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World Bank anticipating a global recession – Industry roundup: 16 September

Elevated risk of global recession in 2023 per the World Bank

With a comprehensive new World Bank study, Is the Global Recession Imminent?, the World Bank joins those anticipating a global recession as central banks around the world raise interest rates simultaneously to mitigate persistent inflation. The study indicates that the world's three largest economies, the US, China, and the eurozone, have been gradually decreasing dramatically, and even a mild setback to the global economy over the next year could send it into recession.

David Malpass, President, World Bank, stated that "global growth is slowing sharply, with further slowing likely as more countries fall into recession." Malpas further added that the emerging markets and developing economies may experience severe repercussions if the downward spiral trend persists.

Global synchronized interest rate increases and related policy changes are expected to continue into 2023, according to the bank, but may not be sufficient to return inflation to pre-pandemic levels. However, if supply disruptions and labour-market pressures ease, global core inflation, not including energy, could remain at approximately 5% in 2023, almost double the five-year average prior to the pandemic. The study also found that central banks may need to raise global interest rates by more than 2 percentage points from their 2021 average through 2023, to almost 4 percent in efforts to reduce inflation.

However, a rise of that magnitude coupled with financial market stress would reportedly slow global GDP growth to 0.5% in 2023, or a 0.4% contraction in per-capita terms, which would meet the criteria of a global recession. Policymakers, according to Malpass, are urged to shift their attention from lowering consumption to increasing production, including efforts towards stimulating capital investments and increases in productivity.

Goldman Sachs collaborates with Modern Treasury to promote embedded payments

Goldman Sachs and Modern Treasury, a CA-based financial technology firm, have announced a partnership to bring embedded payments to corporate clients. The companies will assist mutual clients in the integration and scalability of domestic and international payments seamlessly into their products. The payment operations software platform developed by Modern Treasury will reportedly provide joint clients with an integrated money movement solution, with payments powered by Goldman Sachs Transaction Banking.

According to a recent Bain report, the transaction value of embedded finance in the US is expected to double to US $7 trillion by 2026, with payments driving the growth. However, Goldman and Modern Treasury point out that traditional banking platforms are not designed with the sophistications needed to advance, and businesses are frequently forced to build in-house solutions, which require significant development and manpower.

The companies, which have reportedly been working together to serve clients since late 2021, but they are now joining forces on a product roadmap, with a collaborative technology platform to help address new client needs, improve integration and provide users with a cohesive product experience. Reports indicate that the firms have now developed a system to speed the onboarding of clients.

Additionally, clients can reportedly open virtual accounts, use wire drawdowns via the combined solution and gain access to additional support services required to support today's advanced businesses. Dimitri Dadiomov, CEO, Modern Treasury, commented that the collaboration will help bridge the payment operations gaps, enabling mutual customers to benefit from a top-rated software solution for money movement without having to build it and accelerate business growth.

The US SEC to confirm Treasury market clearing reforms addressing resilience

The US Securities and Exchange Commission (SEC) proposed rules to increase the use of central clearing in the US $24 trillion Treasury market. The proposals, which are said to pertain to cash Treasury and repurchase agreements traded by a variety of firms, including broker dealers and hedge funds, come in the wake of recent liquidity crises raising regulatory concerns about the Treasury market's ability to function in stressful circumstances.

Reports indicate that the SEC and other US regulators have been investigating changes to strengthen the market's resilience since 2020. The SEC's proposal, if adopted, is said to represent some of the most noteworthy changes to the Treasury market in decades. The Treasury market is considered to be the largest bond market globally and is used to benchmark assets all over the world.

The proposed regulations, according to reports, do not mandate universal clearing. However, they are said to increase central clearing by imposing new regulations on clearing houses that would compel their members, who are typically large banks and trading companies, to route trades for their clients through the clearing house, like those of hedge funds and other asset managers.

Government officials reportedly advocated for the expansion of centralized clearing of Treasuries on the grounds that it improves resilience by bringing additional capital into the market during difficult times. Additionally, the rules would help reduce risk across a critical component of US capital markets, both in normal and stressful times. According to estimates in a 2021 Treasury Department report, only 13% of Treasury cash transactions are centrally cleared.

While the changes would apply to any clearing house that clears Treasuries, they are aimed at the Depository Trust and Clearing Corporation, whose Fixed Income Clearing Corp. subsidiary is currently the primary Treasuries clearer.

LianLian Global unveils the first cross-border payment guarantee to China

LianLian Global, a global provider of cross-border payments services, has introduced the world's first cross-border payments guarantee to China, a new feature added to the company’s recently launched international digital wallet. LianLian Global's end-to-end business payments network and know your customer (KYC) process is said to provide international online merchants and e-commerce business owners with cross-border payment options in a secure, compliant and transparent manner.

The policy reportedly ensures that payments to suppliers in China are consistently made to the correct bank account. Additionally, reports indicate that all payments on the company’s end-to-end payments network are vetted and verified using the enhanced KYC capabilities, supporting additional due diligence on customer profile checks. The audits reportedly reduce payment risks and fraudulent transactions while also satisfying regulatory compliance in the Chinese market.

LianLian Global expects to provide customers with an additional layer of security, speed and affordable pricing. All middlemen or correspondent banks will be removed, reducing or eliminating payment delays and extra fees for holding and sending the transfer transaction.

As increasingly more payments are initiated through online marketplaces, the demand for streamlined and reliable payments becomes more critical, especially in large global economies. LianLian Global seeks to reduce the risk associated with cross-border payments as e-commerce sales continue to expand worldwide. With offices in 12 nations and over 60 licenses globally, LianLian Global assists more than 1.4 million e-commerce stores in expanding their cross-border operations. Additionally, the company has partnered with top financial institutions like Citi, Deutsche Bank and J.P. Morgan in efforts to enhance their solutions.

Australian-based fintech to leverage AI-powered AML monitoring via ThetaRay

The Novatti Group, an Australian fintech, has chosen ThetaRay, a data analytics firm based in Israel, for its anti-money laundering (AML) transaction monitoring solution to safeguard its global payments services against financial crimes. The Novatti Group, which reportedly helps businesses and individuals make domestic and international payments, is ThetaRay's first Asia-Pacific SaaS client.

Reports indicate that the Novatti Group is expected to track hundreds of thousands of transactions annually using SONAR, ThetaRay's transaction monitoring solution that utilizes artificial intelligence intuition. The solution claims to detect both known and unidentified money laundering threats quickly, with a 95% detection rate and up to a 95% reduction in false positives when compared to rules-based solutions. Evangelia Pefkou, General Manager of Risk, Legal and Compliance, Novatti Group, commented that the collaboration will further help them to file high-quality reports to regulators in a timely and efficient manner, particularly as they are broadening their partnerships, adding payment services and increasing transaction volumes.

SONAR reportedly helps shield users from the risk of being exploited for financial fraud, terrorist financing and other illicit activities by offering complete visibility across highly complex cross-border transaction channels, in addition to enabling partners to boost their transaction volumes.

Turkish banks under pressure from the US and the EU to withdraw from the Russian payment system

The US and EU are reportedly placing pressure on Turkey, fearing that the country's banking sector could be used by Russia to circumvent sanctions. According to reports, the US has allegedly concentrated its efforts on Turkish banks using Mir, the Russian payment system. Brussels is also meeting with Turkish government officials to express its concerns.

One of the news publications stated that financial institutions from third countries are urged to halt any connection through the Mir payment network, as it may involve some risks of sanction evasions. Additionally, the increased burden on Turkey has advanced as Western countries have shifted from imposing new sanctions to tightening existing ones, adding the need to close any gaps.

The five largest banks in Turkey that are reportedly linked to Russia's Mir payment system are Vakfbank, Ziraat Bank, İşbank, DenizBank and Halkbank. Subsequent to the Russia-Ukraine conflict’s start in late February, two of these banks, the UAE-owned private DenizBank and the state-controlled Halkbank, reportedly connected to the Mir system. In addition to Turkey, other countries, such as Caucasus, Central Asia and the Persian Gulf, have reportedly been targeted for having potential sanction evasion loopholes.

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