05 April 2012

Changing from the inside – with a little help from the outside

Two initiatives show how the financial services industry is looking to learn from other disciplines

Paul Bodart, BNY Mellon
Paul Bodart, BNY Mellon

Hindsight is often painful. This week, Sir Mervyn King, governor of the Bank of England, regretted publically that his institution didn’t “shout from the rooftops” about risks in the UK financial system before the financial crisis.

Post-crisis, governments and regulators worldwide have attempted to learn from the events of 2008 and the subsequent fallout. Corporate governance, remuneration policies, living wills, ring-fencing of investment banking activities and many more topics have been widely debated. New global regulatory standards on bank capital and liquidity have been drafted (Basel III) and already being acted upon by banks and their investors.

In the boardrooms of banks, risk management has become the prime concern – and yet many observers believe the financial services industry still needs to take practical action to analyse and correct its own behaviours. Certainly, insight into where and how change is needed can only be helpful. So, two initiatives which foster debate and learning from other disciplines are to be welcomed.

Global transaction banking: new thinking

A new initiative from SWIFT aims to bring the rigour of academic research to bear on the debate about market practice. The SWIFT Institute has been set up to fund and publish independent research into all areas of global transaction banking, including payments, clearing and settlement, cash management, trade finance and trust and securities. “There is often a gap between research programmes underway in academia and engagement with the financial industry. The vision for the SWIFT Institute is to bridge that gap,” says Yawar Shah, chairman of the SWIFT Board.

SWIFT is providing funding and secretariat to the new research institute, with grant-making at the discretion of an independent advisory council made up of members from industry and academia. The calibre of the advisory council reflects the potential for this initiative to produce important cross-disciplinary results: it includes Professor Darrell Duffie, a renowned risk expert (Graduate School of Business, Stanford University); former deputy governor of the Bank of England Sir Howard Davis (French School of Political Science, Paris) and Professor Dr Ron Berndsen, (University of Tilburg, The Netherlands), who is also head of the oversight department at De Nederlandsche Bank.  John Trundle, CEO, Euroclear UK & Ireland, and Guillermo Ortiz, Chairman of Grupo Financiero Banorte-IXE, bring their industry expertise to the venture, while SWIFT is represented by Shah and Lazaro Campos, CEO.

Peter Ware, head of SWIFT Institute, says the institute expects to announce its first research grants soon, for work on the topics of internationalisation of the Renminbi, financial supply chain management and banking inclusion – all topical and structurally important topics. Ware points out, for example, that 2.75 billion people don’t have any access to banking services.

As well as providing grants, the SWIFT Institute will also make the research available to the SWIFT community and the wider public, and bring academics and the community together to discuss and debate. “Our goal is research that will ultimately benefit the financial services industry and its underlying customers,” says Berndsen.

Further calls for research proposals will follow. Industry professionals and teams, as well as academics, are eligible to apply. Grants to support research are expected to be in the region of EUR15,000 per project.

Can safety be guaranteed?

In another initiative, the financial services industry is also looking beyond its own community for new insights. TransConstellation, an association of Belgian-based organisations, including several that support securities processing, is organising a debate in Brussels on 8 May about what can be learned from the pharmaceutical and other industries that provide safety-tested products to consumers.  Can “safe and sound” products be guaranteed by the financial industry? Paul Bodart, head of EMEA operations, BNY Mellon, and chair of TransConstellation, explains: “The financial crisis has highlighted weaknesses in the way financial products are created and distributed. So we wanted to look at how other industries which provide products to consumers – pharmaceuticals, cars, food – test and assure the safety of new products.”

Non-finance industry speakers include Edouard Croufer, director of Arthur D Little’s healthcare practice, recently retired CEO of UCB Pharma and a board member of nine companies in the pharma sector. Featured speakers from Belgium’s financial services industry include Michel Vermaerke, CEO of FeBelFin (the Belgian Financial Sector Federation, which represents 238 members), Hugo Lasat, vice-chairman of BEAMA (the Belgian Asset Managers Association) and Jean-Paul Servais, chairman of FSMA (Financial Services and Markets Authority), Belgium’s financial regulator.

Bruno Colmant, a partner at Roland Berger Strategy Consultants, will moderate the debate. He thinks that, while the tracking and testing familiar with consumer products is of interest, the debate will centre on the interface between users, producers and regulators of financial services. Regulators can only act ex-post, he says. “Strangely enough, I do see self-regulation in the banking world.”

Given that there is no completely risk-free investment, another question for the industry is where to focus attention – can better information be provided to investors? Is the sales process appropriate? – explains Bodart. “We will attempt to answer critical questions on whether financial products can ever really be guaranteed and can investors realistically be educated to fully understand their financial risk.  Ultimately the answers to these questions will most likely affect how our industry could be regulated in the future,” he says.

The event is part of the Alumni programme of the TransConstellation Academy, a training centre shared by TransConstellation’s members (SWIFT, EuroClear and BNY Mellon) and run in partnership with the Solvay Brussels Business School.

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