How far have we come; how far still to go?

As the week has progressed, Sibos participants have been treated to range of observations that will keep the community musing until we are all able meet in person in Amsterdam.

The final day of Sibos was characterised by several ‘View from the Top’ sessions, providing a range of geographically diverse perspectives. The first was from Laura Cha, Chairman, Hong Kong Exchange, who focused on the urgency of addressing sustainability. The financial markets have a key role to play, she said, as infrastructure needs financing. Standardisation is key to a solution, she suggested, as it will ensure a coordinated effort, allowing firms to measure their efforts numerically, which can act as an incentive and go some way to preventing ‘greenwashing’.

Zhang Qingsong, President of Agricultural Bank of China, who followed, stressed the importance for financial institutions to play a greater role in supporting the recovery of the world’s economy through the use of new technology, methods and models, particularly by embracing rural finance and financial inclusion. In recent years, he said, China has been implementing a digital strategy to increase the use of IT and internet in the countryside to support the financial needs of citizens, essentially working to mitigate the urban/rural gap. Open banking services are now penetrating the countryside, allowing SMEs to conduct payments and settlements in real-time.

Staying with the issue of sustainability, a morning panel session addressed the vexed question of mandated sustainability reporting: ‘Beast, burden or the only way forward?’

Measuring sustainability

As products such as green and sustainability-linked bonds surge to all-time highs, sustainable finance is becoming firmly rooted into the future of finance. Bloomberg predicts that one-third of total AUM will be ESG-aligned by 2025.

Data will play a key role in this. Sustainability reporting will enable institutions to build up a time series, understand the momentum and analyse performance against sustainability commitments. If corporates are mandated to disclose sustainability performance, investors can make smarter decisions.

Disclosure underpins our ability to analyse a company”

Elree Winnett Seelig, Global Head, ESG, Markets, Citigroup Global Markets

Inconsistent regulation regarding sustainability reporting is a challenge for companies and investors, so more unity and standards are required. Regulations tend to be complex, which is a challenge for smaller companies as sustainability targets should be achievable for all.

While there are many demands for disclosure on issuers, the industry is a long way from setting standards on disclosure. The financial services industry has a responsibility to do a “reality check” on a company’s disclosure and the ability of banks to call out greenwashing will define the quality of sustainability reporting, session participants agreed.

Faster settlement

In one of the key securities sessions of the week, ‘On the road to T+0: The global trend towards shorter securities settlement cycles’, the conference had an opportunity to explore the pros and cons of this trend.

With 80% of the global equity markets planning a shorter settlement cycle, the discussion is timely, and developments on a global basis are occurring with each passing week. “The quicker we can settle a trade, the less risk there is,” said Alexis Thompson, Head of Global securities services at BBVA. “Even just counterparty risk, companies have gone under in a day. There’s a whole stream of benefits to be gained if we can speed up the settlement cycle.”

The quicker we can settle a trade, the less risk there is”

Alexis Thompson, Head of Global securities services at BBVA

The benefits identified include liquidity, collateral and perhaps above all – risk reduction. “Risk mitigation is one of the primary benefits of reducing the cycle,” said Suzanne Sprague, Managing Director, Credit & Liquidity Risk, Risk Policy, & Banking at CME Group. “It also can increase the speed with which clients can get value out of their collateral.”

The US has announced its move to T+1 for US equities by mid-2023. Michelle Hillery, General Manager of Equity Clearing and DTC Settlement Service at the DTCC said back in 2017 the organisation was thinking ‘what comes next?’ after its move to T+2. “There is clear economic value in shortening the settlement cycle, in addition to reducing various other kinds of risks,” she said.

While T+0 remains on the agenda, participants continuously point to the numerous benefits of netting for the markets, as explained by Hillery in the context of calls for real-time gross settlement, which is often confused with same-day settlement.

Our view is that T+0 can and should be achieved, netted T+0 is the next logical step”

Michelle Hillery, General Manager of Equity Clearing and DTC Settlement Service, DTCC

DLT is one of many technologies that can be used in the future of settlement. Can blockchain/DLT help and is it the future? Thompson pointed out that it’s not just speeding up and doing things quicker, we are talking about decentralisation here. “We can’t even contemplate not having clearing houses/CCPs in this process, they give us confidence, but it’s one of the questions that comes up - ‘what is their role?’. We have to entertain blockchain and bring it in, DLT will be part of our infrastructure, but we still need CCPs to form an integral part of the infrastructure.”

Pace of change

The speed with which things are changing was one of the themes addressed in a ‘View from the Top’ with Rajkiran Rai, MD and CEO, Union Bank of India.

While changes to digital banking are occurring quickly compared to the changes from manual to core banking, public sector banks are taking longer to shift to digital technologies than private sector counterparties, he noted. Public sector banks need to accelerate to avoid losing market share.

Core banking meanwhile is carrying too heavy a load with the entry of several digital products. Tech firms providing core banking need to innovate and make it compatible with digitisation, he argued.

When it comes to cross-border trade, he observed, digitisation has been lagging comparatively and significant product development should be expected.

The issue of digitisation was also addressed by Stéphane Boujnah, CEO and Chairman of the Managing Board, Euronext, in his own ‘View from the Top’.

Cybersecurity risk has increased massively and while digitisation is a positive thing it also brings with it a number of issues that need to be addressed.

Third parties and in-house culture are both essential to safeguarding companies”

Stéphane Boujnah, CEO and Chairman of the Managing Board, Euronext

Turning to Europe specifically, he pointed to the proposed capital markets union as a positive development for the market, though things that still need fixing from a regulatory standpoint include listings, reporting and insolvency regulations. These require greater standardisation.

Boujnah expects the CSD landscape to continue evolving, though maintaining a focus on local relationships and specialities. In each country regulators have a special relationship with CSDs, he said. What Euronext is trying to achieve is a way to maintain that local identity, but to use the EU model to be united in diversity, and to build unity in a new additional layer of technology.

A ‘Spotlight on digital acceleration – delighting the digital customer’ revisited some of the issues of pace of change introduced earlier in the day. Digital transformation (DX) involves using the Cloud to overcome silos, digitising processes to improve internal and external efficiency, partnering with fintechs on newly flexible 24x7 real-time platforms to offer easy front-end services, using open APIs to build and operate ecosystems. Smart contracts and other new blockchain powered technologies and ways of working are the next stage of this evolution. The session shared real-world bank DX examples from Lloyds, Deutsche Bank and Intesa Sanpaolo.

The future of work and back to work?

The issue of remote working came up in several contexts during the day. A SWIFT Innotribe session confirmed that, while remote working is popular, it isn’t suitable or possible for everyone.

How to lead and manage remote workers effectively will demand new skills. Firms will have to define what ‘good work’ is in terms of being flexible on hours, pay and the job at hand. Meanwhile, ensuring diversity will be paramount in a work from home (WFH) world, as it delivers better results.

At the Big Issue Debate on ‘How do companies balance?’, the panel explored the future of hybrid working.

The COVID-19 pandemic has opened a Pandora’s Box with workers wanting more flexibility in their employment arrangements and bosses wanting staff to return to work. Remote working or working from home (WFH) were rarely factored into companies’ business continuity plans, which were more focused on the idea of office working from another location.

WFH has proved a success, with financial institutions able to continue operations and connect tens of thousands of staff members remotely. Generally, productivity did not fall and in some industries, including the financial sector, it actually increased.

A more flexible, hybrid working environment is likely to evolve. There is no one-size-fits-all when it comes to a hybrid working environment. Some staff members felt isolated and lonely during lockdowns and WFH. Others may also have experienced difficulties finding an appropriate workspace. Employers need to address issues such as health and safety in a WFH environment and the extent of their liabilities. Companies can accommodate flexible working but what this involves needs to be signposted to all members of a team. Flexibility means different things to different people.

Big questions for the year ahead

The two sessions on The Big Question? – exploring the questions the financial industry needs to answer on the road to Sibos 2022 – did what exactly what it said on the tin. Tony Fish, Lecturer, Author and Serial Entrepreneur, who moderated the sessions, asked two sets of panellists to pose such a question and invited the others, along with an invited set of ‘front row’ Sibos participants, to critique them.

First up Jame DiBiasio, Founder and Editor of Digfin, asked if digitalisation is making finance simpler or more complicated, suggesting that the proliferation of APIs designed to improve the customer experience could actually create new complexity.

Julia Hobsbawm OBE, Founder, Editorial Intelligence, posed a broader question, encompassing, but not limited to, the financial industry: will hybrid working be as liberating as people hope and as workable. Will hybrid working make us more productive and have more purpose? Markos Zachariadis, Professor of Financial Technology at Manchester University business school suggested a focus on productivity as a guide to judging the impact of hybrid working. He himself posed an initial question on the impact of open data on the industry.

Out of this first session, Fish distilled four questions for consideration: Is digitalisation making finance more functional and accessible? Will hybrid working in the long term be something we hope for? How does open data transform finance and does it affect hybrid working?

A second session in the afternoon, also moderated by Fish, repeated the exercise, seeking not to answer but to construct better questions to take forward. Jim Marous, Co-Publisher, The Financial Brand, was first to the virtual podium, asking if traditional loyalty is dead or needs to be redefined to reflect the degree of engagement of a customer rather than counting their assets or accounts.

Bianca Lopes, Co-Founder, Talle, took a different tack with her own contribution: Imagine it’s your last day on Earth, she said. If someone asks, “What did finance ever do to help me? What did you do with all that power?”, what would you say? “I'd reframe it a little,” said Marous. “What can banking do to save the planet?” One audience member suggested the question was a little broad in all these forms. “I would have asked, what is it we cannot do?” he commented.

SWIFT strategist Matt Loos focused on identity: What does identity look like in the future? Marous suggested shrinking this a little to whether or not there needs to be a universal digital identity process, to which Lopes added the issue of ensuring transparency. These are all the right type of questions, said Fish. Ultimately, he said, the question we will all continue to ask is, “how can we make a difference?”

Action on climate

The conference ended with a riveting keynote by Mark Carney, UN Special Envoy for Climate Action and Finance, well known to the Sibos audience as the former governor of the Bank of England. Finance doesn't operate in isolation, so it matters what governments are doing and ultimately finance exists to serve companies and individuals, said Carney. He suggested the financial industry is on-board with efforts to get us to net zero by 2050 and so far many financial leaders have made a commitment to the goal. Companies that manage $88 trillion - or about one-third of global financial assets - have all pledged to pivot to decarbonise their portfolios.

The question is: how do we make the leap from commitment to real action that can make a difference to the climate crisis and avoid a catastrophe? “We need to provide basic information to financial institutions, so one of the big [objective] over the course of the last five years has been to get that information through climate disclosure,” said Carney.

Asked why this isn't happening fast enough, Carney acknowledged, “We've certainly left it very late… There's been a huge shift in the course of the last 18 months. That $88 trillion number was $5 trillion 18 months ago… we're all, candidly, scrambling to catch up. But I think the good news is that the core of the financial system is ready.”

We're all, candidly, scrambling to catch up."

Mark Carney, UN Special Envoy for Climate Action and Finance

On the underlying ecological challenge, carbon offsets will play a role, said Carney. “Over the course of this decade to stay on the trajectory for one and a half degrees we need to reduce our emissions by about 23 gigatons. There are various estimates of how we're going to do that. Obviously ramping up renewables is a huge element, but most estimates are that somewhere between 8-10-15% of that amount will need to come from carbon offsets.”

As in past years, the overwhelming sense at the close of Sibos was that progress to date can be justly acknowledged, but that as a community, the challenges ahead are still formidable. Discussions on those identified during the week will certainly continue up to and during Sibos 2022 in Amsterdam.