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Industry roundup: 5 June

BNY Mellon to launch FX pricing and trading engine in Singapore

BNY Mellon has announced that it will build a foreign exchange (FX) pricing and trading engine in partnership with the Monetary Authority of Singapore (MAS), in the latest step by the bank to enhance its FX presence in the region.

The bank will establish new low-latency electronic FX infrastructure in the Southeast Asian nation, which it says will help to improve execution quality and price discovery for clients initially in spot, and subsequently in deliverable and non-deliverable forwards and swaps.

BNY Mellon already sees significant FX volumes in Singapore across more than 70 deliverable currencies, including in most restricted APAC markets, thanks to the uncorrelated liquidity that comes with executing daily flows for clients of its large custody franchise. In 2019, the bank set up a dedicated FX custody trading desk in Singapore, relocated its short-term interest rate trading (STIRT) business from Hong Kong, and established a Singapore options trading desk.

 

Report examines ways to enhance bond market liquidity and transparency

The unprecedented volatility triggered by the COVID-19 crisis demonstrates the importance of preserving and even expanding liquidity in corporate bond trading as the market is transformed into a more electronic and transparent version of itself, a new report from Greenwich Associates has found.

Since the financial crisis, the corporate bond market has been in a constant state of change. In the midst of that evolution, the still-emerging market structure was plunged into its first true test by the COVID-19 crisis and while it has held up well, market participants know there are still many more changes to come.

The Greenwich Associates research found buy-side and sell-side firms estimate that within five years up to half of corporate bond trading volume could be executed electronically. The continued electronification of the market has occurred in parallel with the sharp decline in dealer bond inventories prompted by recent regulatory reforms.

The current trajectory of the market’s evolution gives reason for optimism, with increased transparency coupled with reduced information leakage topping market participant demands. More information on who holds what bonds, how every bond is actually executed and actionable information about a bond’s liquidity profile are increasingly available with the advent of artificial intelligence and unique data sets, and will benefit dealers and investors alike.

 

Westpac releases report on AML shortcomings

Westpac has announced the results of its investigation into the Anti-Money Laundering and Counter- Terrorism Financing (AML/CTF) compliance issues, as well as releasing the Advisory Panel Report into Board Governance of AML/CTF Obligations and the Promontory Assurance letter on management’s accountability review. The failure concerning International Funds Transfer Instructions (IFTIs) non-reporting occurred due to a mix of technology and human error dating back to 2009. The failure properly to adhere to AUSTRAC guidance for child exploitation risk in respect of some products occurred due to deficient financial crime processes, compounded by poor individual judgements.

Three primary causes of the AML/CTF compliance failures were identified:

  • Some areas of AML/CTF risk were not sufficiently understood within Westpac.
  • There were unclear end-to-end accountabilities for managing AML/CTF compliance.
  • There was a lack of sufficient AML/CTF expertise and resourcing.

With regard to Board oversight, the Advisory Panel formed a range of views on financial crime-related governance. The Report noted that the way in which the Westpac Board organised its general governance responsibilities was mainstream and fit for purpose. The Report also noted that, with the benefit of hindsight, and noting the Board’s escalating focus in the area, directors could have recognised earlier the systemic nature of some of the financial crime issues Westpac was facing. The Panel also noted that reporting to the Board on financial crime matters was at times unintentionally incomplete and inaccurate.

 

US Faster Payments Council publishes interoperability white paper

The US Faster Payments Council (FPC), a membership organisation devoted to advancing faster payments in the United States, has released a new Faster Payments Interoperability white paper developed by the FPC Network Committee. Interoperability in a faster payment system can help achieve seamless processing - both sending and receiving - of payment instructions across a variety of payment solutions.

Available in the FPC’s Faster Payments Knowledge Center, the white paper explores different models that can connect systems together to achieve payments interoperability such as point of origination, network to network, or with an intermediary, and how settlement could work in those models. Settlement is one of the defining characteristics of a payment system because settlement is how the transfer of value from one party to another occurs.

In addition to illustrating three models for payments interoperability, the paper provides an explanation of the different forms of settlement: deferred gross settlement, deferred bilateral net settlement, deferred multilateral net settlement, and real-time gross settlement (RTGS). The form of settlement is an important factor when considering options for interoperability between faster payment systems and can have a bearing on both banks participating in a service and their end user customers.

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