
Size
of
payment
Hybrids
Multiplebatches

10. Renminbi
Philippines Business Forum, May 2014

11. SWIFT support for financial institutions in RMB?
• STP & automation (e.g. market
practice guide)
• CIPS (China International
Payment System)
• RA for 20022
• Industry dialogue –
onshore/offshore RMB groups
• RMB Tracker
• RMB Market Insights
• Customised insight services
• Watch Value Analyser
• White Papers
Business
Intelligence
Standardisation
& Automation
Thought leadership & community
• Clearing centres – RMB
RTGS on SWIFT (HK, TW,
SG)
• Bank reach
• ~10,000 globally
• ~3,000 in Asia-Pac
Connectivity
Philippines Business Forum, May 2014

12. Resiliency
Philippines Business Forum, May 2014

13. What do we mean by resiliency?
Philippines Business Forum, May 2014

14. 2011 - RTGS outage of
4 hours
Software bug
2013 - RTGS
9 hours unavailable
Wrong parameterization
In 2011 both main sites
of an PMI were nearly
flooded
Natural events
Data Corruption
From which “golden
position” can I restart?
Staff unavailability
Diversity with peers
and/or 3rd party staff?
Loss of essential services
Service diversification &
geography
9/11
could be on an FMI?
Terrorist attack Cyber attack
Who accessed my
confidential data base?
Threats are everywhere
Philippines Business Forum, May 2014

15. 2011 - RTGS outage of
4 hours
2013 - RTGS
9 hours unavailable
In 2011 both main sites
of an PMI were nearly
flooded
9/11
could be on an FMI?
Data Corruption
Cyber attack
Staff unavailabilitySoftware bug Wrong parameterization
Terrorist attackNatural events Loss of essential services
From which “golden
position” can I restart?
Which staff will be really
available?
Service diversification &
geography
Who accessed my
confidential data base?
Geographic
diversity
Staff
diversity
Technical and
geographic
diversity
Technical
diversity
Technical
diversity
Technical
diversity
Technical
diversity
Geographic
diversity
Need for a different approach
Philippines Business Forum, May 2014

16. Payment
transactions
Payment
transactions
Payment settlement
system
So , how do we do this?
Payment system resiliency only as strong as weakest link
MIRS:
Market
Infrastructure
Resiliency
Service
Alliance
Lifeline
Alliance
LifeLine
Philippines Business Forum, May 2014

17. Regulation
Philippines Business Forum, May 2014

18. 21
Financial Crime Compliance Roadmap
FATF 16 Information quality
Compliance Analytics
Sanctions list
Mngt service
Sanctions KYC AML
Processing
services
Traffic analysis
Standards
Data
repositories
KYC registry
AML testing & tuning
Sanctions Screening
Sanctions Testing & tuning
(transaction & client systems)
Traffic restriction (RMA)
Live
Development
Qualification
Exploration
Quality
Assurance
Client/Name screening
SWIFT_financial_Crime_Compliance_initiatives_v2

19. The Future and Opportunities for the ASEAN / APAC Financial
Infrastructures will Revolve Around These Themes
Regulatory
Developments
ResiliencyRenminbi
RegionalisationReal-time innovation
Philippines Business Forum, May 2014

20. Common
challenges
unique
solutions
23Philippines Business Forum, May 2014