SWIFT
Guillaume Boland
14 July 2015
There are still too many manual processes in collateral management, but the rate of innovation is picking up, says Guillaume Boland of SWIFT
Image: Shutterstock
To what extent have you seen collateral movements and instructions increase in recent years?
On one hand, we are seeing traffic for triparty operations growing by 25 percent for the seventh consecutive year.
This traffic is mainly pushed by triparty agents in Europe (Clearstream and Euroclear) and the need for financial institutions to outsource, as much as possible, the burden of intraday collateral valuation, margin calls, and so on.
On the other hand, regulations are pushing for more automation of over-the-counter (OTC) derivatives that need to be centrally cleared. For this reason, SWIFT is working with the industry—mainly central counterparties (CCPs) and clearing members at this stage—to enhance the current process and establish a common standard (ISO 20022).
We now have one CCP and two clearing members using the solution to fully automate the margin process.
What are the effects of more businesses becoming collaterised?
The need for a fully automated and standardised process. At this stage, there are still too many manual processes in collateral management, which won’t be sustainable in the near future.
Reporting on collateral will be a knock-on-effect, too. We are seeing an increasing need for collateral reporting in order to track, in almost real-time, the availability of collateral pools.
Finally, we are seeing more and more collateral management applications, proposing customised products to fit customer’s expectations. The financial technology space is coming alive in this sector.
How much more pressure will this put on the collateral management function?
With collateral management now at the forefront of many business discussions, these changes are putting tremendous pressure on the function.
We see institutions ‘getting ready’ to support important business growth. For example, intra-day margin calls are expected to rise by 500 percent to 1000 percent.
Can you elaborate?
This is usually part of important project that is putting pressure on businesses, as of right now.
The market will adjust eventually, but this process takes time and will certainly need to be tweaked at some point to make sure they stay up to date with regulations and maybe new processes that need to be put in place.
Will businesses such as securities lending and repo be relied on to source scarce collateral? How can they be made more efficient to meet demand?
We hear all kinds of things on that subject. At a certain point, the market will adjust, whether with interest rates or the price of collateral.
SWIFT’s own collateral management solution offers efficiency and lower costs through standardisation—how does it achieve this? How else does it help deal with collateral movements?
We are working closely with our community to put in place a common understanding of the flows that are needed. We have set up a best practice and implementation guide, both for triparty instructions and for margin messages on ISO 20022.
SWIFT is mostly used already for collateral posting (free of payment instruction of securities for collateral or cash instruction). Our participants can leverage their SWIFT infrastructure in place to avoid multiple communication channels.
For a non-connected institution we also provide a low footprint connectivity package called Alliance Lite2, which provides a cloud-based connection to the SWIFT network and related applications and services.
Finally, we are working with collateral management application providers to enable them on SWIFT standards.
Collateral management technology, to the outsider at least, looks like its undergoing rapid innovation—would you agree with this?
I definitely agree. We see more and more financial technology in the market. They offer a wide-range of solutions to help standardise and facilitate the collateral management process.
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