6prog members

A Financial Services Transformation specialist with over 20 years experience within Markets, Banking and IT, across JPMorgan, Deutsche Bank, Credit Suisse and HSBC. Always specialising in change & transformation, roles have included IB COO & CAO functions, M&A Change, Head of HR IT, IT programme management, Middle Office, Finance & Operations Change, and Data Governance.

Effective at managing local and global programmes from inception to live, he has a unique capability to work with both small and large businesses and help them realise the power of block chain. Additionally, he acts as a non-exec director of a number of startup companies (incl. Tectra, WorkGaps, +), as well as managing Crypto portfolios and coin mining.

For more profiles like this see 6prog.com and contact hello@6prog.com if you are interested in talking to the above consultant. Click the logo below to register.

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What is an ATS? [plus interactive demo is live]

What is an ATS?

An ATS is an ‘Applicant Tracking System’. Typically this is used by the agency and the client to keep abreast of all the available people for a particular job.

We found that there is a key person who misses out on being involved in the ATS though – the actual candidate!

 

If you are a candidate (we have all been one once!) you will have called, emailed, sms’d your agent or client to see at what stage on the tracker you are. Have you been submitted to the client? What was their feedback? When did / will / should the next stage be reached?

Furthermore, the recent GDPR regulations require that people who hold your data better understand what data they are holding, how long for and whether they should be holding it for any duration.

Perhaps it is better if the owner of that information administers it themselves?  6prog.com designed its workflow to enable the candidate to sign in and impact the ‘ATS’.

You can communicate with the client and/or the agent. You can administer your own data, therefore you know exactly who has your information and at what time.

Rather than being the data in an ATS… you are a participant and data controller yourself. Whilst I do not anticipate #candidatesarehumanstoo is a hashtag that will take off it does neatly summarise how we feel about our duty to 6progmembers.

Transparency is here – for a live and interactive demo contact hello@6prog.com

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3 ways Central Bank Digital Money will help banks. Stuff worth knowing from The Bankers’ Plumber

“Help for banks”. That hardly sounds like a noble cause worthy of anybody’s support. But bear with me for this two minute read and I’ll explain.

If I have any of this wrong, please let me know your views. In any case, please share widely. For the plumbers of the banking world this is important stuff; individually we can help FS shops be efficient and effective, but only to the extent the market mechanisms are any good.

The wholesale banking markets are condemned to do one thing that other industries are not; settlement, the exchange of assets and money. Today Ford & General Motors may be interested in what the other is doing, but they are not forced to constantly interact. Well at least not until we have autonomous self-driving cars sharing a common road.

Banks however are forced into multiple interactions every day; if I want to pay a UK supplier for a service to my Swiss consultancy, Credit Suisse, the firm’s local banker needs help from a UK clearer. As soon as the banks trade with one other, for example in the foreign exchange markets, they need to settle their trades. Of course, banks have done plenty to deserve the public’s disdain, distrust and lack of sympathy. That said, these interactions need to function both efficiently and effectively in order for the banking system to work.

Right now, e-money, digital currency, Central Bank Digital Money (CBDM) or Currency (CBDC) together with DLT, Distributed Ledger Technology, are being heavily touted as a global panacea for many, if not all, ills.

Money is a very fundamental thing, so understandably as a hype around Crypto and ICOs has developed, it has made the Central Bankers nervous and made them sit up and take notice. Central Banks have the mandate to ensure that monetary systems function properly; understandably and rightly, they are wary of new things.

Recently, the Central Bankers have tried to draw the lines to show where they see a role for new technology and where they don’t. See my recent post: “BIS warns central banks on digital currency issuance”. That has been followed up with a formal paper from the CPMI, the Committee on Payments and Market Infrastructures.

For things settlement, this committee really matters. Think of it as the Central Bank Plumbing Policy & Rule Making Club. Under the auspices of the BIS, the Bank for International Settlements, the world’s Central Bankers come together to set policy. That policy is then enacted as laws, guidance, ordinance in each country. Not every country does the same thing, but it would be quite fair to say that actual national rules are mean reverting. These folk are gatekeepers and key-masters of the rules of national banking plumbing.

So, here is my summary of what this latest white paper is suggesting:

  1. CBDC in retail or consumer markets would create more problems that it would solve
  2. There might be a place for CBDC in wholesale markets, albeit there are inevitable concerns about Operational Risk and Cyber Security. The authors also expressed some concern as to whether the new technology might really be so much more efficient
  3. CBDC may offer a way for institutional investors to access Central Bank money in a helpful way

Both what is said and what is not need some interpretation. I agree that for retail payments at a national level, any significant upside from CBDC, and with it DLT, is not obvious. I would also agree that any efficiency gains may be modest.

The third point, together with what is not said about regulatory costs are IMO where the juice is in matters CBDC / CBDM. Insitutional business is not always good for banks and increasingly, many aspects of so called transaction banking are as welcome at banks as the proverbial pork-chop at a Bar Mitzvah.

Going back to the plumbing and settlement, imagine that at the end of business this last Friday, Credit Suisse had a balance of $500mm in its USD account at BNY Mellon, its US Nostro. If it did, it was a function of operations rather than intent. But, all the regulatory rules still come to pass; the LRD (BIS Basel III Leverage Ratio Denominator) is the key driver here and it will require that 500mm to be backed by the same amount of HQLA, High Quality Liquid Assets and capital of 5%. For CS too there are consequences; that operational balance ends up as “Cash at Banks” in the balance sheet and impacts its Risk Weighted Assets.

If CS could hold that balance in something that was treated like Central Bank money and risk, then BNY Mellon would be as happy as Credit Suisse.

Another side effect of the role the banks play in settlement is liquidity. Since the 2008 events around the collapse of Lehman Brothers, the regulators have focussed on matters liquidity. LCR the Liquidity Coverage Ratio is one outcome of this focus. LCR looks at cash flows in the next 30 days and requires HQLA to cover them. Cash flow is outflows less inflows by currency by counterpart, with the latter discounted by 25%.

Broadly, a decent metric. Well at least until you get into the plumbing of matters settlement. Imagine on day 1 Bank A does a forward value trade selling GBP 100 to Bank B vs. USD 150, for value Day 30. Later the same day, as markets move, Bank A buys GBP 100 from B for USD 151. There is a USD 1 profit.

When the LCR machinery kicks into gear, Bank A will have outflow of GBP 100 less 75% of 100 inflow from B, and will need 25 in HQLA in GBP and then in USD, it will need 150 less 75% of 151. And B too will need HQLA. And it does not stop there. LCR is two pronged. First, so called Pillar 1, is the calculated value as per the rules. Then comes the add-on of Pillar 2; this is a subjective amount determined by the regulator based on how well the bank in question is perceived to be in control of its business.

How banks manage things intraday is a big part of this Pillar 2. For more insight see this recent well presented article from Pete McIntyre: “The Regulators restart the intraday liquidity race – 12 talking points“. Intraday is all related to settlement, the must do bit of plumbing the banks have to do. Exact numbers aren’t published, but I’d put good money on the number for intra-day alone being between USD 20B and 30B for each Tier 1 bank / GSIB. Every 1B is about USD 10 million per annum in costs. Intraday is certainly the lion’s share of this subjective Pillar 2 add-on.

Lessons to be Learned

The folks from the CPMI have made some correct observations regarding the potential for CBDC to be helpful in wholesale banking.

Given financial services companies have to deal with plumbing of the settlement processes, it is appropriate for the Central Banks to offer help to ensure the plumbing is as effective & efficient as possible.

The upside for the FS institutions from CDBC is not so much about operational efficiency per se; saving a few heads, be they on-shore, near-shore or off-shore, will not noticeably move the meter. But, right now, people cost is the default lever for banks to all on in order to increase profitability. That has its limits. In fact, the more they cut heads, the worse their process control, the larger the potential Pillar 2 add-on can be.

CDBC with some help from DLT offers the possibility to reduce the really significant regulatory costs associated with the settlement end of our industry. On that front, the banks do deserve some help from our regulators and Central Banks.

In summary, CDBC might help in three ways:

  1. Operational Efficiency: a little
  2. Liquidity: potentially a lot
  3. Regulatory Capital and Assets: potentially a whole hell of a lot

Now what the banks would do with the increased profitability and lower capital needs that such plumbing changes might bring is entirely another matter. How much should flow to the 1% in dividends, share buy-backs, carried interest and exec compensation schemes is best left to those in other professions. I am but a humble plumber.

About the Author: The Bankers’ Plumber. I help banks and FinTechs master their processing; optimising control, capacity and cost.

If it exists and is not working, I analyse it, design optimised processes and guide the work to get to optimal. If there is a new product or business, I work to identify the target operating model and design the business architecture to deliver those optimal processes and the customer experience.

I am an expert-generalist in FS matters. I understand the full front-to-back and end-to-end impact of what we do in banks. That allows me to build the best processes for my clients; ones that deliver on the three key dimensions of Operations: control, capacity and cost.

Previous Posts 

Are available on the 3C Advisory website, click here.

Publications

The Bankers’ Plumber’s Handbook

Control in banks. How to do operations properly.

For some in the FS world, it is too late. For most, understanding how to make things work properly is a good investment of their time.

My book tries to make it easy for you and includes a collection of real life, true stories from 30 years of adventures in banking around the world. True tales of Goldman Sachs and collecting money from the mob, losing $2m of the partners’ money and still keeping my job and keeping an eye on traders with evil intentions.

So you might like the tool kit, you might like the stories or you might only like the glossary, which one of my friends kindly said was worth the price of the book on its own. Or, you might like all of it.

Go ahead, get your copy!

Hard Copy via Create Space: Click here

Kindle version and hard copy via Amazon: Click here

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How to make Central Bank Digital Money? Stuff worth knowing from The Bankers’ Plumber

This post is a continuation of the thoughts from the last two posts. My own conclusion to date was that powering the possibilities of digital assets and benefiting from things DLT needs CBDM. I am indebted to the very thoughtful Kevin Rutter of R3 and to Rhom Ram at the USC Project for engaging in very lively conversations on this topic.

We can readily understand that any form of “alternate currency” which undermines Central Banks’ control over monetary stability is going to be very problematic. In Financial Services, we actually have experience of doing “transformation without inflation”.

For years, we have been switching between Ordinary Shares and ADRs or GDRs; so long in fact, that a certain Xavier Rolet, the recently departed CEO of the LSE, was a cash equities trader at Goldman Sachs. Back then, the young Frenchman was keeping me busy by “arb’ing” Swiss shares vs. their ADR equivalents. For each share, there was a an agent, a bank, that would take the Nestle shares in Switzerland and create ADRs for settlement in the US.

Crucially, the fact there were ADRs did not change the number of ordinary Nestle shares in circulation; no inflation. The process was privately owned and operated. No role for a Central Bank or regulator.

The process worked, though there was the occasional hiccup. This happened when you asked to convert ADRs to Ordinaries and found that the agent, Deutsche, Citi, JP and the like, took the ADRs from you but was late with the delivery of the Ordinaries. Basically, they had poor controls over their “box”, in other words their holdings in the Swiss CSD where the ordinary shares were held. That was annoying and created problems; if instead of Nestle shares we were talking about Swiss Francs and their digital equivalent, this would be unacceptable.

Switzerland also has an example of a transformation that involves the Central Bank. The SNB is activity involved in the Intraday Repo market; offering cash vs. collateral at 0% interest, as long as the money is returned the same day.  There are penal rates if you miss the return delivery; rightly so, as that extra cash increases money supply.

Another useful lesson from the financial market infrastructure in Switzerland is the way that different rails in the value chain interact. Financial assets are traded on the Swiss Exchange. Trades are sent to the CSD, the Central Securities Depository, for settlement. They are “locked in”; agreed, non-cancellable and if the seller has securities and the buyer has funds, will settle on value date.

I love this “locked in” feature; the mere ability to have cancel / corrections has occupied and IMHO wasted thousands of hours of time of many, many thousands of FS professionals working out how to accommodate this evil feature. To misquote the great Bob Marley: “No cancel, no cry”.

On value date, the CSD checks to see if the seller has securities, temporarily blocks them and then reach out via an API to the payments system to see if the buyer has funds. That “request for cash” is rated more important than other general payments activity. When there are funds, cash and securities move simultaneously, so called DVP, delivery vs. payment. If not settled, the securities side is released, another trade chosen and the failed trade is re-tried later.

Lessons to be Learned

Crucial lessons here are the locked in feature and the way that there is one pool of cash, in the payments system. If we want to create CBDM, how might this be done?

Banks might get together and form a consortium to build a platform. This is Route 1 of the FS industry when it comes to sorting out infrastructure; helping yourself. The Utility Settlement Coin project, USC, is an example of this. For this structure to work, I think the banks involved would have to find a mechanism where as agents they are not faced with punitive requirements for holding the fiat cash against which they issue digital currency. All sorts of thorny issues there around Basel III, LCR, NSFR and Liquidity Buffers.

Potentially, if those several banks create a special purpose bank vehicle where each bank is a minority shareholder, then some of those problems might go away.

I would also consider whether the transformation process from fiat to digital is one that is needed all the time or only intraday. First thought here is that the digital world is going to demand long opening hours, which will make it challenging to close a currency. Challenging, not impossible. Requires careful thought.

As we work as an industry to come up with a solution, we must not forget the U in USC. U for Utility and Universal. The digital cash we create must be in one central pot and not lead to unconnected silos.

A second last thought for this post is that CBDM as an enabler for things DLT will not be the global panacea for all ills. If CBDM can drive widespread use of DLT, then there is the very distinct possibility of FS business realising big savings in processing costs. But, DLT and CBDM alone will not help reduce the costs of liquidity; LCR, NSFR and the intraday liquidity buffers. Those costs are far greater than the operational ones.

The last thought is the role of the regulators and Central Banks. My experience of their MO is that they like to sit on the sidelines and observe, then perhaps impose their regulatory requirements. I think the digital world has so much promise, that a more pro-active stance is needed. Hope dies last.

About the Author: The Bankers’ Plumber. I help banks and FinTechs master their processing; optimising control, capacity and cost.

If it exists and is not working, I analyse it, design optimised processes and guide the work to get to optimal. If there is a new product or business, I work to identify the target operating model and design the business architecture to deliver those optimal processes and the customer experience.

I am an expert-generalist in FS matters. I understand the full front-to-back and end-to-end impact of what we do in banks. That allows me to build the best processes for my clients; ones that deliver on the three key dimensions of Operations: control, capacity and cost.

Previous Posts 

Are available on the 3C Advisory website, click here.

Publications

The Bankers’ Plumber’s Handbook

Control in banks. How to do operations properly.

For some in the FS world, it is too late. For most, understanding how to make things work properly is a good investment of their time.

My book tries to make it easy for you and includes a collection of real life, true stories from 30 years of adventures in banking around the world. True tales of Goldman Sachs and collecting money from the mob, losing $2m of the partners’ money and still keeping my job and keeping an eye on traders with evil intentions.

So you might like the tool kit, you might like the stories or you might only like the glossary, which one of my friends kindly said was worth the price of the book on its own.  Or, you might like all of it.

Go ahead, get your copy!

Hard Copy via Create Space: Click here

Kindle version and hard copy via Amazon: Click here

Please follow and like us: