Sibos 2019 provided a fascinating snapshot of the challenges facing banks and financial services firms as they adapt to the wave of emerging technologies in the industry as well as the opportunities and digital disruption they bring with them.

The risks and rewards of a hyperconnected world

The official theme of this year’s conference was “thriving in a hyperconnected world”, but it was easy to spot other strategic preoccupations: payments featured heavily but also on the agenda were: the growing debate around the ethical use artificial intelligence (AI); the potential of APIs (Application Programming Interfaces) and Open Banking to transform the industry; and, how to draw more value out of data while maintaining regulatory compliance as well as the challenge of finding the best human talent to help all of this happen.

Get API: Using Open Banking to stay ahead

One notable intervention early in the week came from Tony McLaughlin, who leads emerging payments development and treasury and trade solutions at Citi. He echoed industry-wide calls for banks to embrace the financial data sharing opportunities of Application Programming Interfaces (APIs) or risk being “usurped” by fintechs and technology platforms vying to use Open Banking services to become the primary providers of financial services.

Telling delegates that Open Banking is “a test case as to whether our industry will move into the 21st century”, McLaughlin urged banks to focus on creating the APIs that will be used on those technology platforms and to collaborate on the development of global standards for API use and security.

AI-driven transformation

A number of presentations and panel discussions examined the ways in which machine learning and other technologies that might be grouped under the term AI are being used to transform processes in financial services. While discussing the challenge of finding liquidity in the ever more complex world of foreign exchange (FX), Christopher Purves, head of UBS’ strategic development lab at UBS, talked about how machine learning could help traders.

“Machine learning algorithms are learning on the fly where the best liquidity is,” he explained. “They’ll work out, at that moment in time, what is the right thing to do…. and ensure that the trade is going to get the best execution possible.”

‘You ain’t seen nothing yet’

The same panel also considered how the hyperconnected nature of financial markets can contribute to flash events. Purves noted that larger flash events now seem to have become more commonplace. He also wondered whether they might be exacerbated in future by the use of technological systems that price multiple products in different asset classes.

“You start to move to a world where all of these systems will be interconnected and you have these super risk books people have talked about and super traders who manage them,” he said. “This is only just beginning, but over time this is likely to affect the market. And if you think we’ve had some flash crashes so far – you ain’t seen nothing yet.”

Instant Payments and necessary friction

One of the most interesting sessions at the conference was a discussion on the future of banking. Contributors
spoke both of the need for banks and the wider financial ecosystem to embrace emerging technologies whilst maintaining stability and security in a system that some fintech visionaries find frustratingly slow to change.

Manish Kohli, global head of payments and receivables at Citi acknowledged frustration around the fact that hyperconnectivity has not yet resulted in a more streamlined, interconnected fast payments system.

“Our true north star should be to build a world where anybody is allowed to pay anybody instantaneously,” he said. He pointed to the growing numbers of countries that have now rolled out fully operational real time payments systems.

“We need to get every country in the world to have a real time payments system. We’re on that path,” he said.

However, Kohli added that those seeking a more complete revolution in the way banks operate need to remember that “friction” in the current system is there “for the right reasons”.

Balance speed with security

For her part, Victoria Cleland, the Bank of England’s executive director for banking, payments and innovation, pointed out that 50 per cent of payments made using the SWIFT gpi global payments standard are settled within the hour and 96 per cent within a day.

She also said that the Bank was considering the theoretical feasibility of a 24 hour version of its Real Time Gross Settlement (RTGS) system – but added: “I’m not promising that will happen”.

Cleland said the Bank will make more use of emerging technologies in future, but that any benefits such technologies and partnerships might offer must not come at the expense of the stability and security of the wider system. “We need to think about the unintended consequences of things moving too fast,” she warned.

This is surely a fair warning, and one which was echoed by senior voices across the conference. Yet Sibos served as a reminder that the pace of technological developments in this industry shows no signs of slowing.

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