Guest blog by Rebecca Brace, banking and finance journalist, taken from an article published on Trade Finance Global
Due in November, SWIFT’s upcoming SR 2021 release is set to bring some significant changes to trade finance messaging standards – specifically those relating to guarantees/standby letters of credit. But while the new standards do have cost implications for banks, it’s also important to understand that the transition needn’t result in sunk costs. Instead, there is an opportunity for banks to leverage the changes as an effective way of improving customer service and driving growth.
So how can these new messaging standards help? Though they apply directly to bank-to-bank messages, the same standards also feed into bank-to-customer interactions, notes Andrew Coles, Surecomp’s head of solution consulting. “For example, if you have an online portal for the customer to submit their guarantee application, the fields and validations are generally based on SWIFT standards,” he says. “So that data capture at the customer end is validated all the way through to the underlying bank message.”
In other words, the greater efficiency being pushed by the standards extends to data capture at the customer end. With a larger number of data elements available, the new messages can therefore improve bank-to-customer interactions, with greater opportunities to harness API and interoperability standards.
Moving forward, banks should consider whether the new message standards may enable them to plug into their corporate clients’ ERP systems via API connectivity. This, in turn, could enable corporate clients to use their procurement workflows to request a guarantee from their banks.
“With the increased amount of structured data elements, that will then lead to efficiency around the negotiation of the wording in the legal clauses, the validation against the limits and the interaction with other banks around the issuance of the guarantee,” says Coles.
What should banks be doing now? Harness the opportunity!
For banks who choose to approach the upcoming changes as an opportunity for growth, the focus should be on investing into future-proof digital solutions. In particular, banks should consider how digital solutions can help them attract and retain customers and increase their market share. “Rather than being seen as a cost of compliance, there is an opportunity for banks to adopt an easy-to-use solution that enables their customers to request guarantees more easily,” says Coles.
DNB is one example of a bank to harness this opportunity and was one of the first banks globally to be ready for the migration in switch-off mode last year. It has successfully deployed Surecomp’s SR 2021-compliant digital trade finance solutions, and now has the advantage of being able to allocate funds, time, and resources to other value-generating initiatives safe in the knowledge that it is already prepared ahead of the November deadline.
“Among the most important advantages of more structured MT messages from the SWIFT change are reduced manual processing and operational risk with increased automation and efficiency. It also enhances security by enabling better AML and OFAC procedures, all of which will lead to an improved customer experience, and a more efficient and streamlined customer service.” Anne Kathrine Arnesen, Head of International Guarantees at DNB.
It’s clear that banks have more to gain by leveraging the new message standards by investing in the necessary systems and professional services. What’s more, with further regulatory changes likely to follow in the coming years as new solutions are brought to market, the cloud has a role to play in helping banks adapt to future changes in a more agile way.
“At Surecomp, we provide a Trade Finance as a Service (TFaaS) system on a managed cloud-based environment,” says Coles. “As part of that managed service, we ensure the system remains compliant with regulatory changes. That means the regulatory burden shifts away from the bank, and becomes part of your annual subscription to the TFaaS solution.”
As Coles explains, this approach means that banks can focus on growing their businesses, instead of tying up resources with compliance exercises. It also enables banks to harness new innovation more effectively by taking advantage of emerging fintech solutions via Surecomp’s open API Marketplace.