As international use of the Chinese currency grew exponentially over the past eighteen months, financial institutions around the world identified important issues around efficient processing of payments, treasury and securities transactions using the renminbi (RMB).
After initial discussions by groups of institutions in Hong Kong actively involved in settling offshore RMB across securities and transaction banking markets, the industry has now defined a new set of guidelines related to the usage of ISO 15022 and MT messages for efficient processing of offshore CNY transactions.
The document is now available for public use by any financial institution that wants to benefit from guidelines defined by the industry in Hong Kong, the largest offshore center, where 78% of all RMB payments transactions are made. It can be downloaded from https://www.swiftcommunity.net/communities/332/detail.
Patrick de Courcy, Head of Markets & Initiatives Asia Pacific at SWIFT remarks: "Basically, the industry concerns were with straight-through-processing of offshore Chinese Yuan instruments, because there is only one settlement currency for the Chinese Yuan whether it is onshore or offshore and that is CNY. Industry participants, however, need to differentiate onshore versus offshore settled CNY in their internal systems and between counterparties. The Hong Kong industry asked SWIFT to respond by facilitating industry agreement around a standardised approach towards counterparty communication and this has resulted in market practice guidelines. Given that nearly 80 percent of RMB payments happen in Hong Kong, it was natural that the groups started here."
Three Working Groups comprising 24 institutions put together the guidelines for their market segments, which then went to the global community through SWIFT for comments.
Michael Vrontamitis, Head of Product Management, East, Transaction Banking, Standard Chartered Bank, Hong Kong chaired the Working Group on Cash & Trade. He says: "As CNY is increasingly being used for settlement outside of China, it is important to have a clear set of market practice guidelines to assist market participants in straight-through rates and enable the further growth of the market. It is great to see the co collaboration among market participants facilitated by SWIFT to create a set of practical guidelines."
"HSBC is proud to lead the best practice working group, contributing to the enhancement of market standards," remarks Fannette Hsin, Head of FX, MM & Metals Operations, Asia Pacific, Global Markets Operations, chair of the FX, Money Markets & Derivatives Working Group.
The Investor Working Group was chaired by Kinson Tong, Vice President, JPMorgan Network Management, JPMorgan, Hong Kong: "From an investment market participant's perspective, we see significant opportunity to further develop the offshore RMB market by exploring new investment channels and broadening the range of financial solutions available. Hong Kong will continue to play an important role in the RMB internationalisation process by delivering a comprehensive range of solutions to help companies manage their risk. Through cross-market forums, SWIFT continues to play a vital role in the development of and discussion around offshore RMB best practices. We look forward to extending our partnership with SWIFT, and all other market participants, to ensure we further position Hong Kong as a global financial centre."
"This is indeed an example of where the industry can quickly collaborate to solve common problems to keep markets moving forward securely and efficiently, driven by local needs with global impact," says Lisa O'Connor, Director, RMB Internationalisation, SWIFT. "In addition to the efforts of our Working Groups, primarily made up of Hong Kong-based participants, the involvement of SMPG/ISITC, ASIFMA, ISDA and HKIFA was critical to our success because they represented their respective industries' inputs into these guidelines. As a result, we were able to define the guidelines in only two months, and it took a total of six months from request to SWIFT to publication of guidelines."