hkma-to-implement-swiftnet

HKMA to implement SWIFTNet

Hong KongÆs central bank replaces its existing proprietary network for RTGS systems.
The Hong Kong Monetary Authority (HKMA) has announced that it will begin implementation of SWIFTNet as part of an overhaul of its existing financial infrastructure. The decision will have great implications for Hong KongÆs attractiveness as an international finance centre and will serve as a replacement for HKMAÆs existing proprietary network for real time gross settlement (RTGS) systems in Hong Kong, while also creating massive new efficiencies in its central money markets unit (CMU) for clearing and settlement.

The switch by the HKMA to SWIFTNet services is expected to go live in the first quarter of 2008 and will grant the central bank access to services that have recently been implemented in the RTGS systems of Thailand and the Philippines, and later this year, Singapore. It also serves as another step in the HKMAÆs desire to promote itself as a hub for currency transfers.

ôSWIFTNet fits perfectly into our plans for expanding Hong KongÆs standing as a centre for correspondent banking and as a regional financial hub, and is complementary to our recent developments,ö says Esmond Lee, head of market systems development division, monetary management and infrastructure department at the Hong Kong Monetary Authority. ôIt will be a very useful tool for us to expand our network and will certainly increase Hong KongÆs competitive advantage in AsiaÆs financial landscape.ö

Available to HKMA on SWIFTNet will be the SWIFTNet Fin and FINCopy services for submission of high-value payment and debt securities instructions as well as transaction reporting messages, the SWIFTNet InterAct service for authentication controls, straight-through processing and for handling sensitive and critical functions including user-log, management of queued transactions and maintenance of operational parameters. Implementation will also allow system participants access to the SWIFTNet Browse service for online enquiry on account balance, including queued payments.

The decision to implement SWIFTNet is in line with the status and infrastructure objectives of the HKMA, which aims to expand on Hong KongÆs standing as an international finance centre and develop an infrastructure based on the tenets of multi-dimensional and multi-currency platform.

ôWe first started to think about moving onto SWIFTNet when it launched in 2003, but we wanted to see how it worked and wanted to get all the information before committing ourselves to this large infrastructure undertaking,Æ says Lee. ôLike many other central banks or financial institutions, we have been SWIFT users for years, but adopting SWIFTNET as the local market infrastructure is another thing entirely.ö

According to Lee, the implementation of SWIFTNet by the HKMA will not lead its infrastructure overhaul, but will play a critical role in its goal of making Hong Kong into a multi-currency and multi-dimensional platform.

He says: ôWhen I talk about Hong Kong evolving into a multi-dimensional platform, I refer to a platform that can make available a variety of services like bonds, stocks and banking facilities, which is conducive to developing Hong Kong as a payment and settlement hub for the region. This initiative will hopefully result in Hong Kong acting as hub for channelling China savings into offshore investments and bringing foreign investment into China. We can also explore further payments versus payments (PvP) links with other Asian currencies than our Malaysian Ringitt link and expand the use of our US dollar RTGS system in places like China and Taiwan.ö

Prior to announcing the implementation of the messaging platform, the HKMA used Thailand, the Philippines and the current roll out in Singapore as examples of adopting SWIFTNet. Through regional meetings of central bank infrastructure staff, the HKMA gained greater familiarity with the platform and learned from their Asian colleagues of the challenges of implementing a new infrastructure. But unlike these other markets the model is different, with Hong Kong holding the unique position of having numerous RTGS systems for numerous currencies.

ôSeeing the other RTGS systems in the region adopting the SWIFTNet platform has had an impact on us,ö says Lee. ôHowever, I would say the real impetus for change came from Hong KongÆs unique position of having RTGS systems for the local currency, as well as for the US dollar, for the euro and a settlement system for the renminbi.ö

Between now and full implementation in March 2008, there is clearly a lot of work to be done in getting staff up to speed with the systemÆs mechanisms. This will occur in the form of user requirement workshops that will be organised by IBM, the prime contractor and supplier of the hardware, and LogicaCMG, the application provider, who have formed a consortium to develop the new middle-tier system that will link the HKMA with the SWIFTNet services.

Following these sessions, Lee also expects the vendors to educate users on the screen outlay function for either execution or monitoring and then ultimately organise an industry wide simulation test with the HKMA right before implementation is complete.
Outside of the workshops hosted by IBM and LogicaCMG, the industry wide simulations will likely include local banks and CMU members, which also mainly comprise of commercial banks and investment banks.

The reaction from these direct participants in the Hong KongÆs clearing society to the HKMAÆs announcement has been very positive, which applauded the central bankÆs decision to move an open ended IP platform.

ôThe general reaction from the banking community is that they agree that this adoption is the right way forward,ö says Lee. ôThey like the idea of us implementing a platform for the local market infrastructure which is universal. However, there have been some concerns over the cost.ö

Several banks, mainly larger ones with legacy systems, have expressed concern that implementation could require massive investments to integrate and that they will have to change their host application interface to capture external messages. Lee expects this fact, but is also quick to suggest that over time the SWIFTNet solution will create much greater messaging efficiencies and save banks money through the platformÆs ability to take on new services and applications.

ôFor some of the larger banks with legacy systems the change could be substantial, which we have explained, but we also see cost savings in the future and the ability to streamline many more functions as the key advantage,ö says Lee. ôThey may need to spend money now, but the benefits for banks that do not exclusively deal in Hong Kong dollar correspondent banking will be extremely large going forward.ö

Lee expects the process to go smoothly, but is under no illusion that the road to SWIFTNet implementation will be easy, but through thorough testing and support, believes that the platform will benefit Hong Kong in many ways.
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