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Banks will have to start monitoring their intra-day liquidity in detail from January 2015

SWIFT has issued a paper, entitled ‘Intraday Liquidity Reporting – The case for a pragmatic approach’, which focuses on a set of quantitative monitoring tools published by the Basel Committee on Banking Supervision (BCBS) in collaboration with the Committee on Payment and Settlement Systems in April 2013. The monitoring tools mandated by the BCBS require banks to assemble the necessary data to ensure effective monitoring of banks’ intra-day liquidity risk, and their ability to meet payment and settlement obligations on a timely basis in normal and stressed conditions. The BCBS would like banks to start using the monitoring tools for reporting in January 2015, with full implementation by January 2017. Actual implementation depends upon the regulatory mandate at the national level.

Intra-day position required for each account, but ….

BCBS reporting requirements present a real data challenge to financial institutions. The demands for data on liquidity flows, rather than balance sheets, will require significant changes to banks’ existing data models and processes. The BCBS monitoring tools require a retrospective view of aggregated data points using credit/debit confirmations from servicing institutions and Payments Settlement Systems. Based on analysis of SWIFT data, only 20% of total correspondent banking payment instructions on SWIFT are confirmed with a credit/debit confirmation message. The share in value is higher reaching 55% and has increased by 4% over last year.

“To achieve the level of detail required by the retrospective BCBS measures, banks will need to build the intra-day position for each of their accounts with real-time credit/debit confirmations, says Catherine Banneux, Senior Market Manager, Banking, at SWIFT. “This is a critical component of the monitoring requirements that will differ according to a bank’s size and profile. Progress needs to accelerate in order for banks to be ready for BCBS reporting.”

SWIFT’s suggestions

Given the short implementation timeframe and the strain on IT and business resources in many institutions, the SWIFT paper suggests practical ways of supporting banks to better prepare for the BCBS reporting requirements for intra-day liquidity, including:

  • banks should start preparing by leveraging the infrastructure and data formats they already have in place to feed their central intra-day liquidity transaction database
  • banks should first assess their current reporting coverage, which will help the banks determine current gaps and the next steps to close them
  • data centralisation must be addressed and could be easily managed vis-à-vis a messaging copy mechanism that enables the group liquidity or treasury service to obtain the missing flows as the reporting will need to be done at both a global and local entity level, data aggregation will require the mapping between the legal entity identifier (LEI) and the bank’s related operational codes.

In conclusion, SWIFT believes that industry practices will inevitably have to change, leading the way towards a more collaborative and standardised approach to address intra-day liquidity management challenges. They add, rather hopefully, “Through industry standards and best practices, the banking community is well placed to collaboratively stimulate cost effective and sustainable business models in support of new requirements around intra-day liquidity.”

Impact on corporates

When the banks have the precise knowledge of their intra-day liquidity position and the impact of any corporate payments and receipts, they will able react to change accordingly. Either by introducing intra-day liquidity charges and/or giving windows in which to make and receive payments. These practices have already begun, but in 2017 life will become even more complicated for corporate treasury departments 

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