Innovation comes from within

Our first guest blogger for Sibos in Boston is Tim Lind, who during his time at TowerGroup did a 'Heidi Miller' on the securities industry with his aptly titled, "A Eulogy for STP and the Asset Manager," which blamed poor STP on custodians' inability to understand what fund managers really cared about, alpha.

Lind is now managing director, strategic planning, for post-trade pre-settlement solutions provider Omgeo, and ahead of his "intellectual battle" on Tuesday in the Sibos Fund & Investment Management Forum debate, Lind calls on the industry not to rely on regulation for innovation.

On Tuesday, I will be speaking on a SIBOS panel, against the need for more prescriptive regulation. Whilst I am sure it will be entertaining for the purposes of the debate to be on the side of good versus evil, we all know that it isn’t that clear cut. Whilst no one wants to be burdened by onerous rules and regulations, guidance from regulators plays an important role in shaping behaviour in the securities industry.

But it’s not just the role of the regulators to initiate transformation. The institutions that drive our industry must show leadership in putting the interests of the investor first and foremost. Just as doctors are bound by a ‘Hippocratic Oath’ to do no harm to their patients, shouldn’t we expect the leadership of our industry to uphold the interests of the investor with the same zealousness?

Current discussions around the pros and cons of principles- versus rules-based regulation are turning attention away from the industry‘s responsibilities. It may appear easy to criticise the SEC for implementing a regulatory overload, or to praise the FSA for its apparently more enlightened approach, but the responsibility for identifying pockets of risk and initiating ‘palatable’ change lies with securities firms and industry bodies as well as regulators.

In a 2004 speech addressing the mutual fund scandals in the US, William Donaldson, then chairman of the SEC, summarised the point beautifully. “Opportunity may only knock once, but temptation leans on the doorbell. As much as we may wish to, we will never be able to set and enforce rules that govern every situation in which an investment adviser’s employees might be tempted…”

The SEC has made it clear they expect the industry to follow the highest level of ethics, not because they should fear enforcement (which of course they should) but because it’s their responsibility as a fiduciary.

That said, threats of regulation, rather than regulation itself, have proved effective in the past. Rather than issue an edict, the Federal Reserve threatened to intervene unless the world’s biggest banks reduced their credit derivative processing backlog by 30%. The banks responded to the threat, achieving this goal and even outlining their own new target of cutting the backlog of unconfirmed credit derivative trades by 70% in a letter to the Fed.

The European Commission took a similar approach when it decided against issuing regulation to increase transparency in European Clearing and Settlement. Instead it issued a Code of Conduct which seems to be working.

I admit that it doesn’t always happen this way. The Canadian regulator, the CCMA, having seen no evidence of self-transformation, decided to tackle one of the most risk-laden spaces in the trade life cycle. The regulation, known as National Instrument 24-101, mandates that institutional trade matching, or same day affirmation (SDA), be adopted by investment managers in the Canadian financial market by the summer of 2008, via STP. However, by having the option of a phased approach over a few years, firms have at least been given time to get their back-offices in order.

As a community, the securities industry is evolving at a faster rate than ever before. Technology is empowering the rate of innovation, and it is clear that the entire industry must constantly review ways to ensure that this change can continue safely, preventing systemic and market risk. It’s not just a question of rules vs. principles, it’s a question of responsibility.

A different perspective on Sibos

The last time SWIFT's annual user conference was in the US in Atlanta, Heidi Miller, executive vice president and head of JPMorgan Chase Treasury & Securities Services, lambasted the banking community for "being a long way from STP" and the "glacial pace" at which banks moved, weighed down by legacy investments, regulation and compliance.

Are banks at the epicentre of the transaction services industry as secure as banks think, Miller posed? Well it is three years since Miller made that speech and those that saw it have been dining out on it for some time. It struck a chord - bankers were surprised at someone in their own camp being so forthright about banks and SWIFT needing to raise their own game, when normally Sibos is as an opportunity for bankers to pat themselves on the back.

Will there be a lot of back patting at Sibos 2007 in Boston? Well this year the opening plenary features a new SWIFT CEO Lazaro Campos and Ken Lewis, chairman and CEO of Bank of America. Those of us that have attended more opening plenaries at Sibos than we care to remember would like to think that the industry has heeded Miller's message got their act together and moved swiftly to up their game.

But with an industry still overburdened by legacy systems, the unfulfilled promise of service-oriented architecture, dwindling payment volumes and even more regulation, as well as the global fallout from the recent credit crunch, is innovation and banking an oxymoron or has the industry really 'gained momentum,' to borrow SWIFT's theme?

In the coming week we will be covering of on the major themes of Sibos 2007 in Boston - corporate access on SWIFT, and the ongoing automation and regulatory challenges faced by the investment and fund landscape. A different guest blogger from TowerGroup will be joining us each day to share their thoughts on some of the main issues raised throughout the day's events. And I as usual will be wading through the mines of nonsensical press releases to try and provide you with a different perspective on Sibos.

Berlin's stock exchange looks to Equiduct

While Project Turquoise may still be looking for a CEO (well they were the last time we checked), the "pan-European exchange," Equiduct is looking to shore up market share by getting into bed with Börse Berlin.

Börse Berlin announced this week that it had taken a majority stake in Easdaq, which trades as Equiduct. Equiduct revived the old Easdaq trading platform in response to the removal of the 'concentration rule' under the Markets in Financial Instruments Directive (MiFID), which effectively means trading of equities on the Continent is no longer confined to national exchanges.

Under MiFID, exchanges like Börse Berlin are tipped to be part of a dying breed as supposedly faster and cheaper multilateral trading facilities, ECNs and alternative trading venues emerge post-MiFID to try and steal market share from 'dinosaur' exchanges. However, as we reported in the latest issue of Financial-i, few contenders other than Equiduct, Chi-X and Project Turquoise (which has yet to find a CEO) have thrown their hat into the ring.

According to the PR blurb the deal between Börse Berlin and Equiduct will provide their customers with "unrivalled access to trading in a broad category of European financial instruments." As to what this precisely means has yet to be revealed but Equiduct believes it has the "state-of-the-art" trading system and Börse Berlin has the "broadest range of securities" and experience in secondary exchange trading.

ME exchanges battle for dominance

The long suffering Nasdaq which was unsuccessful in its bid to court the London Stock Exchange (LSE) and looked like suffering a similar setback in its pursuit of OMX Group in the Nordic countries, appears to have reached an interesting comprise.

Bourse Dubai, the other suitor for OMX, has agreed to let Nasdaq have OMX, while the Dubai exchange has agreed to take on Nasdaq's stake in the LSE, as well as a 20% stake in Nasdaq itself. It is all starting to sound rather incestuous in the world of exchanges - everybody is hopping into bed with one another in their bid to go global.

As part of the deal Bourse Dubai has agreed to give Nasdaq a share in the fledgling Dubai International Financial Exchange, which will now carry the Nasdaq name and use both Nasdaq and OMX market technology. Is it a 'win-win' for all parties? Well the LSE and Middle Eastern sceptics in Washington may not be cracking open the champagne bottles just yet.

As some pundits suggest, a government-owned UAE exchange owning a stake in a US brand name like Nasdaq may rise the ire of those that are not in favour of any Middle Eastern company owning anything American. One only has to recall Dubai Ports World's decision to sell off its US operations to an American owner following pressure from Congress. Is the US Congress likely to have similar feelings of discomfort about Bourse Dubai owning a stake in Nasdaq?

Similarly those that nurse nationalistic sentiments about the LSE may be equally miffed by the deal. This was borne out by the LSE's response to Qatar making an offer for Nasdaq's 31% stake in the LSE. According to a report in The Times, the LSE welcomed the Qatari investment as a "long-term" play. No such sentiments were ascribed to Dubai's stake in the LSE.

Now it appears the battle lines have been drawn between Dubai and Qatar with the latter making an overnight raid to acquire an almost 10% stake in OMX. Few could have predicted that the fate of the LSE and Nasdaq would lie in the hands of Middle Eastern exchanges.

Banks should talk to procurement

We have all heard about the benefits of electronic invoicing - replacing manually intensive paper-based invoicing with electronic machine-readable invoices could save the industry EUR 100 billion a year. Yet, the reality is that only 2% of total invoices are transmitted electronically.

So why despite the overwhelming business case for e-invoicing are companies dragging their feet when it comes to actual implementation. At the 16th Eurofinance International Cash & Treasury Management Conference in Vienna, Kjell Gunnar Gustafasson, chief purchasing officer, E.ON Sverige AB in Sweden said that what was missing was a total end-to-end e-invoicing solution that was well integrated with companies' back-end systems.

When it comes to e-invoicing, companies like E.ON do not want to see a myriad of proprietary e-invoicing solutions. "We want to see a solution similar to roaming," said Gustafasson, drawing parallels between pan-European e-invoicing solutions and pan-European roaming in the mobile telephone market.

Gustafasson challenged the e-invoicing industry to abandon its proprietary mentality and support standardisation. He also called on the banks to play an enlarged role by developing "inter-banking" arrangements which he said had a better chance of encouraging supplier adoption of e-invoicing rather than single bank solutions.

"I would like to see the banks and bankers learn more about the purchasing process and engage in their customers' every day processes," he said.

"Banks only talk to treasurers," said Patricia Pittomvils, vice president, payments, cash management and cards, TietoEnator UK. "They should also talk to procurement people."

But it appears it is not all bad news for companies trying to establish a business case for e-invoicing. After a slow start, Pittomvils said "The good news is that banks are becoming more interested in e-invoicing." An example of this she said was the European Banking Association's Stakeholder Forum, which is looking at e-invoicing as part of SEPA. Vendors such as TietoEnator are also members of an e-invoicing Interoperability Club.

But it appears vendors and companies are waiting for the banks to fully grasp the enlarged role they can play in e-invoicing by re-using existing banking channels and leveraging banks' "credibility". I posed this question to Marilyn Spearing, global head, trade finance and corporate cash management, Deutsche Bank, who said that while it had invested in its electronic bill presentment and payment solution, it had yet to see significant traction by corporate customers. "The fact that corporates need to change their whole processing has meant slower adoption of e-invoicing," she said.

Surely then it is up to the banks working with vendors to simplify that process.

Making 'bold' SEPA predictions

Just as the banks like to make 'bold' statements about how they are using regulatory imperatives such as SEPA (Single Euro Payments Area) to transform their payments offerings, you can always rely on a consultant to come and put a spanner in the works as it were.

While the major global cash management banks have not been shy about advertising their SEPA-readiness, interestingly not everyone believes they are going to win the lion's share of SEPA payment volumes. Wouter de Ploey, senior partner at McKinsey & Co., Belgium, boldly predicted at Eurofinance's 16th International Cash and Treasury Management Conference in Vienna that smaller regional banks were the most likely to benefit from SEPA.

"I don't think the global banks will be the big winners as they are more sensitive to loss of revenues in their cross-border flows." De Ploey maintains that regional European banks are likely to "move more aggressively" into the corporate banking space as the move to standardised credit transfers and direct debits under SEPA will lower the barriers to entry for these banks to develop pan-European instruments for corporate customers.

Meanwhile, the larger global payment providers' mantra is 'volume, volume, volume' - those that can process the most payment volumes are more likely to deliver the greatest cost savings and efficiencies.

Whether SEPA will force banks to converge towards a single pricing model is uncertain, says de Ploey as banks in different regions derived their payments revenues from different sources. For example, he said some banks generated the bulk of their revenues from the retail banking side and therefore may be less inclined to offer reduced pricing under SEPA to corporates.

De Ploey said the focus on Additional Optional Services (AOSs) by banks looking to make up the billions in revenue that will be lost by standardising payments under SEPA, could result in "non-standardisation" meaning banks could charge more for value-added services as a means of recouping some of their lost revenue.

Anne Boden, head, transaction banking, Europe, ABN AMRO, said that AOSs that meant additional functionality for certain customer or corporate groups with specialist requirements was a good thing. "However, AOSs which are country specific are not in accordance with the objectives of SEPA," she said.

When it comes to migrating to SEPA, de Ploey outlined a number of options including a slow and gradual approach to SEPA adoption, the 'domino effect' and the 'Big Bang' approach. A slow and gradual approach was the least likely, he says, while banks tended to favour a regulatory-mandated 'Big Bang' transition to SEPA, which he said meant they could standardise as little as possible and provide more AOSs at a higher cost.

De Ploey believes the most likely SEPA migration scenario is the 'domino effect' where migration to SEPA starts off slowly and then increases rapidly. Either way he says banks in particular are going to find the transition to SEPA painful because of the "cross-subsidisation" of the payments business within Europe.

Boden of ABN AMRO said the SEPA migration for corporates and banks was complicated and could last well beyond 2011 with no clear end in sight for the switching off of existing national payment systems. Describing the SEPA migration process she said it was "like people deciding to change which side of the road they drove on at different times."

With such uncertainty and complexity surrounding migratinv to SEPA, Boden said it was important all parties kept the end game in sight. "SEPA is a good end game as we will be using the same set of standards across Europe. But getting there is going to be quite complex." Boden said she had every confidence that in the next two to three years the majority of ABN AMRO's clients would convert to SEPA.

WSS to support corporate demands for more streamlined digital identity management

I have been ranting a lot recently about digital signatures and certificates and the demand amongst major corporations such as Merck for a single non-proprietary digital identity managment solution that is interoperable between banks.

Well it now seems that treasury management system vendors are also starting to support their major corporate customers in this area with Wall Street Systems (WSS) announcing at Eurofinance's International Treasury & Cash Management Conference in Vienna that it is looking at incorporating digital signature functionality within its treasury management applications to address a wide range of corporate needs.

While corporates such as Merck have opted for the bank-issued digital identity credentials of IdenTrust, Terry Beadle, executive vice president, WSS said that its approach was not to align itself with a particular vendor. "We will find a generic point of integration and work with multiple vendors," he said. "When you look at it [digital identity] from a technology point of view, our customers are asking for different ways of doing things. We need to develop a [digital identity] solution that fits everybody."

Beadle said this was something it planned to deliver soon, and that it may also need to consider any identity management solution SWIFT devised as more corporates joined SWIFT MA-CUGs and SCORE to communicate with multiple banking providers.

WSS will also more heavily promote existing SWIFT connectivity embedded within its treasury management suite so that corporates can directly connect from their TMS to SWIFT without the need for any middleware.

The treasury management systems vendor also continues to invest heavily in ASP-enabling its applications, with its cross-asset investment and debt management solution, Wallstreet Suite, becoming the latest application to be ASP enabled. "Twenty percent of our customer base is now on ASP," said Beadle adding that its multiple instance ASP model is now the fastest growing part of its business with both top tier corporates such as Adidas and mid-tier corporates opting to have their treasury management functionality hosted by WSS, which provides the hosting in conjunction with network connectivity provider SAVVIS.

WSS maintains that corporate treasurers can save between 25% to 30% of the costs of hosting an application inhouse by outsourcing hosting to an ASP, which it says is a more attractive alternative, particularly for smaller treasury teams without a dedicated in-house IT department. WSS hopes to achieve an even 50/50 split between its ASP and traditional software licensing model.

Unlike 'pure-play' ASPs that provide a single instance of treasury management applications which multiple users connect to, Beadle said its multiple-instance ASP approach provided customers with more flexibility, enabling them to customise the application to suit their individual needs. He said it also lessened the "theoretical risk" of customer data being shared by maintaining separate databases.

Pulling SEPA out of the 'doldrums'

With migration to the Single Euro Payments Area (SEPA) compromising banks' traditional payments revenue (the World Payments Report 2006 estimates banks' direct revenues will be cut by approximately 38% to 62%), Deutsche Bank made the bold move of announcing that it would apply the same pricing to all payment transfers within the eurozone regardless of payment size.

SEPA applies to low value payments within the eurozone below the EUR50,000 threshold. However, at Eurofinance's International Treasury & Cash Management conference at the Austria Centre in Vienna today, Marilyn Spearing, global head, trade finance and cash management, corporates, Deutsche Bank Global Transaction Banking, said they would offer a "common price" for any payment transfer within the eurozone, effectively treating all payments the same and removing the distinction between high value and low value payments.

With the World Payments Report 2007 indicating that public sector organisations and corporates may need regulatory incentives in order for migration to the new SEPA payment instruments to achieve critical mass, Spearing said Deutsche Bank was dangling a 'carrot' in front of corporates and financial institutions in order to drive SEPA adoption.

This is quite a bold move given that other payment processors within Europe have not widely publicised their pricing models post-SEPA. Spearing said the announcement was part of the bank's strategy to establish itself as the dominant SEPA payment provider and to shore up payment volumes from both banks and corporates. "We want to get the maximum benefit from any changes we have invested in," Spearing explained, pointing to Deutsche's investment in its new single payments engine for processing all currencies.

Given that there will be no 'Big Bang' migration to SEPA from January 2008, Spearing said SEPA needed to be dragged out of the "doldrums," and corporates needed to act now in order to realise the gradual payment efficiencies that will come from SEPA.

In an effort to incentivise corporates to support SEPA, Deutsche also announced that it would continue to support existing international payment formats such as iDOC, CSV and EDIFACT, and will convert these formats to SEPA compliant XML formats without companies having to invest in and adopt XML themselves.

Deutsche will also accept SEPA payment transfers from any Deutsche account within the eurozone and the UK eliminating the need for customers to open new accounts to process SEPA payments. It will also "re-convert" BICs and IBANs back to national account numbers to aid reconciliation. "Corporates don't need to change their technology or their account structures," Spearing explains. "We want to make SEPA as simple as possible."

Spearing said by taking a more aggressive stance in driving SEPA adoption it hoped to avoid the need for further regulatory intervention in low value European payments.

Just say no to SEPA

Just when you thought there was nothing left to say about the Single Euro Payments Area (SEPA), there appears to be plenty. All this talk of SEPA and pan-European payment intrustments over the last few years anyone would have thought there would be an instant market for the instruments.

But as the January 2008 deadline for banks to start offering SEPA Credit Transfers approaches, it appears neither corporates or public sector organisations have much of an appetite for the new SEPA payment instruments. Corporates maintain that the new SEPA instruments are not a significant improvement on existing national instruments, so why should they adopt them?

This is borne out by the World Payments Report 2007 which after analysing SEPA migration plans and preparations in 13 of the eurozone contries, concluded that it is unlikely a critical mass of SEPA payment instruments will be achieved by 2011. The European Financial Management & Marketing Association (EFMA), one of the co-publishers of the report alongside Capgemini and ABN AMRO, has called for regulators to provide incentives in order to mobilise public sector companies and corporates.

But with the new SEPA payment instruments symbolising bank-to-bank standards, corporates have not been engaged enough by the banking community to fully participate in SEPA, and for them SEPA is not SEPA without add ons such as pan-European e-invoicing standards and banks dispensing with their support of proprietary standards and applications so corporates can more easily communicate with multiple banking providers.

So much for full transition to SEPA by 2010 it seems (most banks probably realised that the transition period would extend beyond 2010, however there appears to be no end in sight as to when banks will stop supporting the existing national payments infrastructure and move wholly to the new SEPA payment instruments).

The World Payments report indicates that some countries want to retain national payment systems as long as demand exists, but doesn't this defeat the original intent and purpose of SEPA, and how long can banks bear the brunt of the cost for running two systems in parallel?

Blogging Sibos

It is that time of year again when the spam filters on journalists' inboxes go into overdrive as invites to meet with companies at SWIFT's annual user conference, Sibos reaches fever pitch.

Following our launch at Sibos 2006 in Sydney Australia, FinancialTech Insider will be providing daily commentary, opinion and analysis of the goings on at the Sibos conference and exhibition. This year for the first time, Rob Hegarty, managing director, securities & investments, TowerGroup and Gareth Lodge, analyst, European Payments, TowerGroup, will be joining FinancialTech Insider to blog on the latest news from Sibos.

Join us for a different perspective on how far the industry has move on since Sibos in Sydney.

Reuters at Sibos

In the run-up to SWIFT's annual customer conference, Sibos, it is not unusual for us hacks to receive invitations from banks and financial software vendors to attend press briefings with their key executives.

So when I received in my email inbox an invitation from Reuters to participate in "a limited number of face-to-face consultations, examining key business challenges faced by our customers," my curiosity was aroused.

The invitation mentioned that Reuters is bringing a team of "top-level experts" and showcasing a "new, no-compromise approach" to business automation for capital markets, which it has assigned the rather intriguing name, of "The Power of &."

It appears the "The Power of &." has something to do with "simplifying" front-to-back office trade and risk processes with more seamless integration of "standardised high quality data."

My interest was certainly twigged until I saw the name on the Reuters' invitation, which said, 'Dear Antonio'. At first I thought it was a mis-type (Anita, Antonio) but when I clicked on the RSVP button and the details of an Antonio at a bank in Brazil came up, I realised it was a customer invitation I had mistakenly received. No doubt the press invite for a limited face-to-face with Reuters is in the post.

Where is Egg.com?

Having lambasted 'bricks and mortar' banks for their "second-rate" online customer service based on research findings from Transversal, it appears some online only banks are finding it difficult to keep their sites fully operational.

Tried logging onto Egg recently? Martin Stern, head of the authority on Internet and mobile performance,Keynote UK, issued an edict saying that, Egg.com seemed to have disappeared from existence with customers unable to find the website anywhere.

So I decided to type Egg's domain name into a web browser, which resulted in a message from Firefox that it cannot find the web server at Egg. Having said that I logged onto Egg.com again this afternoon and voila, the web site appeared.

Egg.com, formerly owned by the Prudential, was one of the first wholly online banking sites to launch at the height of the Internet Gold Rush. Citi bought Egg from Prudential for more than $1 billion earlier this year. Citi has a wealth of online experience with its CitiDirect Online platform, but in this era of 24-hour round-the-clock online banking, any site down time can cause consternation amongst customers.

Stern had this to say about the need for online only banks to ensure round-the-clock availability:

"It is imperative that a company whose total business model is based on online presence manages to maintain consistent website performance. Online-only banks need to ensure their infrastructure performs above-and-beyond their multi-channel competitors and, given the much-lower operating costs of a branch-free model, their margins should be able to fund the building of a world-class online infrastructure."

Banks 'second rate' at online service

Banks bang on a lot about customer service but with multiple channels to support for communicating with their customers, it appears banks may be neglecting the most powerful channel of all, the internet.

Multi-channel customer service research from eService provider Transversal suggests that while response times at customer call centres have improved dramatically with 60% of calls answered within three minutes, and the shortest wait times being just a few seconds, the banks still have not get their heads around customer service on the internet.

According to Transversal's findings, 30% of bank websites struggled to answer more than two out of 10 product and service questions - only one bank scored top marks. Approximately a third of banks still do not offer the facility to email questions, and of those that did, the average response time was 30 hours - and it gets worse, only three out of 10 banks managed to answer email questions satisfactorily.

Given that banks have invested heavily in a web shopfront window, there appears to be no good reason for the lack of responsiveness to web enquiries other than the fact that banks don't quite get it.

Some banks still appear to be stuck in the mindset that putting information on the internet means you do not have to provide the same or similar levels of customer service that you would provide if someone walked into a branch.

Although 80% of banks surveyed had a Frequently Asked Question (FAQ) section (up from 50% in 2006) Transversal's findings indicate that many of these were "extremely large" and difficult to navigate to find tailored information. The irony is that despite all the increases in bandwidth and the speed of the internet, customers still found it easier to get a response via the phone than online.

Pushing its own barrow, Transversal said only 30% of banks had implemented natural language eService solutions that use neural network technology to analyse email questions in order to find the best response.

But it is not just about the software becoming more intelligent in order for web sites to more satisfactorily respond to customers emailed questions. Banks need to fully embrace the interactive capabilities of the Internet to encourage more meaningful and fruitful interactions with their customers. Do I hear shrieks of Web 2.0 in the background - quite frankly shouldn't basic levels of online customer service been part of Web 1.0?

Politicians up the ante about online fraud

UK politicians it seems are getting all hot and bothered about online fraud, particularly in the banking sector, with the release this week of a UK parliamentary report entitled, "Personal Internet Security", which describes the internet as a “playground for criminals”.

No new revelations there, then. The internet has been used by criminals pretty much since its inception, so why are the politicians suddenly getting hot under the collar about it? Well it seems that the report's authors, the House of Lords Science and Technology Committee, has gone and given themselves a major dose of the 'spooks' by compiling damning statistics and evidence that suggest online fraud is an epidemic.

Not only is online fraud being perpetrated by organized crime gangs (nothing new there either) instead of the teenage-hacker-in-his-bedroom with nothing better to do, the report states, but they have also succeeded in remaining largely "invisible".

The report reels off a damning array of statistics including VeriSign's predictions that the level of “bad traffic” (Denial of Service attacks, email spam, phishing) was peaking at 170 times the basic level of Internet traffic; by 2010 it is predicted to be 500 times the basic level.

The report highlighted the vulnerability of online banking to fraudulent activity, citing figures published by the UK bank payments association, APACS, which recorded more than 1,500 “unique” phishing attacks directed at UK banks in September 2006, up from just 18 in January 2005. US banks are the most targeted by phishing, with their losses totalling approximately $2 billion.

The UK parliamentary report recommends the establishment of a framework for collecting and classifying data on e-crime, and “more rigorous and co-ordinated analysis” of the incidence and costs of such crime. It also talked about deployment of security software at ISP level (not that old chestnut), the need for a dedicated regulator for the online world (Hmmm!) and for Government to increase banks' fraud liability.

It did not take long for the security software industry to leap on the parliamentary band wagon, coming out and touting the latest and greatest authentication technologies including two factor authentication (which uses two different methods for authenticating someone's identity), and the most amazing suggestion I have heard so far, a "pattern-based" approach based on peoples' ability to remember patterns to offer a more secure, yet more simple (surely not?) means of authentication, other than the much maligned Chip and PIN.

No one is disputing the need for stronger more robust means of authenticating someone's identity. However, some of the newer technologies being touted are expensive to deploy and complex to implement. Furthermore, a lot of these technologies only provide authentication up to a point. With pin and password for example, it may authenticate a user to an online site or banking application, but it does not provide an iron-clad guarantee that person is who they say they are.

What is even more alarming is that multinational corporations sending high volume payments via their banking partners, have desk drawers full of security tokens and fobs which only provide authentication at the corporate level, but do not identify the individual sending a payment and whether they are authorized to do so.



It seems the banks have been caught napping and have been too busy trying to push their proprietary identity management and information security technologies on customers in an effort to lock them in.

Well no one wants to be locked in, they want to be able to bank online or send payments electronically without the risk of someone intervening in that transaction and altering payment details for fraudulent purposes.

What is even more surprising is that banks have been sitting on a solution for the last eight years. It is called IdenTrust, which uses PKI encrypted digital certificates to verify someone is who they say they are.

The advantage of IdenTrust is that the banks behind it have already invested $170 million in ensuring IdenTrust digital certificates are binding in more than 175 countries and interoperable cross-border between banks.

So with a solution to stronger means of authentication staring them in the face and the chance to deliver a single identity management solution instead of a multitude of different ones, why on earth does the industry continue to perpetuate their own proprietary versions of digital certificates and other security technologies that do not actually vouch for someone's identity?

Mind you if we have entrusted banks with our money, can we entrust them with our identities? The argument in banks favour is that they already hold a lot of theinformation necessary to authenticate someone is who they say they are, although admittedly some of this documentation may be fraudulent.

The security software services industry also has to ask itself does it want to continue to perpetuate solutions that sound like a prop from a James Bond film but are difficult and expensive to implement for widespread use.

MiFID highlights lack of good practice in outsourcing

Some time back I remember hearing PJ DiGiammarino of the JWG-IT Working Group mention that outsourcing contracts were likely to be impacted by the Markets in Financial Instruments Directive (MiFID).

Then we never heard another whisper about it in a lot of the high level debates about MiFID which tended to focus on best execution, pre- and post-trade reporting and client classification. All worthy subjects, but it appears now that outsourcing and MiFID are finally in the spotlight with a survey by law firm, Field Fisher Waterhouse, revealing that most financial services organisations’ outsourcing agreements still fail to comply with MiFID.

How can that be so? Well Field Fisher Waterhouse says that the main points of failure are that 40% of firms do not have an up-to-date exit management plan in place with their service provider; 36% do not have their regulatory team review its contracts; 33% do not have a service level agreement in place with every service provider; 32% do not regularly test service provider’s disaster recovery; if an outsourcing provider fails to meet regulatory standards, 31% do not have the right to terminate the agreement; and more than 30% of outsourcing agreements do not require the provider to regularly test back up facilities.


These are some pretty glaring oversights, when you consider that irrespective of MiFID and with the buy-side outsourcing more than just non-core back office processes to providers, they do not even bother to question or test whether that provider is able to keep the show on the road if and when a disaster strikes.

Field Fisher Waterhouse technology partner Simon Briskman had this to say to firms nervously scratching their heads wondering how to put this right before the 1 November MiFID deadline:

“In order to achieve the deadline, firms need to engage their suppliers in negotiations now. Many companies have assumed that the outsourcing rules under MiFID are no more than an extension of the current rules and reflect good practice. To some extent this is true and our survey suggests that good practice is often not met in financial services outsourcing.”

IdenTrust adoption at inflection point

A couple of years ago in financial-i magazine we did an article aptly titled,'Whatever Happened To', which alluded to the spate of bank-led initiatives, Identrus (now IdenTrust), Bolero, SWIFT's ePaymentsPlus, CFOWeb.com, that emerged at the height of the dot.com boom only to find that user adoption was not forthcoming.

Some of these solutions, particularly CFOWeb.com and ePaymentsPlus have since gone to the technological graveyard in the sky, and even those that have survived have had to re-invent themselves to establish a more compelling business case for user adoption.

One of those companies of course is IdenTrust, which with a new name, a new focus and a new CEO,Karen Wendel, formerly of Gemini Consulting, has gone from being a bank-centric organisation to one that is now focused on helping banks deliver more robust identity management solutions to their corporate customers.

Formed in 1999 by leading global cash management banks such as Citi, Bank of America and Deutsche, IdenTrust (then known as Identrus) positioned banks as trusted third parties in B2B e-commerce by establishing policies, rules and guidelines for banks to issue PKI-encrypted digital certificates for authenticating an individual's identity.

IdenTrust's founding bank's invested $170 million in developing a policies, legal framework, trusted operations and technology (P.L.O.T.) to create a comprehensive environment for issuing trusted identities based on customer agreements which are enforceable in more than 175 countries.

IdenTrust is the only bank-developed identity authentication platform and unlike other digital ID solutions, it emphasizes the interoperability of its digital certificates and their ability to function cross-border. However, since its formation in 1999 it has suffered from an image problem. Wendel says at the time of its inception, PKI was largely driven by 'techies' more focused on encryption than business applications of PKI.

Early implementations of PKI were also costly and cumbersome to implement, and by the onset of the millennium it had been superseded by cheaper means of authentication such as pin and password. But as the incidence of identity fraud has increased in recent years, with attacks becoming more sophisticated, Wendel says PKI and IdenTrust are back in favour.

According to Wendel, IdenTrust's digital certificate volume is doubling every year and instead of having to spend $7 million to $10 million just to get started, banks can deploy PKI digital certificates for less than $500,000.

But the real inflection point when it comes to adoption of IdenTrust's identity credentials has to be pressure from major multinationals such as Shell and Merck, weighed down with hundreds of different security tokens and signature cards for logging onto proprietary banking applications.

These companies are asking banks to implement a single ID management solution that is interoperable across multiple banks. As part of a multi-year overhaul of its treasury management operations, Merck is implementing an innovative identity management solution using IdenTrust digital ID credentials and the concept of an "e-vault," to provide an extra layer of security.

Wendel says Shell will also be one of the first corporates to implement a bank account mandate application which has IdenTrust credentials embedded in it. The challenge now for IdenTrust is to encourage banks and software vendors to develop more applications with its digital credentials embedded in it and to get banks to abandon their proprietary PKI technologies.

As more and more corporates communicate with their banking providers via SWIFT, IdenTrust believes it also well positioned to provide authentication at the individual level for bulk payment transfers via the SWIFT network. Currently SWIFT’s PKI security protocol only provides authentication at the corporate level, so the bank knows for example, that Company A is sending a payment file, but not the individual within that company that has authorized the payment.

SmartStream expands its global footprint

With a number of financial software vendors being bought by private equity outfits, the expectation more or less is that once they are pumped full of venture capital, they will embark on an acquisitions spree.

SunGard has certainly been busy acquiring companies following its acquisition by a consortium of private equity investors led by Silver Lake Partners. Others, however, prefer the more organic approach rather than having to integrate multiple acquisitions.

Following TA Associates' acquisition of 3i's majority stake in UK financial software vendor,SmartStream, acquisitions are not high on newly-appointed CEO Ken Archer's agenda at the moment.

Having been convinced to give up his job as president of European business development for Computer Sciences Corporation, a $4 billion operation, to go and run a smaller UK software outfit, Archer's strategy for the leading reconciliations and STP vendor so far has been to ramp up staffing and to expand the company's global footprint.

Over lunch at the Royal Exchange in London yesterday, Archer said SmartStream would expand its Asian and emerging market presence by establishing a presence in Beijing, China, where it recently signed a major deal with one of the top four banks. It is also increasing its sales strength in Singapore to address the Northern Asian market and there is also potentially going to be an office in Miami to expand sales in South America. SmartStream has also completed a feasibility study for setting up an office in Dubai.

Not many CEO's of financial software companies can boast that they don't really need more customers, but with more than 1000 customers, including 75 of the world's top 100 banks, Archer says it is not so much about acquiring more customers, but about being able to sell more to its existing customer base, and eliminating some of the barriers to straight-through processing via its STP Control Architecture.

Approximately 70% of SmartStream's customers use its Corona platform to address reconciliations challenges. TLM Corona which offers the reconciliations functionality of Corona coupled with its thin client web portal, WebConnect. SmartStream boats that its solutions are able to scale much more efficiently than its competitors, with the ability to process millions of reconciliations an hour in real time.

SmartStream subscribes to the belief that reconciliations are "instrument agnostic" so its solutions tend to span multiple asset classes (cash, securities, FX, derivatives). Utility computing is also an area of increasing focus for the UK software vendor in terms of providing a cost effective increasingly scalable solution for the processing intensive nature of reconciliations.

Abbey and 0B10 in e-invoicing supply chain financing partnership

First JPMorgan bought Xign, the global settlement network it had worked with since 2003 as part of its Order-to-Pay solution, enabling customers to automate purchase order delivery, invoicing and payments.

Xign's network boasts more than 40,000 suppliers and it would be fair to say that JPMorgan has made some interesting acquisitions (including its purchase of logistics company Vastera) in its efforts to integrate itself deeper into company's supply chains.

Now Abbey UK Corporate Banking, part of the Banco Santander group, has teamed up with e-invoicing network OB10,which enables buyers and suppliers to send and receive invoices electronically without having to implement hardware or software, as part of its "payer-centric" Supplier Payments solution, aimed at large and mid-tier UK corporates.

Supplier Payments builds on an existing supply chain financing solution within the Santander Group which uses reverse factoring to pay suppliers earlier based on the fact that the bank has received instructions from the payer to settle invoices on maturity.

Teaming up with OB10 allows Abbey to provide a more complete end-to-end solution that not only provides financing but also automates the invoicing component for faster receipt and approval of invoices and the associated cash flow benefits.

OB10 counts Hewlett-Packard and Sara Lee as customers and it has done the hard work in terms of ensuring VAT and e-invoicing compliance in the regions in which its operates; Europe, North America and Asia. It also takes care of the data formatting so firms do not need to worry about data conversion or supporting different invoice data formats.

OB10's network addresses both the Accounts Payable and Accounts Receivable side, but historically accounts payable functionality has not been top of its agenda as it has with other e-invoicing vendors such as BasWare, Ariba and Xign. Up until now, OB10 had largely focused on automating paper invoices and invoice delivery rather than the actual payment or cash flow benefits of enabling suppliers to get paid earlier.

For more information on Abbey's supply chain financing solution read the full transcript of an interview with David Goucher, managing director, Abbey UK Corporate Banking, in the latest issue of financial-i.

Firms criticise regulators for lack of guidance

As the November deadline for the Markets in Financial Instruments Directive (MiFID) looms ever closer, sell-side firms are praying for a miracle: that national regulators will provide them with more guidance and support.

I remember some weeks back citing PJ DiGiammarino, CEO of the MiFID think tank, JWG-IT, who told firms at one of its many workshops that as MiFID is a "principles-based" regulation, firms should not rely on the regulators to provide them with much guidance when it comes to implementing MiFID.

Yet, MiFID Readiness findings from a year-long survey of 300 buy and sell-side firms conducted by SunGard and TradeTech, indicate that more than half of respondents felt national regulators were either “bad” (32%) or “very bad” (19%) in helping them prepare for MiFID.

In the UK, the Financial Services Authority (FSA) prides itself on its principles-based approach to regulation, and has tried to move away from a prescriptive approach, which has caused consternation in other markets, namely the US, where regulators were lambasted for taking a too prescriptive approach to regulations such as Sarbanes-Oxley.

But according to the survey findings, only 54% of firms believed that a principles-based approach was the best approach when it comes to MiFID, with the remaining respondents stating that it “makes it difficult to understand exactly what requirements the FSA desires, adding to the compliance task”.

Yet, despite their dissatisfaction with the lack of guidance from regulators, it does not appear to have prevented 53% of firms from declaring their preparations for MiFID to be “ahead” or “right-on-track”, compared with only 34% of firms surveyed in September 2006.

The survey findings appear to highlight some anomalies in the market. Firms would be quick to criticize regulators for taking a too prescriptive approach to regulations like MiFID, yet on the other hand they seem to desire some hand-holding. It appears that the regulators are damned if they do and damned if they don't and those firms that require hand holding or guidance are unlikely to recognise the opportunities MiFID presents to launch new initiatives and "strategic reforms".

It is worth noting that if all sell-side firms required guidance on MiFID from the regulators, then Project Turquoise and Boat may never have existed.

Some IT outsourcers will "cease to exist"

I keep banging on about a strategic shift in firms' appetite for traditional outsourcing, but with good reason it seems. In its Top Predictions for IT Organisations and Users, 2007 and Beyond, Gartner paints a not too rosy picture for the Top 10 IT outsourcers.

According to Gartner, the reduced number of large contracts above $250 million, increased competition, and a reduction in contract sizes have placed great pressure on traditional "takeover outsourcing" providers, and the move towards selective outsourcing has paved the way for non-traditional providers(software-as-a-service, utility computing, managed services and specialised hosters) to enter the bidding.

"Through 2009, at least three of the top 10 IT outsourcers will cease to exist in name, with their services and product portfolios divided into spin-off companies, divestitures, longtime partners and faceless third-party aggregators. Providers of all sizes will rationalize portfolios based on desired regions, service lines and vertical industries," says Gartner.

It is no secret that revenue growth for the top IT outsourcers in Western Europe, North America and Japan has been slowing and contract terms and values have been declining.

Interestingly, while revenue margins for Indian IT outsourcing firms such as Tata Consultancy Services and Infosys have been increasing, Gartner predicts that only one Asia/Pacific-based service provider will make the global top 20 IT service providers (based on IT services revenue) through 2010. Currently, Fujitsu is the only Asia/Pacific vendor in the global top 20 based on revenue.

Gartner says Tata Consulting Services (TCS) is the only Asia/Pacific-based service provider in the global top 50. Infosys is close behind, but at its current growth rate, Gartner predicts that it will likely be in the top 50 in the next two years.

"Indian service providers generally have been growing 30% to 40% annually and are gaining market share. However, this growth is difficult to sustain and would still not be enough to put TCS or Infosys in the global top 20 without a major acquisition," says Gartner.

Data privacy back on the agenda

Last year, revelations that SWIFT had allowed US intelligence agencies access to data pertaining to financial transactions on it network, created a furore with data privacy groups.

SWIFT's assurances at the time that it had only shared limited sets of data with US Treasury failed to assuage the concerns of data privacy groups and led to calls for clearer guidelines on privacy laws and counter-terrorism procedures. Privacy groups expressed concerns that the SWIFT data could be used for non-terrorism related purposes such as taxation monitoring and espionage.

Well, this week the EU and the US reached an agreement on sharing of bank data with the US. That agreement says that SWIFT data can only be used for "counter-terrorism purposes" and kept for a maximum of five years. A European representative will be appointed to monitor how that data is used.

Vice President Frattini, Commissioner responsible for Justice, Freedom and Security, stated: "The EU will have now the necessary guarantees that US Treasury processes data it receives from Swift's mirror server in the USA in a way which takes account of EU data protection principles."

But what does "counter-terrorism purposes" actually mean as when the initial use of SWIFT data was revealed in US newspapers last year, US agencies maintained that they needed to monitor this data to combat terrorist financing.

However, one has to ask, how effective has monitoring of SWIFT data been in combating terrorist financing given that such financing has tended to use non-bank channels such as mobile phones? Furthermore, why does the US even require access to SWIFT data given that banks are meant to have by law, rigorous anti-money laundering measures in place?

In order to bring its own operations in line with EU data protection laws, SWIFT has joined the EU-US Safe Harbor Agreement, which provides a framework for ensuring that customers' data located in the US is protected under similar data privacy principles as those in Europe.

SWIFT has established a data privacy group and also announced a "system re-architecture" yet to be approved by its Board, which means "intra-European messages" will be stored only in Europe and the US. Currently, messages are processed simultaneously at SWIFT's European and US operations centres to prevent data loss.

Firms increase adoption of Linux

The open source software movement has certainly come a long way from its early days when vendors such as Microsoft painted it as a 'pariah' of the software industry.

Undoubtedly, Microsoft is not the open source software movement's hugest fan, however even it has been forced to acknowledge increasing industry traction and appetite for open source software by forming a business and strategic partnership with one of Linux's biggest proponents, Novell.

Awareness and uptake of open source software has also increased amongst IT and business users in industry sectors such as financial services firms according to Actuate's 2007 Open Source Software Survey, which surveyed UK, North American and German firms across industry sectors. The survey was first conducted in 2005 and this year's results demonstrated that the proportion of financial services respondents using open source software had increased from 38.8% in 2005 to 45.8% in 2007.

More than 50% of respondents are using Linux open source software with more than 64% of firms perceiving the main benefits to be no licence costs. Other perceived benefits included not being locked into Microsoft (45.2%), vendor independence (43.5%), access to source code (42.6%), flexibility (39.1%) and open platforms (37.4%).

However, despite increasing industry traction and software vendor support for Linux, the survey indicated that challenges remain around long-term support and maintenance, the lack of in-house open source software skills and incompatibility with existing applications, which was highlighted by almost half of respondents.

Microsoft's strategic partnership with Novell was aimed at addressing some of the interoperability issues around firms wanting to operate Windows servers in a Linux environment. Other vendors such as Oracle have also nnounced enterprise level support for Linux in the form of its Enterprise Linux Program.

It ain't easy being 'green'

With political leaders and even the UK's royal family paying lip service to reducing their carbon footprint, businesses appear to be struggling with how to reduce the carbon footprint of their energy intensive IT systems.

The UK Government has set a target of a 20% reduction in greenhouse gas emissions by 2010, but what does this actually mean for business and IT managers? Recent news reports indicated that Prince Charles had reduced his travel carbon footprint by 9%, but how significant is that in terms of the overall reduction required to effectively combat the impact of greenhouse gas emissions on the environment?

A recent survey conducted by the UK-based Green Technology Initiative found that whilst 90% of UK businesses felt that tackling the carbon footprint of IT systems was integral to an overall green strategy, 70% had no concrete plans in place to reduce their carbon emissions.

So whilst businesses may support the concept of 'greening' IT, there is no clear
cut guidance on how they can achieve that. The knowledge gap is clearly highlighted by the fact that 95% of survey respondents did not know how energy efficient their
IT systems were because they had no means of measuring it.

“What we are doing in IT today is not sustainable. Systems efficiency is the cheapest and easiest way of reducing the carbon footprint of the work you do and delivered properly it has the benefit of bringing down costs across the board. Whilst undoubtedly UK enterprises are willing to take action, many lack the incentive, knowledge and resources to make immediate changes,” says Dan Sutherland, founder and acting chair of the Green Technology Initiative.

When reducing a company's carbon emissions can be as simple as flicking a switch in terms of switching off systems that are not in use, it appears that firms are relying on software vendors, governments and manufacturers to take the lead without considering what they can do themselves to reduce their carbon emissions. More than 50% of respondents to Green Technology Initiative's survey had still not caught on to the idea of reducing power costs and energy consumption by turning off unused systems.

With so much media attention on high carbon emitters, it appears that the penny has not dropped in terms of how businesses in general can contribute to the battle to reduce carbon emissions without relatively little upfront investment.

The LSE expands into Europe

I have been particularly vocal about the London Stock Exchange's 'go-it-alone' strategy in light of trans-Atlantic consolidation between competing exchanges NYSE-Euronext and Nasdaq OMX, as well as the increasing threat of competition from emerging MTFs such as Project Turquoise.

Well the latest news is that the LSE instead of pursuing mergers with its larger rivals has decided to expand into Europe by buying Milan's Borsa Italiana for approximately £1.1bn. The question is, will it be enough to fend off competition from its larger consolidated European rivals and emerging competitors such as Project Turquoise which is in advanced negotiations with the Nordic Exchange's OMX Group to use it as its sole technology partner.

However, some bloggers, including myself, question whether the LSE's expansion strategy is a viable one going forward given that Borsa Italiana will not give the London exchange the global leverage cross-Atlantic mergers have given Euronext and now OMX.

For more opinions on the LSE's new-found expansion strategy, which some believe will not be enough to counter the threat from Project Turquoise, go to The CityUnslicker.

Move over traditional outsourcing

I have been watching the outsourcing market with interest for some months and am somewhat bemused by the conflicting stories one reads about firms' appetite for outsourcing, particularly offshore outsourcing.

As the initial hype around outsourcing has died down and firms that were early adopters have had the chance to learn from and share their experiences, there is no doubt that some of the lustre has gone off outsourcing in terms of the initial 50% cost savings some firms touted and the "hidden costs" that have emerged when it comes to the need to actively manage and monitor offshore outsourcing relationships.

Data privacy concerns have also been raised following allegations that offshore call centres were selling customer data. Eager to preserve its reputation as a major outsourcing and offshoring centre, India recently announced the formation of the Data Security Council of India (DSCI), a self-regulatory member organisation that will be run by the Indian IT and software association, Nasscom.

Arguably the Council's formation is a long overdue measure that recognises the concerns of foreign firms outsourcing customer data to India. The National Outsourcing Association says concerns have grown over the past few years over data security lapses that have occurred, fuelled by 'mud slinging' by the British tabloid press about alleged security breaches.

Although the NOA says that security breaches are few and far between it stated that the Indian government - and the governments of other offshore and nearshore destinations - needed to openly demonstrate that they recognise the problems around data security and are actively doing something about it.

Securing data that is outsourced or offshored to a third party provider is even more important now that the next wave of outsourcing is encompassing content and document management, as well as “knowledge process outsourcing” or KPO.

According to EquaTerra research, KPO, which encompasses a broad range of processes such as market research, financial analysis, M&A due diligence and related M&A legal work, is gathering momentum.

While the Indian market may be suited to this form of outsourcing, with some major investment banks outsourcing financial analysis and research to India in recent months, KPO is a surprising trend given banks' general reluctant to outsource data, which is the lifeblood of most companies.

John Boyle, EquaTerra’s managing director, Financial Services, says:

“The growth in KPO is intriguing because it involves work that was traditionally viewed as too strategic to outsource, or where outsourcing was not viable because candidate services providers lacked the skills or experience required to perform the work. But these perceptions are changing. While in most cases KPO today involves rote work and number crunching, the breadth and depth of work being performed is expanding as buyers gain comfort with the model and suppliers’ skills and levels of context improve."

However, instead of directly outsourcing KPO work to an offshore third party provider, Boyle says financial services firms still prefer to manage the process themselves by establishing captive operations to perform KPO and related work in offshore locations. Increasingly it seems traditional outsourcing models are being challenged by alternative approaches such as captives and shared service operations.

More banks may join Project Turquoise

So much for sabre rattling. The prospect of multilateral trading facilities setting up in opposition to the national exchanges is not just a bunch of the world's leading investment banks making a lot of noise in order to get the national exchange monopolies to drop their trading costs.

When Project Turquoise, the MTF announced by seven leading investment banks to challenge the monopoly on equity trading by the national exchanges, was first announced, some suggested it was merely a ploy by the investment banks to get the stock exchanges to reduce their trading costs. Once the exchanges had dropped their tariffs, it would disappear into thin air.

Well some of the exchanges are already reviewing their tariffs and having announced the appointment of EuroCCP (European Central Counterparty), a subsidiary of the DTCC, as its clearing agent, Project Turquoise, appears to be a goer. According to a Financial News report, Société Générale and BNP Paribas may also be joining Project Turquoise.

All Project Turquoise has to do now is choose a trading platform (believed to be a toss up between the Nordic Exchange Group OMX's technology and Instinet's Chi-X), appoint a CEO, attract sufficient liquidity and Bob's your uncle.

The 'Project Turquoise' of payments

Lafferty Group has an interesting news story on its web site about European banks being in "secret discussions" to set up a pan-European debit card scheme to rival Visa's and MasterCard's.

According to the report on Lafferty, the banks involved in the discussions are Societe Generale, Deutsche Bank, Dresdner Bank, Commerzbank, ABN AMRO, ING and Rabobank. The report states that they are "unhappy" with the likelihood that MasterCard's Maestro may become the dominant provider of debit card network services in Europe.

The European Commission and the European Central Bank have also expressed concerns about competition in the debit cards space in Europe. The Lafferty report says discussions amongst the banks are in the formative stages and that they are considering leveraging the work already done by the Euro Alliance of Payment Schemes, which has established bilateral links between domestic card processors.

There has been a lot of activity on the card processing side in preparation for the Single Euro Payment Area, with Voca joining forces with Link to give it card processing capabilities so it can compete more effectively with the likes of Equens in the Netherlands. US-based First Data is also looking to become a leading global card processor and has made a number of European acquisitions in the last 12 to 18 months.

Italy's SIA-SSB, the result of a merger between Società Interbancaria per l’Automazione – Cedborsa S.p.A. and Società per I Servizi Bancari – SSB S.p.A., is also a leading European debit and credit card processor with 48 million payment cards issued and more than three billion transactions managed in 2006. It also recently acquired Hungarian card processor, GBC.

The Lafferty Report says that "there are contrasting opinions" on the level of progress achieved by the banks holding the secret discussions, which suggests that not much progress has been achieved at all. This is not the first time that banks have considered setting up a rival debit card scheme, but previously there was not enough support from the banks to do anything.

What is different this time? Well SEPA is in the air, anything is possible, but banks in the payments space have not been as fleet of foot as their investment bank counterparts when it comes to setting up rival market schemes and infrastructures.

We have seen Project Turquoise, a multi-lateral trading facility set up by seven leading investment banks to rival the domestic exchanges in response to regulatory pressures from MiFID. Are we likely to see the 'Project Turquoise' of the debit card world being announced by leading European payment banks any time soon? It seems unlikely.

MiFID readiness - a long way off

Having attended more than my fair share of events on the Markets in Financial Instruments Directive (MiFID), one has grown a little tired of hearing consultants' rhetoric that sell-side firms should not treat MiFID as yet another compliance issue, but in terms of the strategic benefits it could bring to their business.

Let's be frank; apart from the large sell-side firms which see MiFID as an opportunity to widen the gap between them and their nearest competitors, most firms are still treating MiFID as a compliance issue. Cultural and market differences also appear to play a part in how MiFID is perceived by firms and national regulators.

As a lot of Europe's stock trading activity is concentrated in financial centres such as London, it is no surprise that the UK was amongst the three member states to transpose MiFID into national law by the 31 January deadline. All other member states, including key financial centres such as France and Germany have dragged their heels.

At SunGard's annual European client event yesterday in Lake Como, Italy, the findings of a survey of 200 German investment firms and their preparedness for MiFID were presented. The survey was conducted in February this year following on from a similar survey a year earlier.

While more than 50% of firms reported that they were "very familiar" with MiFID in the 2007 survey, compared with 15% in 2006, when it comes to budget planning and seeking new solutions to address the impact of best execution requirements under MiFID on their IT strategies, the figures were less impressive. With the 1 November deadline for MiFID a mere four and a half months away, only 44% of German firms were in the implementation phase and 47.5% had analysed the impact of MiFID on their business strategy.

The point is that whilst a handful of investment firms may view MiFID as a strategic opportunity and may be further advanced in their preparations, firms in other European countries do not view it as strategically and it is doubtful that they will even want to become 'systematic internalisers' under MiFID. Hence they are likely to invest less time and money on MiFID than say top tier investment firms.

Another factor is that outside of the UK, a number of European markets support the concentration rule, which demands that all trading activity occur on the national exchange. Under MiFID the concentration rule will be removed, but there are concerns that in an effort to preserve the status quo, some European securities regulators will just "cherry pick" bits of MiFID to enforce.

The EC certainly have a job ahead of them to ensure that MiFID is implemented consistently and in a harmonised fashion across all member states. Not only that, the Commission's commencement of infringement proceedings against member states that failed to transpose MiFID into national law by the 31 January, is unlikely to have the desired effect.

Taking member states to court is typically a lengthy process, which is not going to speed up MiFID's implementation. Perhaps that is why the Commission has resorted to "naming and shaming" techniques such as publishing information pertaining to member states' progress as well as league tables. 2007 may be the year of MiFID's introduction, but it is hardly the "year of the MiFID" as most firms and member states "have a long way to go before [they] can talk about MiFID readiness."

SunGard is "stronger" since going private

Oh what a difference private equity investment makes. At least that is the message SunGard's CEO Chris Conde was keen to impart at its annual European customer event SunGard Europa, which is being held on the shores of Lake Como, Italy.

In 2005 SunGard was acquired by a consortium of private equity investors led by Silver Lake Partners, and Conde appears to be prefer life as the CEO of a private company, saying that SunGard was stronger since it went private, growing by a factor of three. Total number of employees at SunGard has increased to 18,000 and it has made approximately 20 acquisitions since going private.

Harold Finders, division CEO, Financial Systems, SunGard, said since going private, SunGard had 50 R&D programs up and running at the same time, compared with 10 when it was a public company.

However, with so many solutions servicing different product silos within financial services firms, one of the chief criticisms of SunGard has been its 'siloed' approach to product development.

Today at Lake Como, SunGard was keen to challenge that perception by emphasizing its Common Services Architectures (CSA), which allows it to deliver more "flexible" software solutions by bringing together applications developed in different parts of SunGard's business.

For example, using CSA, the SunGard STeP and AvantGard businesses developed its new Real-Time Liquidity Management solution, which combines aspects of AvantGard's liquidity management capabilities with STep's exception management solutions.

Other examples of SunGard's CSA include its new Asset Arena solution, which maps different asset management workflows and pulls together its various asset management solutions "in a more integrated way". "[CSA] will turn SunGard from a siloed organisation into a more integrated one," remarked Hugh Grant, director, global IT, Credit Suisse and a member of SunGard's CSA Customer Advisory Board.

Using Business Process Modelling, service-oriented architecture (SOA) and its CSA, Finders said SunGard would be able to bring solutions to market more quickly, and lower total cost of ownership for customers.

Darren Wesemann, CTO, Financial Systems, SunGard, also highlighted SunGard's Infinity platform for delivering Software as a Service (Saas) or solutions on-demand. Using Infinity, he said SunGard would be able to leverage its solutions/assets on-demand and using a business modelling process engine, develop solutions that were more compatible with client's business needs.

Eating humble pie

Although the ink is not quite dry on the recent announcement that Nasdaq and the OMX Nordic Exchange will join forces to create yet another trans-Atlantic exchange, the real news surely is what does this mean for the 'go-it-alone' London Stock Exchange (LSE)?

With the NYSE Euronext deal completed and the Nasdaq OMX combination giving both exchanges a strong technology and derivatives card to play, isn't it time that the LSE "swallowed its pride," stopped being a "prima donna" and secured a pan-European or cross-Atlantic merger of its own.

Operating profit (up 55% to £185.6 million for the year ended 31 March 2007) and primary market activity on the exchange may be healthy, but Frédéric Ponzo, managing director of consultancy, NET2S, believes the competitive landscape will change next year as NYSE Euronext and Nasdaq OMX look to increase their global market share and new market entrants such as Project Turquoise makes its presence felt.

Although Ponzo does not believe that the competition from ECNs and multilateral trading facilities will be as fierce as some anticipate, by 'going it alone' the LSE currently does not have the global reach of the trans-Atlantic exchanges, nor does it have their derivatives capabilities.

Could it be that the LSE may have to eat humble pie and seriously reconsider merging with the likes of Deutsche Börse in order to sustain its foothold not only in the UK but the European, if not global market? Or will national pride and cultural differences continue to stand in the way of a deal that could make sense in the longer term if not in the short term?

The next generation

Further to my post of the 14 May entitled, My Generation, outlining how Ajax is being used to build richer web applications particularly for trading front-ends, Caplin Systems announced the launch of such an application, Caplin Trader, today.

Caplin Trader is described as an "ready-made application that enables banks to build high-function multi-product trading portals in FX and fixed income." A major bank is deploying Caplin Trader, details of which are expected to be announced at SIFMA's Technology Management Conference in June.

"We are seeing a lot more people saying that in fixed income a bank portal is a requirement, which follows what happened in FX," says Paul Caplin, CEO, Caplin Systems. And although a number of banks already have web-based FX trading portals, Caplin says it is seeing a "refresh" of single bank FX portals banks built three or four years ago.

Caplin Trader, which sits on top of Caplin's integrated data and messaging platform, is targeted at the next generation of trading front-ends, which Caplin says will be much richer applications in terms of look, feel and functionality thanks to new technologies such as Ajax.

"There seems to be a lot of customers that want trading functionality integrated with useful information (prices, research, news), which is a way for banks to entice cutomers to trade directly with them," Caplin explains.

Caplin Trader's "drag-and-drop Ajax framework" includes standard components such as product grids, trading panels, trade blotters, trading tickets, product and instrument search, charts and news displays. Banks can more easily aggregate various sources of content on one screen by pulling it together in a browser. This is what is referred to in the biz as "mashups."

SEPA slippage

After much stalling and compromising, the Payment Services Directive (PSD), which is the legal framework for the Single Euro Payments Area (SEPA) has finally been passed. But when you think that the PSD was first published in 2005 and it has taken two years to agree on the content of it, there appears to be some 'slippage' around SEPA.

The PSD will now be transposed into national law by 1 November 2009 instead of November 2007, but the transition to SEPA will begin from 1 January 2008. The 'slippage' is even more apparent when one considers that SEPA as a concept has been on the table since 2000, and what has the industry got to show for it?

Apart from STEP2, some ACHs with pan-European ambitions and talk of SEPA-compliant instruments, not a hell of a lot says some banks, who according to a knowledgeable industry source, are starting to draw comparisons between SEPA and that other much-talked about EC regulation, MiFID.

The Markets in Financial Instruments Directive had leading investment banks announcing the development of Project Boat, a pre- and post-trade reporting service for off-exchange equity trades, and Project Turquoise, a multi-lateral trading facility.

No such announcements have been made by the leading payment banks for SEPA. However, according to the same knowledgeable source, there is talk of a Project Turquoise for bilateral clearing between banks. This would effectively mean that some of Europe's major payment processors could club together to provide cross-border clearing for their own pan-European direct debits instead of using the pan-European ACHs; STEP 2, VocaLink and Equens, which are hoping to capture a share of this business.

But given the different competitive dynamics between the worlds of payments and investment banking, and the ability of investment banks to move much more quickly, none of us are holding our breaths when it comes to the payments' equivalent of Project Turquoise emerging any time soon.

My generation

Despite all the hoopla around the internet it is only in the last four to five years that online trading of FX and equities has really taken off. Even then, despite the proliferation of online platforms for trading FX, as I reported from Miami a few weeks back, a surprising number of companies still prefer the sound of a voice on the other end of the phone rather than the click of a mouse.

Having said that, it seems the e-trading 'bug' is catching on and is encompassing other asset classes such as fixed income, at least that is what Paul Caplin, CEO, Caplin Systems is telling us. "We are seeing a wider requirement particularly in fixed income and FX for a high-function web front-end for trading," says Caplin.

But hang on a minute, haven't most banks already built web trading front ends particularly in the FX space where there is a multitude of single bank and multi-bank sites for trading FX online? Well, yes, says Caplin, but he describes some of these single bank web front-ends as 'primitive', mainly because they only support Request For Quote (RFQ) when the market is moving towards 'streaming' prices.

Also he says a number of traditional web trading applications were built using Java, which, according to Caplin, is considered to be no longer viable for trading front-ends.

Caplin says the next generation of e-trading platforms will feature richer web applications but around AJAX and "enterprise mashups" or web aggregation where multiple content is aggregated on one screen or web browser.

What all this amounts to effectively is that the next gen of e-trading applications are likely to be much more richer in functionality, with banks being able to more easily and dynamically display multiple content (prices, research, news) on one screen across multiple products (FX, fixed income).

Press embargoes prevent me from going into any more detail at this stage, but Caplin will be making an announcement on Monday concerning the next generation of e-trading applications it is working on.

MiFID - It's as easy as 123

Last week I managed to muster up the energy to attend yet another event on MiFID (Markets in Financial Instruments Directive). With the November deadline for MiFID's implementation looming, everyone seems eager to jump aboard the MiFID 'gravy train' as last minute preparations grind into gear.

Last week's event, which was hosted by the MiFID think tank, JWG-IT,had the interesting working title of, "MiFID 123 Go," which could be misinterpreted given that the 70 or so people that turned up for the event were probably hoping to hear something along the lines of,'MiFID, it's as easy as 123."

The 123 was in fact a reference to how many days remaining till the November live date, and given that MiFID is what the industry terms a "principles-based" regulation, PJ DiGiammarino, CEO of JWG-IT, informed the gathered 'hordes' that they could not necessarily rely on the regulators to provide them with much guidance (no surprises there then), and that it would take three to four years before the MiFID transition was completed.

"Regulators are not going to comment in any great detail on what firms are going to do," Di Giammarino stated. "Firms may want a benchmark on best execution, but it is not going to happen."

With that in mind, Di Giammarino kicked the evening off on a 'light' note telling firms how they could "stay out of jail," pointing to a recent example of a major US sell-side firm that was fined $8 million for "failure of price transparency".

DiGiammarino joked that at least with Sarbanes-Oxley, another piece of controversial regulation,it was only the CFO that could go to jail if financial and accounting practices were not compliant. However, with MiFID it is not just one person that could be in the firing line.

It all started to sound like a game of monopoly. 'Do not pass go, go straight to jail,' but perhaps that is an indication of how real MiFID has suddenly become for a number of firms and countries that its seems are ill-prepared and equipped to cope with the all-encompassing MiFID regulation.

Seventy-five percent of EU member countries did not make the 31 January deadline for transposing MiFID into national law, and European Commissioner for Internal Market and Services, Charlie McCreevy has threatened stragglers with "infringement" proceedings.

"US firms are pretty far up the curve and are forcing the buy side along with them," said DiGiammarino. Yet, with different EU member states transposing to MiFID at different times (Sweden in August, Netherlands in November and Spain after November), it could be a potential recipe for disaster.

According to PJ, any big market [like the Netherlands] that waits till the end to transpose, risks creating a "hybrid" environment, which in the event of a bear market, could result in a very "fragmented Europe." He cited the example of Sweden, which provides transaction reporting support for the rest of the Nordic countries. If it does not make the August 2007 transposition date, then there will be repercussions for the wider market.

What will the bank of the future look like?

JPMorgan has always been one for making acquisitions that cause other banks to sit up and take notice, even though they may scratch their heads, thinking, 'How does that fit within banking?'

The first one, that perhaps caused other banks to pay attention, was the JPMorgan's $129 million acquisition of Vastera, a global trade management software and service applications provider (otherwise known as trade logistics). Given Vastera's focus on the physical supply chain, some competing banks questioned the value of a bank moving beyond its traditional financing role into the physical supply chain .

JPMorgan has since stated that the Vastera acquisition is not about being in the logistics business, but about positioning the bank and its trade services business, which the Vastera business is integrated with, much earlier in the supply chain to provide firms with greater transparency and visibility around documentary compliance governing the inward and outward flow of goods into particular countries.

Well, as Aite Group points out, information pertaining to the movement of goods can have a knock-on effect on a company's working capital:

"Tying the physical movement of goods to the financial activity surrounding them provides very valuable information to treasurers regarding expected cash flows;this is referred to as the “order-to-cash” cycle."

Not all banks, however, agree with JPMorgan's approach and some have questioned the value of the Vastera acquisition, particularly in terms of whether the bank will gain enough customers from the deal to recoup its investment.

JPMorgan's buying spree in the "order-to-cash" cycle has not stopped there. Recently it announced its acquisition of the business settlement network, Xign, which links suppliers with buyers. JPMorgan already worked with Xign, which provided the e-invoicing component for the bank's proprietary Order-to-Pay Solution. But by buying the business settlement network it has effectively shut out the other banks (Citi, Wachovia, Wells Fargo, et al) that Xign also worked with.

By fully acquiring Xign, JPMorgan Chase is positioned to take advantage of the wide and deep flows of information that are generated by Xign’s network and technology. Assuming JPMorgan Chase can tap into that data with the permission of the trading parties, they are positioned to leverage Xign’s capabilities in ways that other participating banks cannot," Aite Group writes.

For a 'conservative' Wall Street bank, JPMorgan appears to be 'thinking outside the box'. One senior exec within the bank remarked to me recently about the 'strange' things the bank was doing in terms of pursuing non-traditional business lines, including the Vastera acquisition and the bank's foray into document (invoices and cheques) printing and archiving.

It is no secret why banks want to embed themselves deeper into companies' supply chains; they want to make up for revenues lost through declining letter of credit volumes; and they also want the opportunity to sell financing to their customer's (the buyer) suppliers.

However, one has to ask whether some of the solutions banks are developing around the corporate supply chain are what companies are really looking for? Most corporates I have spoken to say they do not want banks to get more involved in their supply chains and that they understand their supply chains better than the banks.

So is all this 'hoopla' surrounding the corporate supply chain about what the banks want or is about solutions corporates are really looking for?