The deadline for meeting the Basel Committee on Banking Supervision (BCBS) 248 requirements for reporting intraday liquidity positionswas initially set at January 2015, but was extended to January 2017 to allow banks to work around the complexities.
The Basel Committee is calling for the monitoring of intraday positions, with reports filed to local regulators in each country and currency in which a bank operates. Through this, the bank’s management and risk around its liquidity can be monitored.
Now, as the end of that two-year extension looms, many banks are still not on target for completion.
Christos Elefteriadis, global programme manager of Corona Cash and Liquidity at SmartStream, says: “Most banks are not prepared. They claim that there is not enough information available or even pressure from their national supervisor authorities to comply. Due to more critical objectives and budget constraints, quite often we’re finding that this requirement drops down their priority list.”
Catherine Banneux, senior market manager, banking market at Swift, agrees many banks are far from finalizing their implementation. She notes the reasons are twofold: “One reason for this is that many regulators have not yet issued their final reporting requirements and that there is no consistency in these requirements between the different jurisdictions.
“The second reason is related to data challenges such as the lack of timed data collected in real-time and the lack of data centralization, especially when they need to report on their intraday flows cleared through nostro services.”
Despite the two-year extension granted to banks to achieve compliance, even the preliminary process has not been completed by all institutions.
Stefan Markwardt, senior manager, financial services at KPMG, says: “The majority of banks finalized their pre-studies recently with just a few completed implementations to be found within the market. Most banks are planning to finalize their implementation at the end of 2017 or by mid-2018.”
The amount of time it will take to meet the requirements might be far longer than most banks expected, and too long for many banks to meet the deadline if they are yet to implement.
Markwardt says: “In our experiences, a pre-study and an outright implementation of regulatory requirements at full scope will take approximately two years.”
Part of the reason for postponing the deadline was the level of complexity involved with switching to intraday reporting.
Rudolf Schnepf, director of technology at SmartStream, says there is a great deal of effort needed in their daily operations to meet the standards, adding: “The main effort for banks is to get the required actual intraday information from real-time gross settlement systems and corresponding banks. This can be an incredibly time-consuming and complex process.”
The difficulty comes from the intricacy of information required.
KPMG's Markwardt says: “While the complexity of calculating and reporting monitoring tools seems to be manageable, the main complexity is based on obtaining relevant data, implementation of respective processes, and implementation of technical solutions or integration of third-party systems.”
As Markwardt notes, some banks seem to have tried to implement the services themselves, and have now turned late in the day to third-party providers to do the manual work. Earlier this year, Swift launched its Swift Scope platform to assist banks to automate their processes. Likewise, SmartStream offers its Corona Cash and Liquidity service.
Edzer Dirksen, manager client services, executive vice-president at Bank Mendes Gans, has implemented SmartStream’s offering through Corona. He says the bank has a highly complex network which it needs to report on.
“There is a need to have a view on where the cash is," says Dirksen. "There are over 100 nostro accounts in use, and up to 1.6 million transactions quarterly. The system gives us a clear overview on the actual account balances.”
However, even with third-party help, it could be several months for a bank to be at the required standard.
Dirksen says the bank’s own implementation process, even as a user of Corona, will take some months to be fully functional, adding: “The technical implementation was done in five days. The system will be running all functions and we will be fully compliant by the end of the year.”
'Lack of support'
Markwardt says the reason for slow adoption on the banks side might be down to the lack of support they are receiving, even for necessary tools. For example, timestamps are a necessary part of the intraday payments monitoring, as it will give the exact time when a transaction is processed. Without the detail it is not possible to correctly calculate figures.
“In general, relevant timestamps are not technically available yet and, in addition, a vast amount of data from various operating divisions is necessary," he says. "Therefore complexity should not be underestimated.”
Swift's Banneux also highlights there are areas in the industry that lack a sufficient level of sophistication to homogenize the process.
“BCBS 248 requires banks to calculate metrics on their intraday liquidity usage based on the settlement confirmations received from either the market infrastructure to which they are connected or from their nostro service providers," she says. "There is a real lack of industry practice for the reporting, especially in the nostro space, which can only be solved at industry level.”
Some banks appear to believe missing the deadline will not cause too many problems.
Markwardt says that on its own, BCBS 248 has no binding characteristics, and there already are other intraday liquidity assessments in place.
“We expect that the European Banking Authority will publish guidelines based on BCBS 248 within 2017," he says. "Furthermore, the European Central Bank (ECB) already analyses intraday liquidity management at banks according to the supervisory review and evaluation process guidelines. The results are included in ECB’s scoring of liquidity and funding risk.”
However, the risk of not meeting the requirements could be sizeable.
SmartStream's Schnepf says: “At worst, institutions run the risk of losing their licence. Additionally, firms not being able to effectively manage business risk in order to optimize earnings and minimize liquidity issues will undoubtedly fail to turn their institutions into competitive and agile vehicles.”