Tackling the core subjects to be covered at EBAday 2023 in Madrid, Spain, Marc Recker, global head of product, institutional cash management, Deutsche Bank; Raouf Soussi Laghmich, head of strategy for enterprise payment, BBVA; and Renata Vilanova Lobo, head of global clearing, JP Morgan, participated in a strategic roundtable, led by Anita Hawse, Europe editor, The Banker, Financial Times.
Highlighting the biggest challenges banks are currently facing, Laghmich stated that the issues can be grouped intofour: regulation, new technology, competition, and customer needs. Expanding on this point and exploring the current macroeconomic environment, Recker added that these concerns are not new concerns for banks.
“We have been dealing with either economic, philosophical,or political issues, be it a financial crisis or a Euro crisis. How global banks cope with that is to flexibly adapt their respective strategy. Nowadays, we are confronted with the war between Russia and Ukraine, tensions between the US and China and we see it impact from a macro economical perspective in terms of inflation, but also rising interest rates,” Recker said.
Despite this, Recker added, the demand for cross-border payments is increasing year on year and international banks remain well positioned in this space to deliver on this. “We need to find the balance as a financial institution; on the one side, delivering secure and normative solutions and services, while on the other side, being a trusted partner for our clients that can manage these difficult situations.”
Hawse reiterated that the events of 2022 are incredibly different from 2008; we are not in a financial crisis, but a poly-crisis, arguably placing more pressure on banks to do just as Recker stated. He went on to explain that “what is currently top of mind to our end clients is recalibrating the supply chains and you will be there as a trusted global transaction bank to support them along the journey. Also, providing liquidity management or investment options for our clients so they can benefit from the political, economic environment because the biggest point when coming back to payments is changing client expectations.
In Lobo’s view, “we are definitely going through a very unique time, with so many things changing at the same time and when I think about navigating through this very interesting environment, I think resiliency is as critical as possible from a financial standpoint and an operational standpoint. Starting with having a very linear and well-defined long-term strategy can make sure what’s feasible across your organisation, and then the decisions you’re making today are fully aligned with long-term strategy.”
When managing events like the Russia/Ukraine war, prioritisation is key and as Logo elucidated, investments, as well as budget and time, must be allocated accordingly and in a way that provides room for failure. “So, if something fails, especially new, disruptive ideas that will not jeopardise your ability to thrive with your core business and liquidity management. Not only having a very well-defined strategy to manage your liquidity and all the tools in place but making sure that you’re acting fast and you’re making decisions right away.”
Referencing the recent failure of certain US regional banks, she recalled that liquidity management was a struggle in these cases because of a lack of strategy and activity, as well as stability and scalability. Investing into core capabilities and operations is crucial, but banks must continue to innovate and leverage new technologies to automate and remain resilient.
The conversation moved on to discuss sanctions, the impact they are having on banks and the progress within cross-border payments. Recker responded to this and said that the sanctions need to be respected, because if not, this could result in institutions quickly going out of business and having a wider impact on the entire financial system.
This dramatic increase in complexity – in February/March 2023 when sanctions were introduced across the UK, US, and Europe – resulted in banks having to answer their clients’ questions around why cross border payments failed to be executed. He added that “improvement is needed in the dialogue as regulators try to get to a much more balanced approach in terms of sanctions and it would allow transaction banks to handle them more efficiently than today.”
He continued: “A regulator does not know how cross border payments work. They want to establish a sanction for a different goal, but what we have seen since the last couple of months and years is that the dialogue between regulators and transaction banks is getting more open.” Laghmich also discussed how BBVA, operating in both Europe and Latin America, handles trading between countries that continue to have a relationship with Russia and have not imposed sanctions.
Lobo added that when the Ukraine invasion happened, “several different sanctions being imposed on our databases were affected immediately. That was quite challenging, especially considering that the sanctions were not straightforward – they were not new names or new countries added to the list. Technology plays a very critical role in that process, by identifying new data components and systematically implementing them pretty much overnight. We process about $10 trillion a day, and with an STP raise of 99.4%, it would be quite impossible to keep up with all those sanctions without technology, combined with structured data.”
She highlighted that if ISO20022 had been implemented at that time, the process would have been much easier. Sanctions will become more complex, but with ISO20022, there will be more efficiency.