ECB wants “realistic but ambitious regulatory end dates” for SEPA Migration

The European Central Bank (ECB) has publisged its 7th Progress Report on the Single Euro Payments Area (SEPA).

Currently, 32 European countries are participating in SEPA, more than 4,400 banks have joined the SEPA credit transfer scheme, and more than 3,000 banks have signed up for the SEPA direct debit scheme. Hence, much has been achieved in implementing SEPA.

However, further action by European legislators is needed for SEPA to be completed successfully. In this respect, a mandatory timeline for the migration to SEPA payment instruments will significantly accelerate the pace of transition, enabling SEPA to be completed, preferably, by the end of 2012 for credit transfers and by the end of 2013 for direct debits.

The 7th Progress Report, entitled “Beyond theory into practice”, shows achievements in major areas. For instance, the launch of the SEPA direct debit in November 2009 has made direct debit payments possible for the first time across borders. By 1 November 2010 the reachability of payment accounts for SEPA direct debits will be guaranteed legally, allowing SEPA direct debits to be used effectively throughout Europe.

In addition, the governance structure of SEPA has been improved by the creation of the SEPA Council, which enables a more formalised involvement of high-level representatives of consumers, retailers, corporates, SMEs and public administrations in the SEPA dialogue.

Other areas where progress has been made include: the transposition and implementation of the Payment Services Directive, and standardisation in the area of cards.

Despite this progress, SEPA migration as a self-regulatory process, has not yet achieved the results that were initially expected. The banking industry’s self-imposed deadline of December 2010 for SEPA credit transfers and direct debits to be in general usage will not be met. By August 2010 only 9.3% of all credit transfers processed in the euro area were SEPA credit transfers. Since its launch in November 2009, SEPA direct debits remain at a share well below 1% of all direct debit transactions processed in the euro area. Therefore, the Eurosystem strongly supports the work of European legislators to create the necessary momentum to bring the SEPA project to completion. The envisaged regulation establishing a SEPA migration end date(s), in which the usage of national payments instruments will be discontinued, will be a key element for the timely and smooth adoption of SEPA. The Eurosystem is also confident that concerns raised by market participants on the envisaged regulation on SEPA migration end date(s) will be properly addressed by the European authorities.

Other key elements for the success of SEPA that still need to be addressed include: the provision of innovative payment services (e.g. online and mobile payment services), the creation of an additional European card scheme and the enhancement of the security of card transactions by phasing out the magnetic stripe on European cards.

Ms Gertrude Tumpel-Gugerell, Member of the ECB’s Executive Board, said: “SEPA is progressing from the market-driven phase of design and implementation to the phase of mandatory migration, aiming to ensure that the necessary adoption really takes place. At this stage, SEPA faces a number of specific challenges that only the market and the regulators together can master. I hope that the constructive cooperation between all stakeholders will become even closer in the decisive two to three years ahead, so that our joint efforts help us to achieve the final goal: an attractive integrated and competitive European market for euro payment services.”

EPC and GSMA publish mobile contactless payments white paper

The European Payments Council (EPC) and global wireless trade group GSMA have published a while paper on mobile contactless payments and the role of 'trusted service managers' (TSMs).

The white paper comes after the pair launched a consultation on SEPA and mobile contactless payments at the beginning of the year. They aim to get payment services providers and mobile network operators to cooperate on a system to enable over 500 million Europeans to make SEPA payments using their handsets.

The new paper describes the provision and lifecycle management - including distribution, configuration, activation, maintenance and deletion - of banks' contactless payment applications when integrated with a mobile phone.

It also outlines the role of the TSM, which is to support banks and operators aiming to promote mobile contactless payments. TSMs facilitate the distribution, configuration and activation of the bank's payment application on the Universal Integrated Circuit Card (UICC, or SIM) within bank customers' NFC handsets.

The hope of the EPC and GSMA is that the joint project will boost commercial relationships between issuing banks, the mobile network operators and TSMs and therefore speed the deployment of contactless m-payments.

Dag-Inge Flatraaker, chair, EPC m-channel working group, says: "Building a common architecture for mobile contactless payments is a key objective of the EPC's initiatives for mobile payments in the Single Euro Payments Area (SEPA). The implementation of interoperable and user-friendly mobile payment solutions makes it even easier for bank customers across 32 SEPA countries to access state-of-the-art SEPA payment services."

Financial Stability Board meets in Seoul

The Financial Stability Board (FSB) met this week in Seoul on key elements of financial reforms ahead of the G20 Summit that will also take place in Seoul. The meeting welcomed the Basel Committee’s global bank capital and liquidity standards; agreed on a framework for addressing systemically important financial institutions; endorsed recommendations for increasing the intensity and effectiveness of financial supervision; approved recommendations for implementing central clearing and trade reporting of over-the-counter (OTC) derivatives; and endorsed principles for reducing reliance on credit rating agency ratings.

The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

At the meeting the FSB also reviewed progress on other elements of the financial regulatory reform agenda, including accounting convergence, established FSB regional outreach arrangements, and discussed the future work programme.

Key financial regulatory reforms

The meeting focused on the following elements of the program of financial regulatory reform agreed by the G20 economies and coordinated by the FSB in the wake of the financial crisis. The FSB will remain engaged with the remaining policy development and closely monitor national implementation of these reforms in 2011 and beyond:

New bank capital and liquidity standards. The new standards developed by the Basel Committee on Banking Supervision have been designed to markedly increase the resilience of the global banking system by raising the quality, quantity and international consistency of bank capital and liquidity, constrain the buildup of leverage and maturity mismatches, and introduce capital buffers above the minimum requirements that can be drawn upon in bad times. The new standards will reduce the likelihood and severity of future financial crises and create a less pro-cyclical banking system that is better able to support long-term economic growth.

The FSB and the Basel Committee, in close collaboration with the BIS and IMF, have assessed the macroeconomic impact of the transition to the stronger capital and liquidity standards. The implementation horizon and transition arrangements have been designed to ensure that implementation does not harm the recovery. National implementation of the risk-based capital requirements by member countries will begin on 1 January 2013. Member countries will translate the capital rules into national laws and regulations before that date. From that point forward, the capital standards rise each year, reaching their new level on 1 January 2019.

Addressing systemically important financial institutions. The FSB agreed and will recommend to the G20 Leaders’ Seoul Summit for their endorsement a policy framework, work processes and timelines to address the “too big to fail” problem associated with systemically important financial institutions (SIFIs). The FSB’s work to address SIFIs is also part of the broader G20 financial reform process, and specifically follows up on the Leaders’ mandate at the Pittsburgh Summit.

The framework calls for jurisdictions to put in place:

• Capacity to resolve national and global SIFIs without disruption to the financial system and without taxpayer support
• A requirement that SIFIs and initially in particular global SIFIs (G-SIFIs) have higher loss absorbency capacity to reflect the greater risks that these institutions pose to the global financial system
• Supplementary prudential and other requirements to reduce the probability and impact of SIFI failure
• Increased intensity of SIFI supervision, and
• Updated standards for more robust core market infrastructures, including central counterparties in the OTC derivatives market.

The effectiveness and consistency of national policy measures for G-SIFIs will be subject to review by an FSB Peer Review Council.

Increasing supervisory intensity and effectiveness. The FSB endorsed recommendations to increase supervisory intensity and effectiveness. Strong supervision is a necessary complement to stronger rules. Supervisors are expected to detect problems proactively, intervene early to reduce the impact of potential stresses on individual firms and therefore on the financial system as a whole. The actions and processes endorsed cover the following elements necessary to deliver greater supervisory intensity and effectiveness:

• Ensuring that supervisors have unambiguous mandates, sufficient independence and appropriate resources
• Providing supervisors with the full suite of powers necessary for effective early intervention
• Improving supervisory standards to reflect the complexity of financial institutions and the system as a whole, and
• Increasing the frequency of assessments of supervisory regimes.

National authorities and standard setters will follow up on these recommendations as they make improvements to their core principles. FSB thematic peer reviews and IMF/World Bank FSAP assessments will assess national implementation.

Implementing central clearing and trade reporting of OTC derivatives. The FSB approved a report containing recommendations to promote consistent implementation of the G20 commitments concerning:

• Increasing the proportion of the market that is standardized
• Moving to central clearing of OTC derivatives by (1) implementing mandatory clearing requirements, (2) strengthening oversight and regulation of central counterparties (CCPs) and (3) introducing robust risk management requirements for the remaining non-centrally cleared markets
• Trading on exchanges or electronic platforms, where appropriate, by asking IOSCO to complete an analysis by end-January 2011, and
• Ensuring that OTC derivatives transactions are reported to trade repositories.

The FSB will assess implementation of these recommendations, and monitor progress to identify if further work on the international level is needed, on a regular basis.

Reducing reliance on CRA ratings. The FSB endorsed principles to reduce authorities’ and financial institutions’ reliance on credit rating agency (CRA) ratings. The principles cover five types of financial market activity: prudential supervision of banks; policies of investment managers and institutional investors; central bank operations; private sector margin requirements; and disclosure requirements for issuers of securities. The goal of the principles is to reduce the cliff effects from CRA ratings that can amplify procyclicality and cause systemic disruption. The principles call on authorities to do this through:

• Removing or replacing references to CRA ratings in laws and regulations, wherever possible, with suitable alternative standards of creditworthiness assessment
• Expecting that banks, market participants and institutional investors make their own credit assessments, and not rely solely or mechanistically on CRA ratings.

The FSB has asked standard setters and regulators to consider next steps that could be taken to translate the principles into policy approaches tailored to specific financial sectors and market participants. As market participants need to build up their own risk management capabilities, clear milestones should be set to achieve a transition to a reduced reliance on CRA ratings over a reasonable timeframe into the medium term.

Accounting convergence. The FSB recognized progress toward improved, converged accounting standards in four main areas: impairment of financial assets; derecognition; addressing valuation uncertainty in fair value measurement guidance; and netting/offsetting of financial instruments. The FSB reaffirmed its support of standards that do not expand the use of fair value measurement recognition for lending activities, a position echoed by the comments of many investors and other stakeholders, and expressed hope that the FASB and IASB consideration of stakeholders’ comments on proposed standards will result in improved and converged approaches. More generally, the FSB encourages the IASB and FASB to continue their efforts to achieve improved converged financial instrument accounting standards by June 2011.

Outreach to non-members

The FSB is establishing regional consultative groups to strengthen the involvement of non-members in its work. The groups will bring together financial authorities from member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability. The structure and membership of the groups is under discussion and will be finalized in time for the first meetings to take place in 2011.

Remittances become Kenya’s top forex earner

The inflow of funds from Kenyans abroad grew significantly in the past 12 months to become the country’s top earner of foreign exchange helped by a renewal of interest in the real estate sector, increasing popularity of university education and growing importance of entrepreneurship as a key source of employment in the country.

A new study by the World Bank and the Central Bank of Kenya (CBK) indicates that Kenya received a total of Sh152 billion or $1.9 billion in the past 12 months – beating proceeds from traditional forex earners such as tourism (Sh100 billion), tea (Sh70 billion and horticulture’s Sh71 billion.

This volume of inflow translates to an average of Sh58,800 for each of the 2.61 million Kenyans who received money from abroad during the period and the number of recipients is equivalent to 14 per cent of the country’s adult population.

The study is the first of its kind between the two institutions and the first also to include transfers that are not received through the formal financial system, suggests that the inflow of remittances is three times more than previously thought.

The Central Bank estimate of annual remittances excluding informal channels was $609 million (Sh49 billion) last year, a marginal drop from $611 million in 2008.

This year’s receipts were expected to surpass last year’s owing to the economic recovery of the US economy and stabilization of the weak European economy -- the major source of the remittance - which has suffered massive job losses in 2009 following the global economic meltdown that started the third quarter of 2008.

Kenya, like many African countries that receive high volumes of remittances, has been found to be lacking in policies that could help channel the inflows to sectors that strengthen their role in enhancing economic growth – leaving much of it to go into consumption.

The joint survey established that half of the total amount received goes to meeting recipients’ daily expenses such as food, housing and medicare, with the other half going to key economic and social functions including start-up capital for small businesses (35 per cent), paying for university education (33 per cent) and buying or building houses (8 per cent).

Only a tiny four per cent of the remittance receipts are kept as savings.

Unlike the trend in other parts of the world, the World Bank study found that it is Kenya’s emerging middle-class is the main recipient of the remittances.

“This is unique because these are not people looking for money to make ends meet. In other parts of the world it is the needy, who get such remittances,” said Sergio Bendixen, an advisor with the World Bank.

Utilization of the remittances in growth projects such as housing and business start-ups is being taken as signaling the potential that exists to deploy the funds in enhancement of economic growth.

Mr Michael Fuchs, an advisor to the World Bank’s Africa region on finance and private sector development, said that in many African countries, remittances have moved beyond ordinary support to the subsistence needs of recipients to driving actual GDP growth.

“Governments must develop legal and regulatory frameworks that will help providers of remittances move beyond simple hand-outs. They need to design and deploy innovative and functional financial products and services that facilitate savings, loans, mortgages and insurance,” he said.

While a large fraction of the flows are made up of private transfers to family members and friends, the World Bank says policy makers and service providers could play an active and supportive role in leveraging its development impact by facilitating formal flows and reducing the cost of transactions, the World Bank said.

Kenya’s Finance and Foreign Affairs ministries have responded to the emerging trends with a raft of new regulations on remittances that offer preferential treatment to flows earmarked for investment.

The critical role that remittances have come to play in the Kenyan economy is further indicated in the attention it has received from the National Economic and Social Council (NESC), a key public policy organ.

Mr Bendixen said a revolution in information and communication technology (ICT) has helped drive the flow of remittances into Kenya citing cheaper call and internet charges that have offer easy linkages between remitters and recipients.

The US, England, the United Arab Emirates, Uganda and Tanzania are Kenya’s main sources of remittances with commercial banks, money transfer firms and mobile phone platforms such M-PEAS and Zap as the main channels used to transfer the funds.

The US and England’s leadership of the list of remittances source markets has however caused concern that ongoing economic turbulence in Europe and North America could culminate to a fresh dip in the volume of remittances in the medium term.

The World Bank has however allayed the fears terming the “situation would temporary” citing the recent resurgence in economies such as China, Germany, and India as well as demand for work force in the most developed countries where births have remained low.

“People will continue to move North and money will continue to move South,” said Mr Bendixen.

Remittances to sub-Saharan Africa are currently estimated to exceed $21 billion and are expected to grow by almost two per cent this year despite a weak global economy.

To increase formal flows and deepen their financial markets, the World Bank is asking African government to encourage competition and technological innovation that will help reduce costs and increase access to financial services among local recipients.

Benjamin Musuku, an official with the World Bank’s Finance and Private Sector department, said lack of connectivity to financial systems has hampered the growth of remittances in Africa and urged for improved access to such facilities.

The survey however recorded relative advancement in Kenya where more than four-fifths of recipients received their money through a bank or money transfer firm.

“Despite significant progress in the reporting of remittances throughout the world, most official statistics in sub-Saharan Africa still under estimate the true size of the flows. This is in part due to a focus of data collection efforts on formal channels such as banks,” the bank said.

TRAINING COURSE - RISK MANAGEMENT - FOCUS ON FRAUD

Limassol, Cyprus, 20 & 21 January 2011

 

FRAUD is high on the list of Operational Risks that face all banks. You just have to look at recent events to see two very clear examples of recent massive frauds – Bernard Madoff and Satyam. There are of course many others, but these two stand out because of their size and linkage to the present financial crisis.

A major by-product of the current financial crisis was the number of frauds which have come to light – frauds that had been running for years.

How would YOU fare if your bank or organization was faced with a fraud? In fact could you even identify a fraud in your working environment? Are you maximizing your staffs’ potential to reduce fraud and error in your systems?

“Risk Management - Focus on Fraud” is a 2-day intensive course on fraud and how it presents huge challenges for banks, requiring them to radically modify behavior and increase their vigilance in many of the traditional risks associated with banking activities.

This course provides a clear introduction to the world of fraud risk management and shows how it affects bank and customer alike. This two-day course exposes participants to how modern fraud activities are altering its risk profile.

What you will gain from this course

• Understanding the Human Dynamic – How greed and fraud fit into this the fraud pattern
• Understand and identify the key Fraud Indicators and Red Flags
• Understanding Operational Risk – The Big Picture
• Positioning your organization to successfully manage the ever-present Fraud problem
• Successful approaches to managing Fraud Risk.

Who should attend?

• Senior Bank Executives
• Risk Managers
• Operations Managers
• Internal and External Auditors
• Operations Officers
• Business Managers
• Compliance Officers 
• I.T. applications providers serving financial institutions
• Consultants and professionals serving the financial services industry.

For a fully descriptive brochure please send a blank e-mail to courses@citadeladvantage.com with FRAUD-LIM in the Subject line. 

TRAINING COURSE - MOBILE BANKING WORKSHOP

Athens, Greece, 16 & 17 February 2011

The Mobile and Electronic Banking scene today illustrates the complexity and diversity of the mobile payments market. In particular it highlights the different approaches between developed nations focusing on solutions utilising existing banking infrastructures verses developing nations currently implementing more proprietary Mobile Network Operator driven solutions.

We are now witnessing the second wave of interest in mobile payments and mobile banking. Similar to the first wave, this second wave is characterized by the launch of a large number of pilots, using a variety of channels and technologies.

Despite the bout of activity, sustainable commercial success is rarely achieved. In developed countries, with their well developed transaction processing infrastructures, the effect of failure may be negligible. However in developing countries where alternative transaction infrastructure is lacking, failure of mobile payment initiatives result in serious long term value dilution of the institution’s mobile channel.

If for any reason the mobile payment channel is tainted by lack of trust or reliability, there is no alternative channel for financial services delivery to fall back on. This would relegate these economies back to square one. This makes it critical that service providers and regulators in all countries involved ensure that every measure is taken to get mobile payments – in pilot or production- ‘first time right’.

Today there are literally thousands of Mobile Banking Pilots in operation around the world. Most of these are doomed to failure! Yet there are some critical success factors that point the way to Mobile Banking success. These factors have been drawn from those few pilots that have succeeded. This course is aimed at highlighting these critical success factors together and ensuring that you too can ‘get it right the first time’.

Who should participate?

This course is intended for the entire mobile payments industry, including merchants, banks and other financial institutions, central banks, mobile network operators, scheme organizations, regulators, supervisors and policy makers.

For a fully descriptive brochure please send a blank e-mail to courses@citadeladvantage.com with MOBILE-ATHENS in the Subject line.

Fraud authority says that UK identity fraud now costs £1.9bn a year

Fraudsters obtain more than £1,000 from every identity they steal, official figures suggest. The National Fraud Authority (NFA) said fraudsters who stole identities had gained £1.9bn in the past year.

Their frauds had affected 1.8 million people, the NFA estimated.

It said the stolen identities had been put to a variety of dishonest uses, such as buying goods or services, obtaining state benefits, or opening bank accounts under false identities.

The NFA, which was set up in 2008, said its figures had been worked out with the help of the National Fraud Intelligence Bureau.

Dr Bernard Herdan, the chief executive of the NFA, pointed out that stolen identities were often used to commit crimes other than fraud. This included dodging the police or other law enforcement agencies, terrorism and people trafficking.

"Stolen and false identities are a significant enabler of crime," said Dr Herdan.

"Losses from identity theft and false identities don't just affect the individual, but also hit the public and private sectors."

The NFA estimated that businesses and organizations lost £800m a year due to the expense of trying to combat identity fraud.