For the first time in many years SWIFT’s MT Standards Release for 2018 (SR2018) incorporated a number of significant changes for banks’ trade finance operations. For many banks it presented a real test of how well they had planned and implemented their trade finance technology solutions for incorporating updates in a more and more demanding marketplace.
In many cases, the development and implementation projects for SR2018 for trade finance have taken 18-24 months at a staggering cost of some EUR 2-5 million per bank.
With further significant changes on the horizon this year as banks prepare to implement SWIFT’s 2019 release (SR2019) – it’s essential that lessons are learned.
The main reason for the high costs to cover SR2018 for trade finance is that many banks have been grappling with updating non-standard source code within their trade finance IT solutions. Having implemented packaged trade finance software from vendors several years ago, many banks then customized the source code to tailor the solutions to their own specific requirements, often country by country. This approach created headaches down the line with banks realizing it was often too difficult, costly and risky to carry out upgrade projects. Having skipped many upgrades/releases from the vendors over the years (and effectively working with software solutions that had become 6-10 years out of date), many banks faced a real challenge in meeting the mandatory requirements set out by SWIFT for trade finance for 2018.
I’ve heard stories from the banking world about the scale of the projects and challenges they’ve faced to get the SWIFT Release 2018 up running. In fact, many banks have had to implement manual operations and workarounds and are still struggling to handle the changes and new items in the SWIFT Messages that came into effect on 18 November 2018.
One workaround I’ve been told about includes printing the outgoing SWIFT Messages so that manual registration can be done using SWIFT Alliance. Another involves creating SWIFT Messages in the old format (necessary for legacy trade finance solutions that can’t yet support the new formats) and converting these into SWIFT MT799 Free Format Messages to send to other banks. Once received, these SWIFT Messages have to be handled manually, resulting in a lot of extra work for all involved parties. For those banks already handling the changes and new items this is an unnecessary headache, and they need to evaluate whether to charge the banks sending the Free Format Messages for the extra manual work created.
SWIFT is the de facto standard for communications in trade finance operations and banks must upgrade their trade finance technology solutions to ensure they can continue to support and exchange messages with their trade finance counterparts. But the impact also goes far beyond SWIFT Messages; complex business logic has to be implemented and changes made to other interfaces, outputs and portal systems.
More change on the horizon
The scale of the problems banks have been facing in handling the SR2018 upgrade is reflected by the fact that SWIFT recently shared details of a “fast-track change request” asking that the planned changes for its FIN Category 7 Messaging for SR2019 be postponed to 2020. The change request has been sent by SWIFT to the banks for comment and voting, with a decision expected in early February 2019.
The fact that many banks have been struggling to incorporate the mandatory SWIFT deadlines in their trade finance software is a real concern. The pace of change is not going to slow down, in fact the need for change to incorporate new developments will only get faster. Banks must be prepared for meeting future demands like the ISO 20022 standards for trade finance, for integrating blockchain solutions and for improving the overall user experience.
So what are the lessons to be learned?
I've blogged previously about why can’t updates to banking software be as easy as the way TESLA applies software updates – allowing you to simply plug in and go.
The answer to the problem is relatively simple. Banks should implement a flexible, adaptable and functionally rich trade finance IT solution, designed and developed as a global package and where the provider can commit to maintaining and supporting one single global source code. Such an approach paves the way for automatic testing systems and automatic upgrade systems, which in turn allow upgrades to be rolled out as often as required, be that annually, monthly or even weekly.
Implementing such a flexible global trade finance IT solution that replaces disjointed legacy and hardcoded bespoke systems is a fundamental step in helping banks prepare and adapt to future challenges. Advantages, to name a few, include: the ease with which updates can be rolled out; consistency and standardisation across a bank’s global operations; a central repository for all information; and significantly reduced cost of ownership over the long term.
As a result, global upgrades and SWIFT updates can be rolled-out more or less automatically and with no impact on the day-to-day operation of the business. Now, wouldn’t that make life simpler?