/regulation & compliance

News and resources on regulation, compliance, legal and governance issues for banks and fintechs.

Will smart divergence set the UK apart post Brexit?

During a panel session for UK Fintech Week 2021, moderator Kristy Duncan, founder and CEO of Women in Payments noted that while the UK and EU benefits from a progressive regulatory regime which favours innovation and competition, fintechs are hindered by regulatory challenges including lack of enforcement and passporting headaches.

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Intraday liquidity regulation: a decade of progress?
Pete McIntyre

Pete McIntyre

  Thanks for the comments.  Regulators certainly do care about intraday risk at your correspondent bank.  In fact in some cases it is the risk at nostros that is most significant.  Remember that Lehman’s intraday risk was on nostro accounts…Usually a direct participant has useful tools to understand and monitor their liquidity in the clearing system, but when you are indirect then you are at the mercy of how your agent bank decides to process your payment activity and how this liquidity usage fits alongside any credit limits they may provide. This means that your intraday liquidity monitoring and management systems/processes need to cover off both risk where you are direct and also indirect.  For nostro account monitoring we have had great success in building up views using SWIFT messaging - not necessarily GPI but rather the intraday settlement confirmations (e.g. MT9XX, MT5XX and their new MX equivalents).  The trick is to do this quickly enough i.e. get this data into your systems, process appropriately and run the analytics so that you get real-time insight.  With that insight comes control so you can react to events, move liquidity around and ultimately reduce the need to hold liquidity or run large overdrafts.  Not easy, but we at Planixs have done this for banks large and small.
Intraday liquidity regulation: a decade of progress?
Ketharaman Swaminathan

Ketharaman Swaminathan

  Lehman Brothers was felled by a Black Swan event and collapsed despite regulation.  I also ponder over Acquirer Risk in payments business. Yes, a tiny percentage of Merchants may go bust 30-60 days after a credit card transaction but does that warrant all the measures taken to mitigate that risk e.g. Hesitation - refusal even - by banks to acquire micro and nano merchants. I sometimes wonder if there's too much regulation to address extremely rare events. OTOH, we keep hearing finserv should emulate tech, "fail fast", "move fast and break everything", "YOLO", and all that and govts are printing notes in the name of TARP, Pandemic Stimulus, etc., effectively kicking the very common inflation risk can down the road.  OTOH, finserv regulation appears to overthink too many rare things. Irony or am I missing something?
Intraday liquidity regulation: a decade of progress?
Aparty Behera

Aparty Behera

  A genuine concern, While SWIFT introducing Universal Confirmation of payments and strict GPI compliances of payments to be made within 2 business days or tagging the statuses as red would put further pressure on maintaining liquidity at correspondent end.
Intraday liquidity regulation: a decade of progress?
Jeremy Light

Jeremy Light

  I wonder how much regulators focus on intraday liquidity for cross-border payments? It is one thing to measure and manage intraday liquidity in settlement accounts at the central bank and intraday positions in closely regulated high value payments systems like CHAPS, Target, Fedwire, it is a completely different challenge managing liquidity in nostro accounts (which can run into 100s for some FIs) at correspondents banks abroad - end-of-day liquidity management is difficult enough, intraday is much more complex. I guess that regulators are less interested, as the liquidity in a nostro in a correspondent outside their jurisdiction is outside their control, while availability of funds in nostros in their jurisdiction to meet payment obligations made abroad is outside of their concern. SWIFT GPI makes a great play on enabling very fast cross-border payments - the messaging component has always been fast (compliance hits aside), but it is the liquidity component that is the greatest challenge. To enable GPI, funding liquidity in overseas nostros at end of day to release payments the following day needs to be replaced by funding liqudity in advance if GPI targets for near-real-time payments are to be met - pre-funding nostros the previous day, or intraday, requires accurate forecasting, including incoming payments to net, and requires continuous, accurate management. Liquidity has been fairly abundant over the past decade, and pre-funding nostros by over-funding has been an easy, if inefficient solution. However, if liquidity were to become tighter, settlement and credit risks in the global cross-border payments system will escalete rapidly. It will be interesting to see how this is addressed in the G20/FSB project to enhance cross-border payments.  
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