Financial industry network operator Swift has finally signed off its new five year strategic plan, but how many of the reference data items mentioned by securities head Chris Church back in January have made the final cut? Arun Aggarwal, Swift’s managing director for the UK, Ireland and the Nordics, explains to Reference Data Review that the development of the Bank Identifier Code (BIC) as a legal entity identifier and corporate actions standards are the key reference data focuses for 2015.
Aggarwal, who joined Swift last year as part of its push to get closer to local markets, first discussed the potential items that could be included in the new five year strategic plan back in November last year. At that point, however, Swift was only half way through its industry consultation process and the items on the table were numerous and wide ranging. The reference data items on the list included initiatives in areas such as standing settlement instructions (SSI) infrastructures, legal entity data, securities identifiers and corporate actions golden copy.
However, as noted by securities head Church earlier this year, Swift is keen to take a ‘less is more’ approach to the market, rather than spreading itself too thinly when times are tight. Hence it seems that the two main reference data focuses for Swift over the next five years will be corporate actions standardisation and the development of the BIC as a legal entity identifer.
“BIC is one of our hidden assets to which we can add a lot more value for the market by extending its reach into becoming a legal entity identifier,” explains Aggarwal. “We are therefore working on cleaning up the BIC database at the moment in order to take into account the increased complexity within the market due to the spate of intense M&A activity over the last couple of years.”
In light of the regulatory and wider industry focus on the BIC – the recent MiFID review discussions on the subject are a case in point – this strategic selection is well timed.
The BIC is not without its detractors, however, and Swift will have to push hard to address all the criticisms that are being levelled at the identifier in order to convince the market at large of its viability. It will also have to face off its competitors in the market, notably the Cusip Avox Business Reference Entity identifier (Cabre) code, which is now part of the DTCC’s portfolio and thus may have an ‘in’ in the US market in particular. The Cabre Directory Service is also aiming to provide a universal identification system for global business entities including issuers, obligors and counterparties and, according to Cusip Global Services, it comprises 300,000 such identifiers at the moment.
In spite of these challenges, Aggarwal is confident of the potential of the BIC in the market going forward. “The feedback from the market about moving in this direction has been positive thus far but there is some difference of opinion between the world of banking and that of securities. The banking world is cautious of any changes being made to the BIC because it is so embedded into their processes, although they believe it makes sense to extend its use. There is less of a legacy challenge on the securities side, however,” he explains.
There may be less of a legacy challenge, but this also means that the BIC has yet to be embedded into the requisite systems within securities firms and Swift will essentially be forced to start from scratch in getting the market on board. Firms may be using BICs, but not in the way they will do as a legal entity identifier.
The other high profile push within the reference data space for Swift is around corporate actions and, along with DTCC and XBRL US, it has been busy building a business case for the adoption of XBRL tagging of issuer documents. In June, the group outputted a case study to indicate the potential savings for the industry of this move, which it estimated would save US$400 million per annum.
“There is a lot of activity going on in the US and this is progressing well and there is strong acceptance of XBRL,” says Aggarwal, although he indicates that outside of the US, the UK and Europe are a stage or two behind. “The reason for that is that there isn’t a central body like the DTCC across Europe in order to push through change and, instead, we need the central securities depositories (CSDs) to come into line. Despite the fragmented environment, there have been some discussions in Europe about XBRL and in some countries it is already well accepted for regulatory reporting or tax reporting.”
Aggarwal is right in suggesting that the potential of XBRL has been discussed in Europe, but it is important to note that this has largely been driven by the regulatory community. For example, the he Committee of European Banking Supervisors (CEBS) suggested XBRL could be used in a risk data tagging context in a consultation paper it produced in June.
However, the user community may not be as convinced of the benefits of XBRL as the regulators. Michael Kempe, chief development officer for Capita Registrars, which looks after issuers in the UK and Irish markets, for example, raised the point back in April that XBRL is not needed or wanted by the issuer community because the European market is much less paper driven than the US market and a degree of automation has already been achieved through the use of ISO standards.
Aggarwal does accept that there is a structural difference from the US in that the issuer to CSD space in the UK is already fairly automated due to the presence of intermediaries in the form of registrars who take the pain out of the process, but he feels this will only mean any move to XBRL will take longer. “There is some conceptual acceptance but it is more about building a business case for XBRL for the market. I believe that once the US has successfully moved over to XBRL, the rest of the world will be compelled to follow,” he contends.
The next five years should give some indication whether Swift’s confidence in XBRL and the BIC are justified.
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