Continued under-investment in post-trade solutions, combined with the siloed nature of payment systems and disparate operating processes means that financial institutions often rely on manual processes and legacy technology to implement workflow rules. This can result in business inefficiencies, a loss of transparency and payment risk – the risk that a bank erroneously makes an outgoing payment.
The ability to create or modify rules in real time allows businesses to respond more intelligently to their changing needs and centrally control the universe of payments being processed by multiple systems across the bank. Aaron Ayusa, Baton Systems’ Director of Client Success explains how Baton’s agile approach based on the creation of rules on the fly can help firms effectively supervise their business flows, introduce greater controls to mitigate against payment risk, create optimised workflows and deliver automated end-to-end processing.
Rules or preferences are used by firms to provide guidance and standardisation to workflows in the various life cycles of a cash flow. They might include limits on settlement sizes, additional approvals, the need for evidencing supporting documentation, or credit checks.
Post-trade processes at financial institutions have typically evolved over the years by adding pieces of technology as demand arises. This can result in a very complex situation with 100+ systems generating payment needs spread over a myriad of different business units. The siloed and disparate nature of payment applications are often unable to support coordinated workflow efficiencies, meaning all too often that firms rely heavily on outdated, standalone, and manual processes. As such, mapping existing flows on a firmwide basis, capturing payment data and then controlling the payments being processed is a multi-layered and incredibly complex task. This increases the risk of making incorrect or duplicate payments, which in turn leads to delays and additional costs, and potentially invites regulatory scrutiny.
“This can result in a very complex situation with 100+ systems generating payment needs spread over a myriad of different business units”
Where rules are automated, they are often hardcoded somewhere within an institution’s legacy platforms. Changing them is time-consuming and requires support from already overstretched technology partners as well as a material lead time. All of this conspires against a swift reaction to market or counterparty events.
Surprisingly often there is also a reliance on key team members for valuable information required to implement rules, such as large value settlements, recurring missed payments or incorrect settlements. This information might be stored on multiple Excel spreadsheets or simply in the heads of the individuals based on their personal experience or relationships with counterparties. Such information isn’t always handed over on a timely basis.
What are the implications?
Payments risk is an area that is starting to gain increasing regulatory focus with rule markers expressing concern that if an individual firm lacks sufficient controls over the payments it’s making, it may find itself deficient of the liquidity needed to meet its own obligations.
“Payments risk is an area that is starting to gain increasing regulatory focus with rule markers expressing concern that if an individual firm lacks sufficient controls over the payments it’s making, it may find itself deficient of the liquidity needed to meet its own obligations”
Furthermore, it’s becoming increasingly important for firms to be able to implement or change rules quickly, in response to the changing internal or external environment. Recent heightened volatility, such as in RUB during 2022, creates a need for currency-specific rules to be updated and implemented. The need can also apply on a counterparty level: in order to mitigate risk arising from dealing with a particular firm (or all firms from a specific geography) it might be necessary quickly to add rules around thresholds, additional approvals, credit checks, or routing some cash flows differently.
Today, transparency is more important than ever to financial market participants. In order to maximise it, firms need to implement transparent and effective decision-making and also evidence its use, producing an audit trail of approvals within a standard system or process, rather than relying on disparate and often incomplete email chains to justify previous actions. Complexity increases for an effective audit trail in order to recognise 100s of thousands of daily payments generated over 100+ siloed systems and track each payment’s state change: transaction initiated, transaction confirmed, funds received, AML/BSA, MT103 created, MT103 released, in-transit, received, etc. For example, to properly track and audit 500,000 settlements involves accurately recording 4,000,000 instances/daily!
“Complexity increases for an effective audit trail in order to recognise 100s of thousands of daily payments generated over 100+ siloed systems and track each payment’s state change”
As an aside, easy access to reliable, complete, and up-to-date information is vital for any approval process to have value. Traditionally approvers are asked to provide the required acknowledgment on the basis of offline, and often incomplete or outdated information. This is no substitute for having all of the supporting information in a single system.
Real-time reconfigurability = consistency and control
In today’s fast-moving market conditions, it is essential for financial institutions to respond quickly. Baton’s Core-Payments® platform is able to consume all payment obligations from the firm’s various disparate systems and provide users with the ability to configure rules or preferences at a counterparty, product or currency level in real time. These might include rules checking for atypical payments, for example, from a given counterparty based on their previous behaviour. The configured rules then automatically apply to all current and outstanding future cash flows, raising alerts if a payment breaches a designated limit.
“Baton’s Core-Payments® platform is able to consume all payment obligations from the firm’s various disparate systems and provide users with the ability to configure rules or preferences at a counterparty, product or currency level in real time”
Not only does this reduce reliance on legacy systems and manual processes, but it also gives firms full transparency and an audit trail: users are able to determine when and by whom the rules were set up and approved and when they were triggered. Core-Payments also provides the ability to view supporting documents where needed. Documentation such as emails or confirmations from client counterparties are attached to the workflow itself. This gives approvers a one-stop shop of real-time information, making it fast and easily accessible with all required information in one place. Rules are quick to set up and modify and are under the control of the users reducing the dependence on IT, saving both time and cost whilst driving business agility.
“This gives approvers a one-stop shop of real-time information, making it fast and easily accessible with all required information in one place”
Smart and scalable
With Core-Payments, firms are able to programme into the platform the information that might otherwise be held by a select few individuals within an organisation. This makes the platform smarter, more automated, and more scalable.
“With Core-Payments, firms are able to programme into the platform the information that might otherwise be held by a select few individuals within an organisation”
Like all of Baton’s solutions, Core-Payments has been designed to be highly interoperable with existing systems, delivering fully connected post-trade processing without the need to rip and replace whilst at the same time providing a pathway for a full technology upgrade. The platform eliminates the need to manually link multiple, disjointed post-trade systems by covering all stages of the cashflow lifecycle.
Baton’s use of distributed ledger technology (DLT) means that hard-coded interfaces are now a thing of the past and post-trade workflows can be streamlined across all products with flexibility and transparency.
I hope you have found this blog useful in explaining how Core-Payments automates and simplifies workflow rules, giving firms control over their payments and settlements across business silos. To learn more about Core-Payments please don’t hesitate to contact me at [email protected]