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    INTERNATIONAL CORPORATE BANKING  |  3 POINT PERSPECTIVE

    Sibos spotlight: 3 trends powering the future of finance

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    Contributors: Nick Mayberry, Ryan Hayward, Nadia Rahman 
    16 Oct 2024

    Digital assets are moving from hype to practical applications; ISO 20022 has taken a major leap forward, making its benefits more tangible; and as FinTech flows continue to grow, banks are looking for smart ways to manage risks. Our International Corporate Banking experts zero in on three hot topics ahead of Sibos 2024.

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    1. Digital assets mature as real-world use cases come into focus

    Digital assets have emerged as a major trend in recent years, with much of the focus on cryptocurrencies. Global asset management groups have embraced the cryptocurrency asset class, initially championed by retail investors, and we’ve seen the approval and launch of several cryptocurrency exchange traded funds in the US. This, in turn, will necessitate the build-out and use of robust institutional-grade infrastructure to transact digital assets securely.

    However, crypto represents just a fraction of the broader opportunity presented by digital assets. Central banks and regulators are now engaging with digital assets, developing central bank digital currencies (CBDCs) and providing regulatory clarity on cryptocurrencies, stablecoins (cryptocurrencies pegged to an asset such as USD or gold) and tokenisation.

    As regulatory clarity improves, traditional financial players are becoming more comfortable with digital assets. Some are exploring tokenisation for assets such as money market funds or private capital markets, where they could improve transparency, efficiency and liquidity while also reducing costs. For banks, the ease of moving funds 24/7 could allow them to reduce regulatory capital requirements by minimising trapped liquidity.

    Since April 2024, UK Finance (the British trade association for UK banking and financial services) has been working with 11 members, including Barclays, on a new UK Regulated Liability Network phase focused on payments and settlement, including tokenisation and programmability. The project demonstrated that platform innovation, building on initiatives such as Open Banking, could deliver a number of foundational capabilities, primarily centred around an orchestration layer.

    FinTechs have entered this space as well with many developing solutions that could reshape the financial system, streamlining cross-border payments or making asset transfers more efficient. For instance, Fnality (in which Barclays is an investor) is creating a network of decentralised financial market infrastructures (FMIs) for wholesale banking payments. Its GBP solution launched in December 2023 and USD is the next currency of focus.

     

    2. ISO 20022: faster, safer, smarter payments are around the corner

    ISO 20022, the universal language that will standardise payment messages across the industry, has taken some important steps forward over the past 18 months. With implementation spanning more than 50 countries, it is essential that changes are made in a safe and controlled manner to avoid disrupting cross-border payment flows.

    Many critical market infrastructures including Swift, TARGET 2, EBA, CHAPS, and CHIPS have successfully migrated to the new standard. Over a fifth of all global cross-border payments traffic on Swift is now ISO 20022 native.i However, much work remains, as banks continue to enhance their client-facing channels to enable the initiation of payments in the ISO 20022 format and provide the new XML format for client reporting and balance information.

    The adoption of this universal language for payment processing offers multiple potential benefits. One key advantage is the reduction of friction, which leads to increased straight-through processing (STP) rates for banks, and faster payment settlements for clients. Another benefit is the improvement in exception handling, with investigations moving from free-format messages to structured, dedicated message types, enabling quicker query resolution.

    Additionally, the use of more structured data in messages strengthens financial crime detection while reducing false positives. ISO 20022 also provides improved insights for critical payments, such as property transactions. From May 2025, enhanced data elements for CHAPS, such as legal entity identifiers and payment purpose codes, will allow identification of these payments. These insights can be used during system outages, enabling banks to explore alternative processing channels.

    i Navigating the ISO 20022 migration: Insights and strategies, The Paypers , 19 April 2024 

    3. Controls must keep pace with FinTech flows 

    The payments landscape has evolved significantly in recent years, driven by FinTech innovations aimed at lowering costs and expanding access, particularly in cross-border transactions. While these developments benefit individuals, businesses and the global economy, they also introduce new risks.

    The UK’s Financial Conduct Authority recently issued a notice urging challenger banks (tech-driven new entrants to the market) to strengthen their financial crime frameworks, making them more like those of traditional banks. However, in some jurisdictions, FinTechs are subject to less scrutiny, making them potential targets for criminals seeking to exploit vulnerabilities.

    Banks that enable payment providers have a role to play in mitigating these risks. Technology is essential, but robust frameworks are also needed.

    Banks must create detailed risk profiles for FinTech clients, including an assessment of their operating models and internal controls, which serve as the first line of defence against financial crime. This can be challenging when FinTechs offer nested banking or banking-as-a-service, as it may be difficult to identify end clients. Moreover, banks must clearly define and meticulously apply their risk appetite, particularly given the inconsistent regulation of FinTechs globally. This risk appetite should guide both the selection of clients and the monitoring of their transaction flows. For example, while cryptocurrencies are legal in many jurisdictions, some banks choose not to support related transactions due to the potential risks involved.

    To effectively monitor flows against the bank’s risk appetite, tools need to be developed and enriched with external data. These can enable automatic flagging of transactions involving higher-risk sectors, such as cryptocurrency exchanges. Continuous monitoring and due diligence are crucial, requiring regular updates to align with the bank’s evolving risk appetite and the changing financial crime landscape.

    FinTechs are now an integral part of the financial ecosystem. Effective financial crime prevention depends on the parallel development of FinTechs' control environments alongside their transaction volumes. Achieving this requires cooperation from all parties involved.

    FinTechs must fulfil their responsibilities as the originating payment service provider for their clients. Payment schemes need to align standards such as ISO 20022 and ISO 8583 (for card payments) to enhance the control environment; this may lead to higher costs, which could prompt market consolidation. And banks that support FinTechs must invest in the necessary tools and technology to manage the risks associated with these companies’ increased payment volumes.

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    About the experts

    Nick Mayberry

    Global Head of Payments and FX

    Nick Mayberry joined Barclays in 2001, and since then undertaken a broad variety of leadership roles within Coverage, Debt Structuring, Risk and Operations. In his current role, Nick is responsible for the design, delivery and maintenance of the Payment product set which support our global corporate client base.

    Ryan Hayward

    Head of Digital Assets, Head of Europe & Asia Strategic Investments

    Ryan Hayward is based in London and heads up Digital Assets globally and Strategic Investments across Europe and Asia at Barclays. The Digital Assets team is responsible for digital asset strategy, governance and the establishment of new asset, money and tokenisation initiatives across the bank. The Strategic Investments team is responsible for originating, executing and portfolio managing all strategic principal equity investments made by Barclays in external companies.

    Nadia Rahman

    Head of Investment Bank and UK Corporate Bank Financial Crime

    Nadia Rahman the Head of Investment Bank and UK Corporate Bank Financial Crime. The Financial Crime Business Oversight Compliance team is responsible for developing and implementing strategies to prevent, detect and mitigate financial crime (anti-bribery & corruption (ABC); anti-money laundering & counter-terrorist financing (AML); anti-tax evasion facilitation (ATEF) and sanctions) exposure across the IB & UKC, globally.

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