I recently attended the inaugural SWIFT Latin American Regional Conference (LARC) held in Rio de Janeiro, Brazil. Almost 300 delegates representing central banks, market infrastructures, clearing systems, payment networks, financial services firms, corporate treasuries and technology providers attended the two-day conference sponsored by SWIFT. The conference theme “Going for growth in a borderless world,” explored how Latin American financial services organizations are adapting to challenging global economic conditions, numerous regulatory changes and the need to interoperate across the region.
I apologize in advance for the number of new acronyms introduced here. I learned a lot about the various Latin American payment networks, clearing systems and regulatory agencies while attending the conference and am introducing some of them below.
Attending the plenary and work sessions, globalization was certainly the primary theme, but I came away with a key secondary theme, interoperability. Panelists in the opening plenary “Market Infrastructures in Latin America’s Emerging Markets” talked about the rapid evolution of payment and securities systems, especially in Brazil, in the face of runaway inflation (6821% in April 1990) and 230% credit card interest. Market infrastructures such as CIP (Brazil’s interbank funds transfer system), Combanc (Chile’s high-value payments systems), and ACH Colombia discussed projects underway to modernize their systems. For example, several Latin American countries signed a letter of intent to form a cross-border ACH association, removing barriers to clearing low-value payments. To bring its systems up to industry standards, ACH Colombia is seeking ISO 20071 information security certification. The Latin America ACHs are looking at moving toward SWIFT MT and ISO 20022 compliant payments. One example is the SWIFT User Group at FEBRABAN, the Brazilian Federation of Bank Associations, working with SWIFT to map domestic payment formats into the SWIFT MT 101 format. There is also work underway to create IBAN (international bank account number) codes for the Brazilian market.
In a work session titled “Market Infrastructure Integration”, representatives from BNP Paribas Securities Services, DCV (Chile’s central securities depository) and SWIFT discussed their efforts to make Latin America securities market infrastructures more competitive on a global scale. One project, likened to the beginnings of Euronext, was the creation of the Integrated Latin America Market (MILA), integrating exchanges from Chile, Colombia and Peru. Through a FIX protocol messaging service, brokers in the three countries can trade shares through agreements with local brokers within the markets. The end goal is to have a fully integrated market infrastructure encompassing the four steps of the value chain: trading, clearing, settlement and cash.
Another securities session, “Impact of regulation and new principles on financial markets”, discussed the implications of the FSB (Financial Stability Board) and updated principles of the CPSS-IOSCO (Committee on the Payment and Settlement Systems and International Organization of Securities Commissions). An executive from CETIP, Brazil’s largest central depository for custody, trading and settlement of private and OTC securities, outlined the need for updated regulations for issuers, depositories and custodians. The Brazilian securities sector is also trying to increase interoperability between CETIP, Selic (central depository of securities issued by the National Treasury and the Banco Central do Brasil), and BM&FBOVESPA (the Brazilian securities, commodities and futures exchange. Making interoperability more difficult is the plethora of global standards bodies–BCBS, CPSS, IASB, IAIS and IOSCO (Basel Committee on Banking Supervision, Committee on Payment and Settlement Systems, International Accounting Standards Board, and International Association of Insurance Supervisors.)
Last but not least, SWIFT for Corporates was highlighted in a presentation called “Corporates are a catalyst for change in the financial sector.” There were two key takeaways in this session. The first is that global corporates doing business in Brazil are demanding the same level of transparency that they currently have worldwide. The second is that Brazilian corporates are going global and want straight-through-processing for their international payments and receivables, improving working capital management. There are still a number of barriers to overcome for corporates in Brazil such as overcoming cash pooling barriers, foreign exchange controls, restrictions and a high corporate tax burden, but that is not stopping corporates from improving their treasury processes.
At the end of the two-day conference, I am convinced that there are significant opportunities in Latin America for technology providers to help banks, corporates and securities firms to globalize, modernize and interoperate across the region and worldwide. In fact, I had conversations with treasury staff from a Brazilian conglomerate, a global diversified high tech company headquartered in North America, and a global energy and petrochemical firm headquartered in The Netherlands. All of the conversations centered on challenges with efficiently getting information and data from their banks.