TCS BaNCS Newsletter Issue 22

2014 Number 22 TICnrovurpestBstamnceant Trust company deploys custody asolution of TCS B NCS for the high-growth Colombia marketplus n ISOn BNP n Industry n Fast, 20022 n The Role of n Awards Paribas Utility for Smart and Remittance CSDs with from Securities Securities Flexible Messages Target2 The Asian Services Processing Compliance Securities Banker, FTF Experience certainty. IT Services Business SolutionsVisit TCS at Booth #G38 Consulting

Self Healing and Role of IT By N. Ganapathy Subramaniam, President, TCS Financial Solutions I thought I would begin this note on “Self Healing and Role of IT” with Coming to the bank’s point of view: a story from a customer point of view. Continuing technology developments and innovations are hav- Sometime back, Suresh Subramaniam, my school mate, had this ing profound impact on the way banks interact with their customers, to write in our school ‘old boys’ egroup. counterparties, and how they undertake their operations. “Time to rant. I spent all of yesterday working with my As banks rely increasingly on information technology and the in- bank because someone tried to break into my online ternet to operate their business and interact with the market, tech- account and my checks started bouncing. For once I nology risks are bound to become more complex. These risks relate felt, the good old way of keeping the bills into pillows to any adverse outcome arising from the use of or reliance on com- safer….Can’t imagine how anyone could pass off as puter hardware, software, electronic devices, on-line networks and me. I have enough trouble passing off as me. Twenty telecommunications systems. These could be systems failures, pro- years and I’m still working on people to get my first cessing errors, software defects, operating mistakes, hardware break- name, middle name, family name and given names downs, capacity inadequacies, network vulnerabilities, control weak- right! I’ve learned to set aside some valuable time to nesses, security shortcomings, malicious attacks, hacking incidents, getting people to say my name right. Submarine? Shur- fraudulent actions and inadequate recovery capabilities. ish? Shoe-rash? So, yes, there is ‘adoption angst’ and ‘security scare’. But then, the “Anyway, who would want to be me? My children good news is, that with increasingly sophisticated risk manage- have made it their life’s mission to tell me I am old and ment methods, thorough central bank regulatory frameworks, and a not cool. “this is my dad. He is OLD”. I turned 46 and feel technology-mature leadership at banks, these risks are not so about 2000.” scary, that they are not being systematically addressed. This is a real story. And it happened to a person who heads security In banks, “management information” demand, hitherto, was in- strategy in one of the very large companies in North America. If it ternal – driven by Bank’s top management, Regulators and Finance could happen to him, it could happen to anybody. Ministry and compliance are still being seen as country specific. In the recent past, however, the context has changed. Emphasis on real profitability, corporate governance imperatives, and Basel 3/4 stipu- lations has changed the landscape of “drivers” of IT. The “information” demand is no longer confined to“internal”groups. The public at large, global analysts, global fiscal and regulatory communities are impor-2

“Technology is the enabler ”of business and growth.tant consumers of “information.” And the rigor of information man- ment dashboards have to bring new power to operations, and “Infor-agement is getting stricter by the day. mation Management” has to become the key engine for driving the business. And the CIO, along with the CEO, has the opportunity to And it is in the rigor of information that most banks find them- make this happen.selves in sticky ground. For instance, some of the best banks, withstate of art Risk-Management software solutions, often run into im- As IT takes more control of assets, i.e information assets, it be-plementation bottlenecks because of the bad state of data, resulting comes increasingly important to structure proper governance thatin inadequate fiscal discipline with respect to capital adequacies, and will ensure:consequential problems. l A Single View of Truth – Accurate, consistent and timely informa- So what is the general state of “Information Management” in tion to management and user communitybanks? l Robust, scalable, secured and flexible Infrastructure and Systems Until now, the“I”part of“IT”has not been recognized as a core func- with high quality, performance, reduced time to markettion in Banks. Banks primarily drives the “T” part of “IT” and the “I” partfloats between many different software systems and transactional l Highly available systems and Infrastructure (Network, Storage,needs of different silos of the bank. Computing Power, Software Products) Sure...some information processing happens in “Planning and l Identify Risk associated with Internal IT services and establishEconomic Research”department or with many of the PMO’s but there mitigation planis no central ownership of “Information.”This situation has to change. l Tested ‘Disaster Recovery’ site, ‘Business Continuity’, Security In most banks, especially who have modernized their core banking Monitoring and Management.systems, the foundation has been laid. This has to be built upon. As-set-Liability management, Customer experience management, KYC, It is this context; we at TCS Financial Solutions have conceptualizedAML and such imperatives have underpinned the need for powerful our BaNCS Self Healing Architecture and BaNCS Digital Offerings oninformation management systems. A lot of churning of data has to top of our industrialized core systems. Look for more on these.be done across all manners of boundaries, for requirements rangingfrom operational to strategic, business driven to regulatory. Data min- Technology is the enabler of business and growth. The growth ising and real time analytics have become key. Operational efficiencies aimed at all levels of the society. Technology brings convenience,have to be increased much more. Work should not flow, all round quick and better liquidity that fuels growth. The growth brings in ad-digitization should enable real time decision support, and manage- ditional demands and technology enables new products roll out. The ecosystem funnels itself and drives the overall growth and improves the quality of life. Thank You. n 3

letterfrom the editor This issue of TCS BaNCS is dedicated to big ideas. participants to make the numbers work – again, enabling the idea to We often read about big ideas in the technology press. Time and start relatively small before growing into a major force in the industry. again, someone launches a new app promising to change the world. We also present big ideas on how stronger compliance can help Some ideas live up to their potential while others fizzle out. The VC firms banks not only with preventing money laundering and terrorist financ- win as long as they offset the many losers with at least a few big winners. ing, but also with the adoption of new payment methods. (See page 14.) Getting in early on something like Alibaba or Facebook can fund count- The same compliance technology that addresses regulatory mandates less failures and experiments. can also open up the bank to active adoption of innovative technolo- gies being developed in the mobile and retail sectors. When it comes to the operations of the financial services industry, there’s too much at stake, too many moving parts and too many net- Finally, NGS describes a blueprint for a centralized “Information Man- work interdependencies for the “try-everything” approach. When you’re agement”function (see page 2), which will give IT departments the abil- trying to make a real difference in the business results of a multinational ity to improve data quality, increase operational efficiency, and provide financial institution, it’s hard to pin your hopes on the chance that a real-time decision support across the organization. This is truly a big small investment will yield a windfall. idea, yet one that can start one department at a time within a financial institution. That’s why many big ideas in financial services often call for big in- vestments, widespread participation, and everyone moving together at I believe the big ideas in this issue are all winners, developed by in- the same time. The intended move from T+5 settlement to T+1 comes dustry leaders with decades of experience and hands-on knowledge of to mind – and with the industry at T+3, it would be very optimistic to financial services. At TCS Financial Solutions, we are doing our best to say we’re halfway there. make these ideas a reality for our clients. However, each of the big ideas described in this issue are built to start We’re excited to be a core part of the transformation of the financial on a somewhat smaller scale. services industry. We look forward to hearing your thoughts at Sibos or afterwards. Our guest contributor Rich Urban, President of IFX Forum, describes how new ISO 20022 messages will enable financial institutions to incor- Until next time… porate standardized remittance data into cash management services. (See page 18.) Banks can start with just a few clients with the assurance Dennis Roman of future growth of the ISO 20022 standard. Editor-in-Chief Vice President Our latest high-profile hire at TCS Financial Solutions (Nick Scott, who TCS Financial Solutions held several strategic operational positions at Deutsche Bank), makes 954 423 3560 office the case for an industry utility for securities processing. (See page 12.) 954 806 6660 cell With this big idea, banks can shed costs associated with back-office ac- [email protected] tivities without losing their identities or their clients, while opening up www.tcs.com/bancs technology budgets for innovation and freeing up management atten- tion away from compliance issues. Plus, it would only take a few market For address changes, requests for new subscriptions, or other inquiries: Email: [email protected] Phone: +91 80 6725 69634

contents 26 2 Self Healing and Role of IT “Information Management” has to become the key engine for driving financial services businesses 12 6 CorpBanca Investment Trust Trust company deploys custody solution of TCS BaNCS for the high-growth Colombia market 10 BNP Paribas Securities Services Executives offer insights about their TCS BaNCS deployment and growth plans in the Americas 12 The Case for an Industry Utility for Securities Processing TCS Financial Solutions’ global head of capital markets describes the idea for a transformative business model 14 High-Profile Compliance Tougher regulations and wider payment options call for compliance to be faster, smarter and more flexible. 18 Why Banks Should Adopt ISO 20022 Remittance Messages Rich Urban, President of IFX Forum, makes a strong business case for new payment messages 14 20 Survival of the Fittest-for-Purpose Gert Raeves from CEB TowerGroup describes the way forward for CSDs under Target2Securities 21 Awards from The asian banker TCS BaNCS customers AmBank, HDFC Securities and Shanghai Rural Commercial Bank win prestigious awards 22 News and Events TCS BaNCS wins FTF Award for Best Clearing and Settlement; plus, IASA, Novarica and WCUISTOCKPHOTO About TCS Financial Solutions TCS Financial Solutions is a strategic business unit of Tata Consultancy Services. Dedicated to providing business application solutions to financial institutions globally, TCS Financial Solutions has compiled a comprehensive product portfolio under the brand name of TCS Bancs. Our mission is to provide best-of-breed solutions that drive growth, reduce costs, mitigate risk, and offer a faster speed to market for our customers. TCS Financial Solutions delivers state-of-the-art software solutions for the banking, insurance and capital markets industries worldwide. For more information, visit us at www.tcs.com/bancs About Tata Consultancy Services LTD (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT, BPS, infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery Model™, recognized as the benchmark of excellence in software development. A part of the Tata group, India’s largest industrial conglomerate, TCS has over 300,000 of the world’s best-trained consultants in 46 countries. The company generated consolidated revenues of US $13.4 billion for year ended March 31, 2014 and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at www.tcs.com. Copyright © 2014, TCS Financial Solutions. All rights reserved. No part of this publication may be reprinted or reproduced without the written permission from the editor. TCS BaNCS newsletter is provided to clients and prospects on a regular basis. TCS Financial Solutions disclaims all warranties, whether expressed or implied. In no event will TCS Financial Solutions be liable for any damages on any information provided within the magazine. The information is provided to outline TCS BaNCS general product direction. The editorial is to be used for general information purposes. The development, release, and timing of any features or functionality described for TCS Financial Solutions products remains at the sole discretion of TCS Financial Solutions. From its inception, TCS BaNCS newsletter has been printed on paper from environmentally responsible sources. 55

cover story Every year, TCS launches more and more useful features“ ”for the custody business. 6

Bcaonklinogmonbia CorpBanca Investment Trust readies itself for rapid expansion as a custodian to the high-growth Colombian capital markets By Jorge Mikan, Sales Consultant, TCS Financial SolutionsIn 2011, the top ratings agencies raised Colombia’s credit rating to been practical to add functionality to the legacy Banco Santanderinvestment grade, spurring an influx of investment capital into the system given the sunset date of 2016. With strong domestic rivals, C-fast-growing economy. The financial sector was an early beneficiary TRUST faced the challenge of keeping its customers completely satis-of this trend, given Colombia’s strong economic outlook and rela- fied while also building a competitive offering for new customers.tively low penetration of banking services in the domestic economy. These factors made very strong arguments for reinvestment intoThat year, Banco CorpBanca Chile acquired the operations of Banco the custody business. “Once CorpBanca management fully under-Santander Colombia. The Bogotá-based subsidiary was then re- stood the importance of the ever increasing custody business, itbranded as Banco CorpBanca Colombia in August 2012. The acquired was easy to make the case for further investment,” says Maria Susanabusinesses consisted of a stock brokerage, an insurance agency and Montero-Pinilla, Head Manager at C-TRUST.a trust company: CorpBanca Investment Trust. CorpBanca Investment Trust (C-TRUST) previously relied upon an CONTINUOUS IMPROVEMENTIT platform developed by Banco Santander, but those systems were The search for a solution started with the firm’s rebranding as C-not part of the acquisition and could only be used until TRUST in August 2012. CorpBanca’s internal selection committeeJune 2016 at the very latest. reviewed vendors from Colombia and abroad, and also evalu-The extreme upward pressure to deliver a new solu- ated the possibility of developing the IT platform in-house.tion was accelerated by the passage of a Colombia The extensive search process was completed in late 2013custody law that took effect in 2013. The new law with the selection of Tata Consultancy Services. “TCS was al-required local mutual funds to appoint a local ready a provider for most of our clients, including the mostcustodian from among the trust companies important of our clients, and they all gave us good re-regulated by Colombia’s financial services ports on the TCS BaNCS platform,” says Montero-Pinilla.regulator, the Superintendencia Financiera de “Every year, TCS launches more and more usefulColombia (SFC). features for the custody business,” Montero-PinillaThe custody law had two main effects: adds. “We needed to see that level of commitment toFirst, it spurred a rush of new clients to C- continuous improvement.”TRUST, making CorpBanca the second-largest Another important selection criterion was thecustodian in the Colombian market – even easy-to-use web channel of TCS BaNCS that provideswhile still using legacy systems. Since 2012, custody clients with transactional access to accountsC-TRUST has increased assets under custody through multiple connection methods. Many majorfivefold. participants in the domestic banking market are notSecond, the new law made the search for an yet SWIFT users, and therefore require direct connec-updated custody solution increasingly urgent. Maria Susana tions to their custodians. In turn, custodians need theC-TRUST needed to establish direct connections Montero-Pinilla ability to quickly and efficiently establish direct connec-with its domestic customers, and it would not have tions with their financial institution customers. 77

cover story SWIFT is not yet commonly used in Colombia due to the his- First row (from left to right): Manuj Goel (Business Ana- toric perception that the interbank network is simply too expen- lyst for SP), Oscar Vargas (Chief Security Officer), Julián sive. That perception is now being turned around, and over time, Garnica (Application Tester), Anamaría Viveros (Senior C-TRUST fully expects SWIFT to firmly and extensively take hold. “If Consultant), Nestor Solano (Translator), Lilián Rocío you have SWIFT, everything is easier,” says Montero-Pinilla. Barrios (VP of Technology), María Susana Montero (Product Head Manager), Carmen Pérez (Development After evaluating the alternatives, C-TRUST decided to deploy Analyst), Miguel Guaqueta (Application Test Lead), Kul- TCS BaNCS, including modules for Securities Processing and Cor- veer Verma (Technical Architect), Carlos Dulcey (Local porate Actions. Project Manager) and Margarita Convers (Manager). Second row (from left to right): Juan Camilo Martínez GREAT EXPERIENCE (Manager), Edgar Sánchez (Partner), David Salazar (Application Tester), Leonardo Joya (Application Tester), Ajai Kumar Singh (Project Manager), Carlos Vargas (Application Tester), David Ramírez (Translator), Cristian Fontecha (Subject Matter Expert), Luz Adriana Salazar (PMO Analyst), Marlon Lascano (PMO Manager), Felipe Maldonado (Custody Operation Manager) and Ruchir Sharma (Business Analyst for Web Channel). C-TRUST signed a contract with TCS in January 2014, and in February commenced implementation with the aid of Ernst & Young’s Latin America Financial Services Advisory (LAFSA) prac- tice as implementation partners. The project is slated to go-live in November 2014 – a 7 month project. With close collaboration between C-TRUST, E&Y and TCS, the project has been moving forward on budget and on schedule. “We have experience working with offshore companies, but this was the first time we worked with a team from India,” relates Montero-Pinilla. “Naturally, we had some concerns about the time zone and the cultural differences, but it turned out to be a great experience for everyone.” One of the biggest benefits for C-TRUST will be the rapid re- sponse to the changes in the Colombian capital markets. “Right now, Colombia is going through many changes, and TCS is will- ing to adapt to all the changes that we need in order to adapt to the market,” says Montero-Pinilla. “It’s not just providing the same standard of service as before, but evolving as the Colom- bian market adopts international market standards.” Presently, most foreign clients enter into the Colombia capital markets to just buy or sell equities or fixed income instruments. As the market matures, support for an expanded range of financial in- struments will be essential. “I expect in the next few years that the market will get much deeper in terms of futures, repos, and struc- tured products, allowing clients to generate better results from their investments here in Colombia,”says Montero-Pinilla. “We’re going to have more clients doing a wider range of activities.” The new regulations make the use of a local custodian manda- tory for local mutual funds. “We expect to see a bigger market for custody services, and our deployment of TCS BaNCS will make us more competitive in the custody business,” says Montero-Pinilla. Felipe “Our initial expectation was to have a platform that supports Maldonado the entire custody business,” says Felipe Maldonado Arango, cus- Arango tody manager for operations of CITRUST. “TCS BaNCS fully sup- ports those expectations.” n8

Fast Facts AT A GLANCEl CorpBanca Investment Trust (C-TRUST) is the trust Company: CorpBanca Investment Trust company of Banco CorpBanca Colombia. Headquarters: Bogotá, Colombia Business Challenge: To deploy a new custodyl With assets under custody of $7 billion, C-TRUST solution for the high-growth Colombia market is the second-largest custodian in the market. Solution: Securities Processing and Corporate Actions solutions of TCS BaNCSl Banco CorpBanca Colombia is now one of three leading Latin American financial institutions to implement TCS BaNCS in support of its Custody business. 99

case study SecBuNriPtiePsaSriebrvaisces In this interview, executives from the global custodian and securities services provider offer insights about their TCS BaNCS deployment and growth plans in the Americas By Daniel Garcia, Senior Consultant, TCS Financial Solutions Walt Palmer What is the rationale Director, for your expansion in the U.S.? U.S. Custody Operations, BNP Paribas Securities Services has a significant BNP Paribas footprint in Europe and is a recognized leading brand name in financial services. However, our ambition is to become the number one global pro- Tell us about BNP Paribas vider of securities services. We aim to support our Securities Services and its business. clients on their growth ambitions by accompany- ing them in the markets where they do business. BNP Paribas Securities Services is a wholly-owned subsidiary of the BNP As such, the U.S. market is a key buying center in Paribas Group and a leading global custodian and securities services pro- achieving this ambition. vider. We provide integrated solutions to all participants in the invest- For clients who wish to access both the U.S. and ment cycle. Our products and services include clearing and custody, fund global markets, we have developed a full suite of administration and middle office, securities lending, financing, and much solutions across the buy side and sell side to help more. them navigate the complexities of the financial and We have a direct presence in 34 countries and a network covering regulatory markets. In the U.S., these products and over 100 markets. We bring together local insight and global expertise services are delivered through various subsidiaries to enable clients to maximize their market and investment opportunities and affiliates of BNP Paribas, further highlighting worldwide. the diversity of our one-stop shop business model. In short, we partner with institutional clients to help them to over- come market complexity, while offering a single point of access for all asset classes, both onshore and offshore, around the world. BNP Paribas Securities Services is now a local custodian for more than 80 percent“ ”of our clients’ domestic asset base.10

We are now quickly expanding “our services with direct clients ”from Europe and the U.S. for both local and global custody. Yves Doucet Managing Director What were some of the challenges met and Head of Clearing as a result of this deployment? & Custody Services, Americas, BNP Paribas We’ve faced three major challenges as a result of this deployment:Tell us about how TCS BaNCS fits into First, we needed to develop full connectivity with theBNP Paribas Securities Services. U.S. securities depository, The Depository Trust & Clear- ing Corporation. We partnered with the TCS teams inWe have been a client of TCS for more than 10 years and a true partner in the U.S. and in India to develop the numerous inter-building tools that bring greater efficiencies to our clients. We use TCS BaNCS faces required for our business, starting from scratch.for many facets of securities services, such as trade processing, clearing and Then, we worked with teams across three continentssettlement, corporate actions processing, income processing, physical safe- – our operational experts based in the U.S., our IT Teamkeeping, position & collateral management and cash processing. based in Europe, mainly France, and TCS in India. TheThe BaNCS system is built on the latest technology that provides access geographical logistics were a real challenge and re-to real-time processing and integration with external market infrastructures, quired a lot of coordination.making it really efficient for us to do business with brokers, depositories, cus- Finally, the complexity of the U.S. market, especiallytodians, other counterparties. in the areas of corporate actions, tax, and regulatory reporting, presented a significant challenge for us to comply with a variety of stakeholders.What do you consider the Overall, we overcame these challenges with the sup-most important aspect of port of the TCS team.this deployment?The U.S. is a significant and strategic Dean Gallimarket for our continued growth. It is Director, Custody Services,very important for us to participate in BNP Paribasthis securities market, and using a flex-ible and robust platform helps us do Please elaborate on your growth aspirations across North America andthat well. Latin America.The launch of our custody opera- Initially, we developed custody and clearing services in the Americas in response to client demand,tions in the U.S. means that BNP Pari- where the strategy at the time was to accompany them in their expansion efforts. Then, we discov-bas Securities Services is now a local ered that the U.S. market was looking for an alternate provider, so we started the local custody activ-custodian for more than 80 percent of ity for internal clients. We are now quickly expanding our services with direct clients from Europeour clients’ domestic asset base. and the U.S. for both local and global custody. We are providing additional value-added services for U.S. fund managers and we will soon welcome our first Latin American clients. n 1211

capital markets STehecCuasreitfoireasn IPndruostcryeUstilsitiynfogr The new Global Head of Capital Markets for TCS Financial Solutions advocates the creation of an industry utility for securities processing that can handle all aspects from trade inception, capture, clearing and settlement, and asset servicing Nick Scott was recently named and we did that using the TCS BaNCS platform. We built large Global Head for the Capital Markets line physical processing centers for Securities Operations, includ- of business for TCS Financial Solutions, ing Asset Services, in multiple locations across India, taking and will take responsibility for the aspects more than 1,500 roles offshore from the high-cost locations of the Global Custody, Asset Servicing, such as London and New York. Securities Trading and Market Infrastructure products for TCS BaNCS. Do you see the internal utility as a business model that other banks What’s your background? should imitate? I have 30 years of experience in the banking industry – and It’s a logical first step to achieve the labour arbitrage, but considering that NGS has 30 years of experience with TCS, it’s not the end game. Regulators have become wary of the you might feel it was an inspired piece of hiring on his part! amount of risk that banks have been prepared to take on with Seriously, I think the match is a really good one and I’m ex- traditional BPO arrangements, and in some countries, there is tremely excited to be part of the TCS BaNCS team. an added degree of scrutiny regarding jobs going offshore. The control environment needs to be robust for what are For the past 14 years, I’ve been with Deutsche Bank. I start- high risk processes with demanding deadlines, especially for ed with Deutsche Bank in Frankfurt, where I lived with my the more exotic events. family for three and a half years. From there, we moved back to London where I took on different operational roles, such as In addition, cost pressures are only increasing due to the establishing a securities control function globally and then volume of regulation coming down the pike, as well as de- running the securities operations for both the Investment mands upon banks and their custody and prime finance busi- Bank and subsequently the Global Transaction Bank – this nesses as tax jurisdictions around the world issue new inter- meant I covered Equities and Fixed Income products as well pretations on cross-border securities ownership. as the Custody and Trust businesses. The top line is also under threat. In the past, we had imag- In the last few years, we established a joint, multi-year pro- ined perpetual growth of clients and trades. However, even gram with TCS to automate the Corporate Actions processes where that does happen, the pattern has changed for settle- across the Bank. In this exercise we formed an internal utility ment volumes. Equities traders, in particular, are seeing re- to service all the primary securities businesses for the firm, duced margins, and brokers are seeking to consolidate. For the infrastructures that are now in place, these significant swings in capacity are as difficult to manage as overcapacity.12

What’s the appropriate business “An industry utilitymodel for banks given the situation would reduceyou describe? transaction costs ”acrossWith the flattening in market activity combined with regu- the board.latory and cost pressures, it’s likely that we’ll see movementtoward a single industry utility for clearing and settlement. When the individual banks look at each other, they realizethat they’re doing very similar things and have very similarprocesses throughout the flow of the trade cycle, little ofwhich gives them a competitive advantage with clients. Asa consequence, a few organizations are now considering theoption of an industry utility to centralize non-competitivefunctions. It simply just makes more sense.How would an industry utility work? What effect would an industry utility have on bank budgets?Banks would minimize their overhead by consolidating andintegrating onto a single platform a wide range of back-office An industry utility would reduce transaction costs across thebanking activities that currently reside on several platforms. board. Banks would still service their front-end clients, and the In addition, the ability to shed a large and growing regula-functions of the utility would be white-labeled to whatever tory burden would enhance the possibility for new technolo-degree is appropriate for each bank. In this way the banks gy spending. Most banking organizations have a limited bud-would differentiate themselves through front-end service, get to replenish and refresh their technology, and the currentwhile freeing up more time and budget for their client-facing level of regulatory spending has had the effect of shrinkingorganizations to pursue product and service improvements. the budget for everything else. An increase in regulatory de- mands means that budgets decrease for new products, plat- Instead of each bank spending considerable sums for the form upgrades, and even for consolidation and integration ofsame regulatory compliance fixes, that regulatory spending existing platforms.would move into a single pot to be implemented once forall participants. The result of an entity such as the IRS issuing What role does TCS have in advocatingnew rules for Cost Basis and FATCA, would be that those rules the idea?could be implemented just once, for all participants, on thenew platform. We’re in the marketplace now promoting a case for industryWhat are the main barriers to the idea? utilities, and I’m the strongest advocate for that. NGS and ISegregation and protection of client data is a priority. In ad- came together in that belief eight years ago, which is why Idition, the utility must give consideration to any proprietaryprocessing that a participant bank prefers to retain for itself. see this move to TCS as a logical step, a progression from run-These are capabilities that TCS is well-positioned to deliver. ning an internal utility for a single bank, to being in a position There are also internal politics to navigate at some organi-zations, but the regulatory and cost pressures are widespread to offer those utility services for the industry as a whole.and powerful forces. Legacy organizational structures are be-coming harder to justify. I believe that it’s going to be successful, although clearly, it will take us some time to get there. n 137

briefing comHipghl-Piroafilne ce The compliance function has come a long way from checking boxes. By M Siva Shankar (left), Consultant, and G Sudhir (right), Associate Consultant 14

What happens if the recent spate of very costly financial set- Given the increasing compliance risk, mediocre compliance organiza- tlements by banks becomes a routine occurrence rather tions will operate at an ever-growing disadvantage to institutions with than temporary setbacks? In that case, the threat of puni- a stronger compliance focus. Accordingly, if an executive team intends tive penalties would spur a compliance race among the top banks. to dominate a particular line of business, compliance has to be con- sidered a core competency. The compliance dimension can make or Now that major banks have agreed to pay record-setting fines break long-term strategies involving decisions of which geographies to and penalties for various compliance lapses, it may prove difficult for enter, which types of clients to serve and at what price points and even budget-challenged governments to turn off the spigot on such a rich which products to offer in the marketplace. potential source of revenue. If that scenario manifests itself, it won’t be good enough just to satisfy a static set of requirements. Instead, Even as the expectations ratchet up on financial institutions, new banks will have to outperform their competitors at compliance lest technology is making it harder to become a best-in-class compliance they become subject to additional regulatory scrutiny for not keep- organization. The economy has globalized and new payment instru- ing up. In turn, financial institutions will have a strong incentive to ments have followed with expanded options for mobile, person-to- build best-in-class compliance capabilities. person and business-to-business payments. In this regard, legacy techniques are no longer sufficient – or sufficiently scalable – to ad- No matter how the relationship evolves between regulators and dress two of the major concerns of governments: Money Laundering the financial services industry, the clear message is that compliance (ML) and Terrorist Financing (TF). has become a board-level and executive-level concern. Instead of compliance being considered as a support function – a cost center The combination of increased scrutiny and increased difficulty has responsible for ticking the right boxes – the emerging view is that led financial institutions’ top executives to investigate new approach- compliance has become a profit center that should aim to protect es to software, strategic sourcing and various organizational con- other sources of revenue from fines and penalties. structs. The new compliance organization has to be faster to keep up with higher payment volumes, smarter to keep up with growing Through the strategic allocation of IT and human resources, finan- regulatory complexity, and more flexible in order to incorporate new cial institutions can achieve a sustainable competitive advantage by payment methods into existing processes. gaining a reputation for compliance excellence in key lines of business. TCS BaNCS ComplianceISTOCKPHOTO TCS BaNCS offers a comprehensive compliance solution with end- Customer Profiling and Reporting. TCS also provides know-how to fi- to-end capabilities covering the fundamental regulatory require- nancial institutions in making necessary changes to handle requests ments of banks and financial institutions. The solution supports AML, for withholding tax. anti-terrorist financing and KYC regulations using both real-time and batch monitoring workflows, and offers a complete range of regula- Depending on market needs, deployment models for TCS BaNCS tory reports for multi-entity, multi-jurisdictional firms. can be standalone implementations; hosted hardware for AML appli- cations; and fully hosted, integrated solutions. TCS BaNCS provides a solution compliant with Financial Action Task Force (FATF) requirements and other regulatory demands across the As part of the product roadmap, in September 2014, TCS released financial enterprise, through its business modules for KYC, Watch List a major update (version 7) of TCS BaNCS for Compliance. The update Scanning, Transaction Monitoring, Case and Alert Management, Work- makes the underlying data model of the application more flexible in flow and Reporting. meeting financial Institutions’ growing reporting needs. The update also improves performance of watch-list scanning and provides en- Also, in response to high levels of customer demand, TCS BaNCS hanced capabilities for capturing a 360-degree view of customers provides a rapid readiness solution for FATCA compliance, including across the enterprise. 1151

briefing FASTER COMPLIANCE SMARTER COMPLIANCE Anti-money laundering (AML) and Know-Your-Customer The total compliance solution also has to provide, for each (KYC) programs have driven steady growth in IT budgets. regulatory jurisdiction in which a financial institution does While automated solutions are excellent at finding possible business, heightened levels of detail about customer ac- discrepancies and generating alerts, they have not kept counts and transactions. pace with the increasing volume of payments, higher com- plexity of global transactions or faster velocity of payments. The immediate challenge for financial institutions is the Even if a suspicious transaction is detected, there is only a U.S. Foreign Account Tax Compliance Act, or FATCA, a far- small window of opportunity for the right someone to act. reaching regulation that started to take effect in July 2014 Even if an automated solution excels at uncovering suspi- requiring banks around the world to report to the U.S. any cious transactions, it still takes human oversight to turn an relevant information about accounts held by U.S. persons in- alert into an effective – that is, an appropriate – response. cluding corporate entities. In the initial days of AML awareness, people were the As a first step to meeting the requirements of FATCA, finan- first line of defense in the fight against money laundering. cial institutions have to conduct due diligence across their Today, sophisticated AML systems have become the first existing customer base to identify U.S. persons and establish line of defense – with people and procedures necessary for a set of new processes for monitoring and reporting account much-needed backup. details and transactions directly to the U.S. tax authorities. In countries that participate through an Intergovernmental Nevertheless, financial institutions are still reluctant to Agreement (IGA), financial institutions will be able to report bolster the automated solutions with an adequate support to their own governments, which will in turn consolidate and structure, either using full-time employees (FTEs) or busi- share information with the U.S. Furthermore, if a bank fails ness process outsourcing (BPO). to provide the requested information about a customer, its U.S. counterparties will be forced to apply a 30 percent with- For payment methods considered highly critical for a holding tax to related transactions. The complex interactions bank’s strategy -- or for those methods highly vulnerable of these requirements make the FATCA compliance effort a to exploitation – the need of the hour is “on-line, real-time” monumental one. monitoring. The goal should be to detect and prevent ML and TF at their point of origination, which can only occur The European Union is the source of another impending through a solution that combines automation with well- set of proposals published in May 2013: the fourth E.U. Anti- trained human oversight. Money Laundering Directive along with an updated regula- tion that calls for “due traceability” of information accompa- The right number of FTEs and the appropriate level of nying transfers of funds. Both of these proposals advocate a BPO engagement depend upon the characteristics of the risk-based set of guiding principles that extend the respon- financial institution: geographies, customers, products sibilities of financial institutions with regard to anti-money and services, and firm-specific vulnerabilities. Within that laundering, customer due diligence, politically exposed per- framework, each organization has to define how to sup- sons and tax crimes. port straight-through processing for the underlying busi- ness while also quickly and accurately resolving situations One of the main challenges with FATCA and similar regula- that may indicate potential abuse of the banking system. tions is that they involve systems and processes outside of the traditional, bolt-on compliance function. In addition to An AML solution – including IT solutions, people and process- implementing software for managing specific cases, alerts, es – must handle a large volume of transactions while assessing workflows and reports, financial institutions also have to give an appropriate level of scrutiny on each individual transaction. compliance professionals the organizational access and au- Too many “false negatives” opens up the bank to regulatory risk, thority to find the information they need to ensure that regu- while too many “false positives” creates an unnecessary or even latory concerns are being met at all stages of a transaction. unsustainable oversight burden. It’s a moving target, as the right Another important aspect is to assess and enrich the knowl- balance between speed and scrutiny changes morphs under edge and capabilities of compliance personnel. both business and regulatory pressures.16

FLEXIBLE COMPLIANCEAs financial services become more integrated into both elec- partnering with NPM providers.tronic and offline commerce, various prepaid cards, mobile pay-ments and Internet payment services have gained in popularity Indeed, some NPM providers have started to partner withas a means of sending funds quickly and efficiently to any con-nected endpoint. established banks to manage their back-end settlement, com- Unfortunately, these new payment methods, or NPMs, also pliance and reporting requirements. This approach helps bothhave potential vulnerabilities in terms of ML and TF. For exam-ple, a known terrorist can get a third-party nominee to conduct the service provider to ensure that it can operate within thea transaction, or a money launderer can facilitate paymentsthrough an employee or owner of a complicit NPM provider. regulations, and the bank in building expertise and experienceThrough these means, money can be sent outside of the strictconstraints of the banking sector, exploiting the lack of face- in NPMs.to-face contact or identity verification to conduct high-speedanonymous fund transfers. Other NPM providers have started to enter into end-to-end From a compliance standpoint, financial institutions can cer- agreements with IT-enabled service providers for comprehen-tainly choose to ignore NPMs, leaving both the compliance chal-lenge and the business opportunity to others. It’s an open ques- sive SaaS (Software-as-a-Service) or AaaS (Architecture-as-a-tion as to whether non-bank NPM providers have the breadth andwherewithal to understand and implement the requirements of Service) deals. However, this approach is risky in the sense thatfinancial regulations across jurisdictions. However, it does seemlikely that non-bank providers will come under intense scrutiny the service provider may absorb a great deal of responsibility forby regulators, especially if specific abuses can be traced to NPMs. the cost of non-compliance on behalf of a NPM provider. That Alternatively, financial institutions can embrace NPMsboth in their product lineups and compliance frameworks. contingent liability may be a problem for regulators – as well asFinancial institutions can expand their reach into an increas-ingly digital world either by building their own NPMs or by for the service provider’s other customers. Consequently, the most likely model for the future develop- ment of NPMs will be either a partnership model, where inno- vative NPM providers rely upon financial institution partners to manage their global compliance and risk management needs; or in some cases, leading banks will themselves take on the role of market innovator by introducing NPMs. In either case, the winners will be those with the fastest, smart- est and most flexible compliance departments. These will be the financial institutions most capable of capitalizing upon the im- mense profit potential of new payment methods, new business models and new approaches to partnership. nRECENT DEPLOYMENTS One of the common features across these implementations was the establishment of on-line, real-time “know-your-In the recent quarters, TCS has implemented the Compliance customer” checks during customer on-boarding. Each ofsolution of TCS BaNCS at: these deployments also supports regulatory reporting requirements with end-to-end audits of their AML and KYC l CTBC Bank (Philippines) Corp., the Philippines retail activities to establish who did what and when. banking subsidiary of Taiwan-based CTBC Bank; Each of these recent deployments span various business l First Metro Investment Corporation, an investment units, giving the compliance teams the ability to build a banking, treasury and investment advisory firm based in comprehensive knowledge base while allocating resources the Philippines; and efficiently to the areas with the most critical needs. l Bank of Maharashtra, one of the largest public-sector banks in India with a focus in retail and corporate banking. 17

briefing RMeISsmehWOoishutyl2sdbt0aaadna0gok2nspet2cse New payment messages improve support for business-to-business global commerce By Richard P. Urban, President of IFX Forum, Inc. Payments networks were built by and for financial act with a wide range of partners across industries and countries, institutions. As such, these networks naturally excel they often find themselves using several different incompatible at risk management, compliance with regulatory techniques and approaches for exchanging remittance data. requirements, and efficient throughput – which are all high priorities for financial institutions. ISO 20022, the widely adopted financial industry messaging Businesses have slightly different priorities. In B2B commerce, standard, gives the financial services industry an excellent op- payments are almost always accompanied by remittance infor- portunity to improve services and relationships with business mation describing the transaction. Yet the major payments net- customers by encouraging the adoption of standardized mes- works lack the ability to adequately handle remittances through sages for the exchange of remittance information. payment and clearing channels. Remittance Messages In fact, there are strong disincentives for banks to handle remit- tance information. The payments networks were built to handle In April 2014, IFX Forum submitted two new messages to the tightly condensed and standardized messages. By contrast, re- ISO Registration Authority for inclusion in the standard ISO mittances often consist of extensively detailed data contained in 20022 repository. These new messages have the flexibility to non-standardized formats. If added to legacy payments networks, adapt to current business practices while still adhering to uni- a high daily volume of remittances might tax the throughput of form standards. the network, increase the operational workload, and create new risk and compliance challenges for banks. Based on these con- The Remittance Advice message contains pertinent details siderations, financial institutions have been slow to incorporate about the transaction including payments, discounts, disputed remittances into existing payments channels. amounts and invoice details. Responding to this compelling market need, various provid- The Remittance Location Advice message fully specifies the ers now provide e-commerce solutions that support the elec- location where the remittance details can be found. To support tronic exchange of remittances. Yet since most businesses inter- electronic remittances, this message can point to a web site managed by one of the trading partners or by a third-party so- lution provider. Alternatively, the message can indicate that the18

details were sent via email or postal mail, and to whom. behind the international standard by the global financial ser- As “stand-alone” messages, either of the new message types vices community, a cost-effective business case can be madecan be exchanged independent of the associated paymentmessages, using any number of different methods for exchang- independently for each of those adoption scenarios:ing information. Furthermore, the flexible design of these newmessages easily accommodates existing business practices as l Businesses can exchange remittance messages with theirwell as optimized data flows. trading partners; Using these messages, financial institutions now have somevery promising prospects for offering value-added services in l Software vendors and service providers can include remit-cash management. For example, a bank can provide a combinedelectronic and paper-based lockbox for invoice payments; auto- tance messages as part of their solutions; andmatically link remittances to payments; and manage translationsbetween remittance formats across multiple payment portals. l Banks can incorporate remittance data into value-addedOvercoming the Adoption Challenge offerings.New standards often face significant barriers to adoption: con- With these new remittance message types, IFX Forum hasversion costs; pre-existing development priorities; and theneed for simultaneous adoption with trading partners. The new advanced the state-of-the-art in business-to-business paymentstand-alone remittance messages are designed to overcomethese barriers. processing and electronic remittance handling. The new remit- The new remittance messages, like all ISO 20022 messages, tance messages are flexible enough to support both direct com-can be sent using existing data exchange capabilities and arenot tied to a specific network. Although these new remittance munication between trading partners as well as transmissionmessages can be sent through payment networks, that is byno means a requirement. This deployment flexibility supports through payment channels. In addition, IFX Forum has madeprevailing business practices amongst trading partners withoutforcing businesses to undergo expensive connectivity costs. the new message easy to adopt, lowering both the risks andBusinesses can gain early benefits from the standard withouthaving to make a large investment. costs of adoption. These considerations make the new remit- Over time, banks can begin to offer value-added services that tance message types a significant standard to follow through-combine the benefits of the ISO 20022 standard with the ubiq-uity of the payments networks. In the U.S., NACHA has already out the entire trading ecosystem. nannounced its support of the new remittance messages alongwith an opt-in program for banks to support transmission of About the authorthe messages on the ACH network. Through programs such as Rich Urban is President of IFX Forum, Inc. He hasthese, financial institutions can ease the transition for their cus- served in that capacity since 2003. He also partici-tomers by providing real-world benefits. pates on the leadership council of the US Federal Reserve-sponsored Remittance Coalition.Making the Business Case About IFX ForumThese factors dramatically reduce the risk of being an early IFX Forum, Inc. is a financial services iFX Forum, Inc. is a financial services industryadopter. Either banks or businesses can “go first” knowing that consortium formed in 1998. Its mission is to facilitate the electronic exchange oftheir providers, partners and clients will eventually reference the financial data and transactions. The IFX Standard is an international messagingsame standard. This eliminates the risk of adopting a one-off so- standard and SOA framework capable of serving the rigorous requirements oflution while increasing the likelihood that everyone will benefit banks and their partners. IFX members span the globe.from the network effect of multiple trading partners using thestandard in the future. IFX Forum is a submitting organization to ISO 20022 and participates in the ISO 20022 governing body as a Liaison Class A member. Given these benefits, opportunities, and the strong impetus For more information about applications of ISO 20022 in TCS BaNCS, contact Murray Heldon ([email protected]), TCS’ representative on the Board of Directors of the IFX Forum. In that capacity, he participates in guiding the overall direction of the IFX standard, and guides the development of IFX capabilities within TCS BaNCS. TCS is a longstanding member of IFX Forum, and TCS BaNCS provides full support for the ISO 20022 message standards across banking and capital market solutions. TCS BaNCS includes solutions for payments processing and cash management with end- to-end capabilities around acquisition, processing and reporting of credit transfers and direct debits. The data model, process model and financial messaging of the payments capabilities within TCS BaNCS are designed in accordance with ISO 20022 guidelines – including both customer-to-bank and interbank payments. TCS has been one of the early adopters of ISO 20022 standards into the product design of TCS BaNCS, and TCS actively supports the adoption of ISO 20022 throughout the banking and financial services industry. 19

analyst FitteSustr-vfivoarl-oPfutrhpeose First came immobilization, then dematerialization. What’s next for Central Securities Depositories? By Gert Raeves, Senior Research Director, CEB TowerGroup Central Securities Depositories (CSDs) are a fascinating That seems like a much thinner value proposition than example of evolution at work. Before CSDs, buyers and sellers of securities had to shuffle papers, send couriers, the original one of physical security and convenient and arrange transfers of physical securities certificates. transfer of ownership. After being a great tool for reduc- The introduction of CSDs immobilized those cer- tificates by having them placed in physical vaults at a ing friction in the market for so long, CSDs have become shared location and operated by a neutral market utility. With immobilization, buyers and sellers could transact a source of friction. With over 40 different CSDs in Europe more efficiently, without having to manage the move- ment of physical certificates. alone, cross-border investors need to employ a long and The next stage was dematerialization, which elimi- expensive chain of intermediaries to manage this maze of nated the need for physical certificates entirely. With de- materialization, securities certificates turned into mere connectivity, standards, as well as legal and operational entries on an electronic ledger. Yet despite losing some of their original benefits of physical security, in most mar- nuances. kets CSDs have remained an entrenched part of the legal ownership transfer process. If you buy or sell a security The balkanized European settlement landscape com- today, that change of legal and beneficiary ownership is recorded in the electronic accounting platform of a CSD. pares unfavorably with other mature markets, especially Throughout the capital markets industry, participants from fund managers to custodians and clearing banks still the United States, where DTCC (the US CSD) in its various rely upon CSDs every time that security n moves from led- ger a to ledger b. guises has managed to smooth the path to more efficient Are CSDs still fit for purpose? and cheaper settlement and account servicing. At the barebones level, a CSD is just an accounting plat- Enter Target2Securities, the European Central Bank (ECB) form that receives and sends messages to its members. project to harmonize European settlement flows by using a single settlement system across all CSDs. When it was first announced, there was much gnashing of teeth about what it would mean for CSDs, custodians, and investors. The an- swer is becoming clearer by the day. Scale and integration are the only way to create efficiencies in a market where every incentive is now aligned: Make it simpler and cheap- er to settle trades and service investors’ accounts. Single-purpose vehicles are on the way out. If a CSD ser- vices just one country or jurisdiction, or offers just a subset of 21st-century securities services, it’s headed on a one-way cruise to the Galapagos Islands. n The above blog was created by CEB for TCS’ exclusive use. May not be reproduced by any means without express permission. All rights reserved.20

The aAswiaardns fbroamnker news TCS BaNCS clients performed exceptionally well at The Asian Banker Summit held in Kuala Lumpur, both in The Asian Banker Achievement Awards as well as in The Asian Banker Technology Implementation Awards held concurrently.AmBank, one of Malaysia’s premier HDFC Securities (pictured above), Shanghai Rural Commercial Bankfinancial services groups, and TCS the brokerage subsidiary of HDFC (SRCB), which operates a businessFinancial Solutions were awarded Bank and one of the leading broker- network of more than 390 outlets,the Best Single Country Core Banking ages in India, and TCS Financial and TCS Financial Solutions haveImplementation Award for 2014 at Solutions were named the winner won the China Best Core Bankingthe eighth Asian Banker Technology of the Best Technology Implementa- Implementation Award at the ChinaImplementation Awards. AmBank tion of the Year for 2014. The Retail Financial Services Awards forrecently deployed TCS BaNCS to TCS BaNCS implementation for 2014. The core banking project atreplace its aging core banking sys- 800 dealers and 400,000 customers SRCB was completed in a span oftem, along with a new branch teller was delivered ahead of schedule, three years and is expected to helpsystem and enterprise data ware- delivering immediate cost savings, the bank save RMB 1.4 billion (overhouse. The implementation across improved operational efficiency USD $225 million) through cost re-5,000 users, 200 branches and 10 and reduced latency of transac- ductions and high availability. Withmillion accounts was completed in tions. The new order management TCS BaNCS, SRCB has been able tojust 25 months. system operates five times faster double its average daily transaction than the previous solution. volumes. Through the improved front-end interface, the bank can achieve a single view of its custom- ers’ activities, even as customers gain a unified view of the bank. n 21

news and events nStroatevgay drayiwcitah awFatrfd In August 2014, TCS Financial Solutions held a Strategy Day with Novarica, a research and advisory firm serving TCS BaNCS Selected as Best Clearing the property/casualty and life/annuity insurance industries. and Settlement Solution Above: Vijaya Deepti, Vice President and global head of product development and client delivery of TCS BaNCS for insurance, Financial Technologies Forum (FTF) selected TCS BaNCS as Best Clearing with Chad Hersh, Partner, Novarica. and Settlement Solution at the FTF awards Below: Novarica team for 2014. More than 12,000 qualified 22 industry participants participated in the voting process. iasa At the insurance industry’s marquee event, IASA 2014, held this year in Indianapolis, Indiana, TCS demonstrated the transformational digital strategy for insurers enabled by TCS BaNCS.

ISTOCKPHOTO (4) creWdiotrulndion Bank Depository TCS BaNCS exhibited at the User Group (BDUG) 2014 World Credit Union Conference Annual Meeting in Gold Coast, Australia, which brought together 1,882 credit union leaders from 48 countries. September 21-24, 2014 Clearwater, Florida, USA Sibos September 29 - October 2, 2014 Boston Visit TCS at Booth #G38 CorpActions 2014 October 14, 2014 London BAI Retail Delivery November 12-14, 2014 Chicago Visit TCS at Booth #4025 23