operational efficiency for offshore rmb

Operational Efficiency for

Offshore RMB

Lisa O’Connor, SWIFT

May 2012

SWIFT’s role

• Provide a global

network

• Facilitate the Offshore

CNY working groups

with the common goal

of increasing

automation by

publishing a set of

market guidelines

• SWIFT integration

products and services.

• RMB White Paper

• Participate and organise

industry events to

discuss the increasing

international use of the

RMB

• RMB education webinar

on operational aspects

• RMB Business Insights

report with key statistics

• Bespoke insight services

(e.g. peer comparisons)

Facilitate

RMB

transactions

& automation

Broaden

industry

understanding

Provide

business

insights

HKIB Technology & Operations Forum, May 3 2012 2

Source: SWIFT. Customer initiated and institutional payments sent

RMB is underutilised vs China’s trade

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

EUR USD GBP JPY AUD CAD CHF SEK HKD SGD THB NOK DKK RUB CNY NZD ZAR HUF MXN TRY

Payments (September 2011, value) Trade (2010,value)

Currency

#15

September

2011

Currency

#21

June

2011

Currency

#35

October

2010


BRIC economy growth in 2011 2011, value of customer initiated and institutional payments, sent and received

% Growth

Brazil BRL 2%

Russia RUB 7.4%

India INR 4.1%

China CNY 14.8%

Payments currency evolution 2011 2011, value of customer initiated and institutional payments, sent and received

Source: SWIFT

Source: SWIFT


RMB payments development opportunity Source: SWIFT, September 2011, selected countries


RMB Payments (ex. China & HK) Q1 2011 – Q1 2012, value of customer initiated and institutional payments, sent and received

6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1

Other Asia

Other ASEAN

Singapore

Americas

Africa & Middle East

Other Europe

United Kingdom

HKIB Technology & Operations Forum, May 3 2012

RMB FX Confirmations (ex. China & HK) Q1 2011 – Q1 2012, volume of FX confirmations, sent and received

7

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011-1 2011-2 2011-3 2011-4 2012-1

United Kingdom Other Europe Africa & Middle East Americas Singapore Other ASEAN Other Asia

HKIB Technology & Operations Forum, May 3 2012

RMB heat map

¥ ¥ ¥

¥ ¥

¥

New business Substitution

6

2

5 3.b

3.a

Trade settlement and payments clearing:

same payment now in RMB, but reaching more

corporates in China can increase overall trade.

Market share opportunity for Chinese and

global banks but shifting USD to RMB clearing

Trade finance:

same underlying trade,

no big RMB business

unless commodities shift

FX for trade payments: less in

China but more by foreign

corporates + those need hedging

Retail: new business,

but mainly for banks in

large offshore centres

like Hong Kong

FX trading: very big opportunity, RMB from 0.9% to 5% market share by 2020

Securities services: currently underdeveloped,

will increase with policy liberalisation, as more

RMB is held outside China, with product innovation

1

4

Account services and

liquidity reporting:

growing with RMB business

and banks seeking clearing

capability (38+% growth in

2010 vs 5-10% previous years)

Watch your back Go for it

Grow Push to keep market share

Source: SWIFT.


How to get ready?

1. Decide on your RMB strategy

2. Keep close eye on changing policy

3. Pay attention to corporate customers’ needs

4. Keep track of new RMB product developments

5. Look to achieve straight-through-processing of the

RMB flows to allow operations to scale with

business demand

6. Engage in industry discussions on operational

efficiency for this growing market


• Industry stakeholders approached SWIFT on challenges

surrounding offshore Chinese Yuan operations, in particular

concerns regarding straight-through-processing.

• As an agreed action at a meeting held April 2011, SWIFT assisted

the market to establish 3 working groups:

- The Cash & Trade Group

- The FX, MM, Derivatives Group

- The Investor Perspective Group

• Objective: to agree on guidelines for the SWIFT MT and ISO 15022

messages to enhance STP rates for Offshore CNY transactions.

The Guidelines


• The purpose of the groups is to look at this common industry

challenge from a middle/back office transaction processing

perspective not an exchange rates or valuation perspective

• There was a need for a “tactical solution” since banks proprietary,

vendor operated and SWIFT systems are all based on ISO

currency codes

• The group recognises that CNY is the only approved ISO currency

for Offshore and Onshore RMB because there are other existing

codes (CNT) and there is a possibility of new codes created by front

office system in the future (CNS?, CNL?, etc.)

• This is for an interim period and there is the ability for other codes

to appear because of price differences therefore it is the groups

belief that a new ISO currency code will not be approved

The Industry Challenge


The Industry Challenge

• The operational challenges started because firms are using the

code CNH (that is being passed from the front office) for dealing

of Offshore CNY

• Once the code CNH is passed to the middle or back office, CNH

is likely to be translated to CNY for settlement, because CNH is

NOT a valid ISO 4217 currency code and therefore not able to

be processed in systems

• The majority of these transactions are currently being processed

outside of STP channels

• As volume of transactions increases, this practice is hindering

STP and could be prohibitive to business growth


• Simply put this is not SWIFT decision

• Any source can submit an application for a currency code however

it needs to be substantiated

• Confirmation by a Central Bank or by the institution responsible for

the currency is required

• The Maintenance Agency Secretariat for the ISO currency codes is

SIX Interbank Clearing Ltd

Why doesn't SWIFT just create the currency code

CNH?


To develop your RMB business, call SWIFT

Develop business Understand implications

Offshore CNY

WG Guidelines

Increase automation

Detailed

statistics

Training course

RMB

internationalisation

Business Insights

report

September 2011

Automation

software

Automation

guidelines

Monthly tracker

White paper

Contact your SWIFT account manager, or

email [email protected] – RMB initiative director, SWIFT


mailto:[email protected]

Thank you

Lisa O’Connor

Initiative Director, RMB Internationalisation

SWIFT

[email protected]

+85296129066


mailto:[email protected]

operational efficiency for offshore rmb

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