Korean banks share cost of CLS

Banks club together to buy computer system ahead of won''s entry into CLS.

Korea's financial clearing house has struck a deal to allow all 19 of Korea's domestic banks to tap into the continuous linked settlement (CLS) system through a shared industry platform when the Korean won joins CLS in November 2004.

Fundtech, a US financial software company that has developed CLS systems for 19 of the 70 settlement members, won the tender process and will set up a system based around its PAYplus for CLS platform. It bid for the mandate against LogicaCMG of the UK after the Korea Financial Telecommunications and Clearings Institute (KFTC), which provides payments systems for the local banking industry, invited providers to come up with a plan to create a common utility for processing foreign exchange transactions through CLS.

"We chose Fundtech after many evaluations," Min Jae Kim, CLS project manager at KFTC. "But in the end it was a combination of technical and pricing considerations."

Kookmin Bank and Korea Exchange Bank are signed up as full settlement members within CLS and will provide third-party access to the country's remaining 17 banks. The Fundtech system will be managed centrally at KFTC and banks will link directly into it through a web-based interface.

By developing an industry-level solution the cost of setting up the computer system will be shared among the banks, which ensures that Korea will be ready to take advantage of CLS when the won goes live in four months' time.

"It's essential that the Korean won participates with CLS to help us strengthen our position in domestic and international markets," says Kim. "By Fundtech providing us with access to CLS, Korea can reach a new level in terms of international financial recognition."

By the time the won is part of CLS Korean banks will be able to conduct foreign exchange transactions, free from settlement risk, with 13 other major currencies.

Fundtech's system, PAYplus for CLS, integrates internal and third-party services over a web-based platform and integrates trade and payments processing with real-time risk and liquidity management. Comas is acting as Fundtech's regional distribution partner for the system.

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