I’d like to teach the world to pay in perfect harmony

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Discord exists among corporates, banks and regulators over the approach to bringing payments into global harmony.

Simon Newstead, 
head of transaction services market engagement, RBS
Corporates are keen to benefit from the efficiencies and lower risk levels which a harmonised approach to making and receiving their payments would provide. But banks’ efforts to help are sometimes hindered by uncertainties over the regulatory environment. Global standards are often adopted inconsistently around the world and there is a wealth of additional regional and national regulations, each with their own, sometimes contradictory, requirements. The banking sector itself could also improve the way it co-operates in providing a more joined-up approach for its customers. Harmonisation makes life much easier for corporates. The ability to use a common approach to making payments anywhere in the world brings efficiency and reduces risk. It allows corporates to standardise their processing more easily irrespective of which provider they use. The service provided by the banking industry currently falls short of this ideal. Managing relationships with multiple banks often involves using multiple proprietary banking platforms with different interfaces and formats. Banks know this is time-consuming and costly for clients. The RBS Client Advisory Board programme enables direct feedback on top of mind issues, and the need for more consistent money transmission methods on a cross-bank and cross-regional basis is a regular discussion topic. However, banks’ ability to deliver a more standardised approach is being slowed by the volume of new regulations to which they must adjust following the financial crisis. Although some regulatory requirements — such as those governing the capital and liquidity banks must hold — are being defined on a global basis, implementation occurs locally, with no single global regulator to ensure consistent application. Regional and country regulators are implementing the rules in alignment with local circumstances to ensure the stability and safety of their own financial institutions and economies. This situation is compounded by the fact banks need to comply with a range of additional local regulations across the regions and countries in which they and their clients operate. For example, in Europe, payments will be governed by the Single European Payments Area (SEPA) and must comply with the Payment Services Directive. In North America, the Dodd Frank Act is introducing changes designed to improve accountability and transparency within the US financial system. This complexity can have a tangible economic impact. There is a direct impact on the costs that banks incur to provide cross-border services, and an indirect impact on the nature of the products and services they can offer their clients. However, progress is being made. Proharmonisation initiatives have been on the agenda for some years — driven by both the regulatory agenda and the marketplace. For example, RBS has been closely involved with the SEPA initiative and is participating in the Common Global Implementation (CGI) forum. Both are good illustrations of where harmonisation initiatives can deliver sustained value. SEPA is seeking to harmonise the way retail payments are made and processed in Europe, while the CGI forum is working to promote the wider use of ISO 20022 as a common standard between corporates and banks around the world. Once templates for relevant ISO 20022 messages have been agreed and adopted by the majority of banks, corporates will increasingly be able to use the same message structure for their payments with all their transaction banks, reaching an increasing number of payment systems across the globe. CGI is a good example of how banks can work together to help corporates and other financial institutions. Banks, corporates and regulators share the common goal of promoting greater efficiency but each is approaching harmonisation from a different perspective. This is constraining the pace of progress and causing additional expense for clients and banks. A more efficient, harmonised environment would help the continuing recovery of the global economy. Just as banks need to co-operate on standardising their systems and processes, they need their regulators to take a global view and implement changes in a consistent manner. Initiatives such as SEPA and the CGI forum are a start, however there is much to do to accelerate the pace of change before banks can provide the fully harmonised service their clients are seeking.
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