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>Some loop holes being closed (and about time )
>
>
>FYI Aus Aviators :)
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>As this yearÂ’s SIBOS approaches, it seems one of the major concerns
>for bankers at last year’s conference will be addressed shortly –
>improving the transparency of cover payments.
>
>A cover payment is a transaction in which an originating bank does not
>have a settlement relationship with a beneficiaryÂ’s bank in another
>country and does not have a correspondent bank in that country, so has
>to go through a covering party. Presently, some information is
>conveyed to the beneficiary bank but not to the covering party,
>hindering its ability to carry out AML checks.
>
>“In SIBOS last year, a lot of people were talking about it. There were
>a number of solutions being explored, but nothing finalised at that
>point,” says Abdul Raof Latiff, executive director and head of
>clearing and foreign exchange at JPMorgan Treasury Services Asia
>Pacific.
>
>However, SWIFT has since agreed to create a new standard, the MT 202
>COV format, which will be introduced in November 2009, following a
>consultation period ending on September 17. It will require more
>information about the ordering party and final beneficiary –
>information that is not currently included in the MT 202 message type.
>
>“I now have more details which I can evaluate and verify further
>before I make the payment, which makes the checks a lot easier,” says
>Latiff. “It doesn’t completely eliminate the exposure but it manages
>it much better.”
>
>This means banks need to adapt their systems to handle the new
>messaging format, ahead of the deadline next year, requiring
>investment in technology and processes.
>
>“From a technology standpoint, it’s not a lot of money, depending on
>how the banks are organised,” says Latiff. “However, from an overall
>end-to-end rollout perspective, thereÂ’s a lot of time being spent on
>making sure that the process is as smooth as possible.”
>
>Despite these improvements, there are still further issues to be
>addressed when it comes to cover payments, says Steve Bash, executive
>vice president, head of Wells Fargo global correspondent banking.
>
>“Perhaps the greatest challenges to cover payments are the potential
>delays by the covering bank in actually funding the beneficiary bank,”
>he says. “Another possible issue could be that the beneficiary bank
>may have closed its relationship with a specific covering party and
>failed to send a corresponding SWIFT broadcast message. In this case,
>the originating bankÂ’s routing tables may not reflect the most up-to-
>date and accurate information.”
>
>Bash says cover payments, as well as serial payments - in which the
>originating bank has no account relationship or SWIFT authentication
>key with the beneficiary bank, so sends it through an intermediary
>correspondent with which it has an account and authentication
>relationship – have an important part to play in a bank’s strategy to
>provide coverage in several markets. It can make sense to use a cover
>or serial payments for some transactions, especially if the volume of
>business in a particular region or country is low.
>
>“For instance, a smaller bank with a limited number of yearly payment
>needs to a developing country might justify the opening and
>maintaining of an account in that country, but it could be more cost
>effective to take the serial or cover approach,” Bash says.
>
>With cover payments set to remain an integral part of the global
>payments network, improvements in transparency will give more
>confidence to all banks involved. Conversely, a failure to implement
>the new COV messaging protocol by the deadline could be costly for
>Asian financial institutions with international ambitions.
>
>“A number of Asian banks are applying for licences in the US, so for
>them this is an important area to consider from a payments
>infrastructure standpoint,”