Intraday liquidity reporting A pragmatic way forward

SOFE , Paris, 28 November 2014

Catherine Banneux, Senior Market Manager, SWIFT

Intra-Day Liquidity Reporting work session

Agenda

This session will focus on ways to prepare for the new

BCBS intraday liquidity reporting tools

With your participation we will be:

Looking at the data challenges

Sharing experience on how peers have started their

projects

Discussing how existing SWIFT solutions can be

leveraged

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What is BCBS intraday liquidity about?

BCBS monitoring tools for intraday liquidity (2013) To enable banking supervisors to better monitor a bank's management of intraday liquidity

risk and its ability to meet payment and settlement obligations on a timely basis

• Detailed set of 7 monitoring tools

• Consider impact under 4 stress scenarios: own, counterparty, customer, market stress

• Report by systems, correspondent banks, currencies, branches and subsidiaries

Implementation • Internationally active banks, in all countries and currencies they operate

• Report monthly to regulator, from 1 January 2015 to reach the full scope by 1st January 2017

BCBS monitoring tools for intraday liquidity management was published in April 2013.

2008 financial crisis • Market turmoil that began mid-2007 re-emphasised importance of liquidity

to functioning of financial markets and banking sector

• September 2008, Basel Committee on Banking Supervision (BCBS)

published Principles for Sound Liquidity Risk Management and Supervision

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Applicability Monitoring tools

All reporting banks 1. Daily maximum intraday liquidity usage

2. Available intraday liquidity at start of business day

3. Total payments

4. Time-specific obligations

Banks providing

correspondent

banking services

5. Value of payments made on behalf of correspondent

banking customers

6. Intraday credit lines extended to customers

Direct participants 7. Intraday throughput

BCBS monitoring tools for intraday liquidity management

As of January 2015

• Collect transactional data for your bank across currencies & legal entities?

• Ensure consistency to report to both home and host regulator?

• Aggregate according to different criteria (account, system, currency, customer -

i.e. intraday credit line usage for your FI customers?

How does this impact you?

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The industry is not ready

Nbr 1 reason for not having started a project – “waiting for the detailed requirements from

the home regulator”

Many UK and American banks in the group having started a project

No respondent indicate “my home regulator has postponed the implementation deadline”

EuropeanPaymentsRegulationConference_1214

Intraday liquidity becoming a key focus for

regulators worldwide

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COUNTRY STATUS

UK In 2009, the UK regulator was first in issuing intraday quantitative measures and reporting, and to associate

these with monitoring and controls through individual liquidity adequacy assessments (ILAA) on the

capability of the financial institution to manage its intraday liquidity in real-time.

Task force established for the BCBS Monitoring tools implementation.

The

Netherlands

The Dutch Central Bank, which is responsible for prudential regulation, has implemented an “ILAA” Process

(ILAAP), for Dutch banks, including reporting, to demonstrate how they manage “intraday liquidity risks”.

Switzerland In January 2014, the Swiss regulator FINMA announced a new liquidity circular and mentions: “Banks must

be able to demonstrate that they are in a position to reliably estimate and manage the consequences of an

intra-day stress event on the bank’s liquidity situation.”

FINMA has now requested to report as from February 2015 on a “best effort basis”

Canada The Office of the Superintendent of Financial Institutions (OSFI) officially recognised the new reporting tools

and stated that they will continue to review the applicable implementation date for these metrics – which will

be on 1 January, 2017 at the latest.

US Implementation agreed with FED on USD. Requirements to be clarified

Banks need to demonstrate appropriate management & controls.

Intraday liquidity becoming a key focus for

regulators worldwide

COUNTRY STATUS

Singapore In March 2013, the Monetary Authority of Singapore (MAS) issued guidelines “an institution should establish

an appropriate and properly controlled liquidity risk environment including intraday liquidity risk

management practices”.

Hong Kong Hong Kong Monetary Authority (HKMA) confirmed in a letter t is “considering the most appropriate approach

for implementing the BCBS monitoring in Hong Kong. In the meantime, authorized institutions are

encouraged to review the Monitoring requirements and assess the implications for their management of

intraday liquidity risk”.

Consultation done in January 2015 asking for reporting by currency.

Australia The Australian Prudential Regulation Authority (APRA) requires authorised deposit-taking institutions to

comply with Prudential Standard APS 210 Liquidity (APS 210). APS 210 including to “actively manage

intraday liquidity positions and risks”.

start as from 1st January 2014 for Australian banks

China The China Banking Regulatory Commission (CBRC) implemented new measures in March 2014 covering

the “Liquidity Risk Management of Commercial Banks”, including Article 27: commercial banks should

strengthen risk management on intraday liquidity”

India Reserve Bank of India issue d a circular on 3rd November 2014 confirming the requirement s for the

BCBS monitoring tools starting as from 1st January 2015

Korea The Bank of Korea published a paper in early 2014 in relation to indicators for the monitoring of intraday

liquidity at banks which participate in the Korea LVPS. “intraday liquidity management is crucial for financial

stability. In this context the Basel Committee for Banking Supervision (BCBS) has published “Monitoring

Tools for Intraday Liquidity Management”, and the Bank of Korea (BOK) is seeking to establish a robust

framework for the monitoring of financial institutions' intraday liquidity management in

consideration of the network relationships of the LVPS.”

Collection

of timed

data

Manage

flows real-

time

Regulatory Reporting Requirements

Insight in payment flows

Understanding your flows

And your client flows

Manage and control your flows intra-day

Use intra-day information to manage and

predict future events

The scope drives data requirements and

financial benefits

Monitor

Manage

Managing Real-time position management

Payment queue management

Cash management

Monitoring Retrospective reporting

Intraday position monitoring

Analytics

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National regulations

i.e. UK, The Netherlands

BCBS Intraday Liquidity

Monitoring tools

EuropeanPaymentsRegulationConference_1214

Daily maximum intraday liquidity usage

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To monitor a bank’s intraday liquidity usage in normal conditions

The largest net positions at any point in during the business day on the account(s),

will determine a bank’s maximum daily intraday liquidity usage

Settlement account, either with the central bank or with correspondent banks

Use of transaction-by-transaction data of movements on the account(s)

Banks should report their:

Three largest daily negative/

positive net cumulative

positions on their accounts

in the reporting period

The daily average of the

negative/ positive

net cumulative position

over the period

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How would you build the intra-day liquidity usage curve using

SWIFT messaging? Which data issues do you expect to have?

Your home regulator: you need to report on currencies representing at least 5% of

your total liquidity flows.

As a result you need to report globally on EUR, USD, GBP, CHF.

Out of your host regulators you will report in the US, UK, CH,

and also in Australia, Singapore that have not set specific threshold

on the liquidity flows

Group 1 - You have to build the curve for currencies for which you’re a

direct clearer (T2 and CHAPS)

Group 2 - You have to build the liquidity curve for the Nostro accounts.

As your firm manages its liquidity on a currency by currency

basis you will need to provide a report by currency.

In the examples USD, CHF, AUD, SGD

Logistics: 10 min preparation & 5 minutes presentation for each group

Market feedback Banks share the same data management challenges

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55%

coverage

in value

20% coverage

SWIFT payments

volumes

Lack

timed

data

No centralised

data

Legal entity Data aggregation

61% issue for HVPS

23% for HVPS

71% for internal reporting

42% don’t have a

global view of their

intra-day positions

51% manage locally or

don’t manage credit lines

extended to customers

Time zones Currency …

EuropeanPaymentsRegulationConference_1214

A pragmatic approach in four steps Defining a data model sourced from SWIFT messages

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Data sourcing & scope

SWIFT messages

1

MT900/ 910 with a time indication for the debit/credit entry as from 2015: date, time

and time zone when the entry is posted to the account, in the books of the SP

Interim transaction report (MT 942) will not adequately serve the liquidity function

as transactions are batched under the same time stamp.

Impact of intra-day statements on reported balances

-300

-250

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-150

-100

-50

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In M

illio

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Intraday liquidity usage curve using a mix of MT 942 and MT 900/910

Blue line: balance is calculated based on MT 942 received

at 5:00 am for the period of 4:00 am to 5:00 am

Red lines: represent the difference with the effective

balances calculated based on each individual MT 900/910

received during that interval of time.

Effective difference based on individual reporting time stamp

is of 25%.

MT 942 received at 1:00 am on

entries already reported by MT 900/910

Effective difference on balance based on

individual reporting time stamp is of 100%

MT942 can not be used by the account owner to calculate his position on a “minute by minute” basis

not sent in real-time

reported transactions are batched under the same time stamp.

Net position calculations at specific times of the day will therefore not represent reality

Gap will increase if the frequency of the report is low and the amounts are high

A pragmatic approach in four steps

Identifying key liquidity flows

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Data sourcing & scope

SWIFTWatch

1

Source: SWIFT Watch - (desensitised data)

Look at distribution of the intraday liquidity flows between its different entities

Identify the top correspondents and overall reporting gaps at group level

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SWIFT Consulting data assessment

Data gaps, Issue identification

Defining business rules for intra-day reporting

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Some types of transactions very rarely confirmed in real-time.

Top three: book transfers (42%), cheques (16%) and margin calls (9%)

And also treasury deals, sweeps…

A pragmatic approach in four steps

Identifying the data gaps

Your

branches Correspondent

banks

Headquarter (copy destination)

MT 900, 910, 942, 950

MT 103, 202

Copy MT 096 (MT 103, 202)

Copy MT 096 (MT 900, 910, 942, 950)

• Receive copy of messages from

any

• entity in real-time

• Flexibility on filters

– Message type, currencies, …

– Sent or received by branch

• Very easy

– No IT impact on branch

– Copy made in real-time by SWIFT

• Compliant with data confidentiality

– Filter out data that cannot be copied

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A pragmatic approach in four steps Collecting data at global level

Centralising data at global level

FINInform 3

SWIFTNet

Y- Copy

Payment’s

application

Bank A

(Sender) Settlement Request

(MT 096) Authorisation or Rejection

(MT 097)

MT 103 / MT 202 with HVPS flag

Sender Notification (MT 012) – Optional

or (MT 019) Abort Notification

LVPS

1

4

3

4

2

MT 103 / MT 202 with HVPS service flag

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FINInform

Copy will be generated at exactly the same moment as

the MT012 would normally be generated, meaning at

the time of settlement in LVPS

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MT 103 / MT 202 with HVPS service flag

Bank A

Group

Treasury

Using FINInform will eliminate the need for

matching between outgoing payment and

incoming MT012/MT019, as you would

only receive payment which are settled in

LVPS

FINInform – reduce cost & complexity for banks

that have not integrated the MT012 from their HVPS

Payment’s

application

Bank B

(Receiver)

Bank B

Group

Treasury

Approved / Settled Payment order

Release of queued payment

• No need to match outgoing payment with incoming MT012/MT019 to enrich with time stamp

• Only settled transactions settled by the HVPS are copied in real-time

• No need to maintain separate internal database with outgoing transactions

• Easy-to-use GMT time-stamp is added to the MT096

A pragmatic approach in four steps Develop monitoring tool

18

4

Data parsing, build repository

& develop monitoring tool

DEMO

AVAILABLE

AS FROM

MID-

DECEMBER

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A pragmatic approach in four steps Develop monitoring tool

Looking for some documentation

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White paper Message standards practice Survey results

Thank you

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