This event was aimed at investment firms and the fund industry and provided deeper insights into and prompted discussions about fund structures and the future UK funds regime, trying to predict future tax developments and digging deeper into the practical benefits and potential disadvantages of new investment vehicle classifications.

International regulatory and substance requirement developments were explored. OECD Pillar Two requirements and exemptions for firms in larger consolidated group structures constituted the main discussion topics. Authorities’ greater focus on shell companies was also debated and it was concluded that there are still many uncertainties regarding the expected approaches of different authorities to this topic. There was a lively discussion about the difference between the taxes of the UK and those of Luxembourg, especially in terms of complexity. With regard to that aspect, the debate showed clearly that Luxembourg, with its straightforward and very simple tax rules, was favoured by most participants.

Managing changes to tax risk and governance was a big issue at this conference, as it is at many other tax conferences, too. How to anticipate regime changes and implement a forward-looking process was identified as one of the biggest challenges of the industry these days. Embedding proposed frameworks into current processes and monitoring tax risk profiles while aligning them with those of the whole company – paired with the question how to shape the tax team and skill set to cope with stricter compliance obligations – was seen as an extremely challenging and time-consuming task in all organisations.

An international outlook on withholding tax developments was discussed in one of the most interactive panel discussions with participation of Susanne Rauscher-Nwokedi from SDS. The analysis of a future harmonisation of the EU withholding tax regime – followed by an exploration of European Commission proposals and potential challenges of implementation – raised a discussion about the need for such a harmonised regime. The main question was how to capitalise on EU withholding tax reclaims. A broader debate was sparked on TRACE and its implementation successes and problems. It is obviously still necessary to convince the various actors on the market that a harmonised EU withholding tax regime is for the benefit of all stakeholders – individual investors, the financial industry as well as tax authorities.

The industry is seriously concerned about how to cope with an increased number of audits and authority scrutiny since authority investigations are becoming more frequent and more detailed. Thus, finding solutions to compliance issues and control failures by raising risk awareness of capital gains and transaction taxes has become of paramount importance for the industry.

There is a consensus in the industry that for emerging challenges related to tax data and documentation, technological support is inevitable and invaluable. Coping with increased scrutiny and the question how the automation of tax processes and the increasing reliance on technology can be beneficial are the predominant issues the industry is dealing with. Establishing internal consistency and transparency of data in order to cope with additional reporting and compliance requirements is the prerequisite to ensure internal data verification and consistency.

During the last conference session, which was organised as a “fireside chat”, panellists looked ahead to regulatory developments that financial institutions should be aware of and discussed amendments and the expansion of tax information exchange regimes, including the Common Reporting Standard (CRS), solutions to potential challenges of the Crypto-Asset Reporting Framework (CARF) and developments in Blockchain. At the end, the panellists expressed their wish for the establishment of the UK to become an attractive prospect for investment funds following Brexit.

CONCLUSION

This conference gathered high-profile industry experts from the fund industry and gave a broad overview of the current and expected developments and challenges the fund industry is already facing and will have to deal with in the future. Currently, the industry is facing a lot of uncertainty and its perspectives are strongly dependent on finding a way to cope with a higher number of audits and more authority scrutiny. One of the ways is the increased use of technology for collecting and validating data and preparing it for reporting in an automated way by means of standardised applications and intelligent data processing including the utilisation of artificial intelligence (AI). All attendees agree that this is anything but a simple task and will tie up many resources that will be missing for operative work.

Observation by:
Hrvoje Kajzer

Feel free to contact me at any time for further information, an expert chat or a discussion about any of the above-mentioned topics.

The conference marked the beginning of the return to onsite events and gathered the “hard core” of more than 35 experts in taxation, reporting and digitalisation of tax. The participants were happy to meet old friends, to join in on different conversations and to actively participate in numerous interesting sessions and panel discussions. It was very important for us from SDS to finally meet people in person again, to exchange information with the community about the latest developments and requirements in the operational tax arena and to join expert talks.

On the agenda was a mix of standard tax topics, new tax developments and topics related to the digitalisation of tax and crypto reporting. After listening to the opening words of Peter Grant from KPMG, we enjoyed a very interesting speech by Mark Huyan from JP Morgan. He presented and explained CARF (Crypto-Asset Reporting Framework) and the current status on OECD public consultation in this matter. The talk included a critical review of the challenges in regard to reporting in the crypto world, which is anonymous by design.

The conference proceeded with an overview of the digitalisation of tax, followed by a discussion about current expectations around meeting audit requirements, especially in regard to meeting the new requirements concerning CRS (Common Reporting Standard). Environmental taxes and ESG tax developments across Europe were also part of a short discussion.

The second half of the day was dedicated to OECD TRACE. Katja Pussila from Vero Skatt (Finnish Tax Administration) presented astonishing, positive results from the first year of the TRACE regime in Finland. In summary, individual investors already benefitted exceptionally well from TRACE in the first year alone. This proves that there is no reason not to adopt TRACE throughout the EU. This talk formed a solid basis for the next vivid panel discussion, which featured the SDS tax expert Susanne Rauscher-Nwokedi. She explained how the OECD TRACE initiative could be integrated at EU level and which measures would be needed for such a wide-scale adoption of TRACE.

Conclusion:
From the point of view of SDS, it was a very successful event which enabled us to meet our colleagues from the operational tax community in person and to discuss current and future developments in the tax arena.

Observation by:
Hrvoje Kajzer

Feel free to contact me for further information, an expert chat or any discussion about above-mentioned topics.

Some highlights from the conference:
SDS booth

Panel discussion about the future of OECD TRACE at EU level with SDS panellist Susanne Rauscher-Nwokedi.

Katja Pussila of Vero Skatt (Finnish Tax Administration) presenting the outcome of the first TRACE reporting in Finland this year.

In the lights of pandemics this event has been held as an online-only event, thus unfortunately without physical booths and physical contact opportunities.

Chairperson’s Opening Remarks by Peter Grant, Partner at KPMG UK provided an overview on how many topics are still continuously increasing the pressure on the industry and tied up resources. He stated that the share volume of operational tax developments and changes that are still taking place had been astounding. His list of the top 10 of what we are seeing at the moment comprises DAC 6, OECD MDR starting to pick up in the UK, South Africa, the Channel Islands, Mexico and so on, DAC 7 & DAC 8 on the way, over 200 changes related to FATCA and CRS in the last months, TRACE in Finland, Germany’s plans to introduce a similar but different regime to TRACE, new FTT in Spain, over 300 DTT changes across various jurisdictions, increased technology impact to tax, rules impacting IRS QIs and Brexit continuing to impact the whole UK market and at the end tax authorities asking banks more and more difficult questions.

Hereafter I wanted to reference to some of the most interesting sessions which covered the newest developments and at the same time gave us a short- to mid-term outlook of the future challenges.

James Marshall from HMRC provided an HMRC Update on DAC 6 and Mandatory Disclosure Rules. UK has implemented DAC 6, and is in the process of introducing MDR. Both regimes require reporting of certain types of arrangements and structures with some differences in what has to be reported and both regimes rely on exchange of information between implementing jurisdictions. The first reports under the DAC 6 regime were due in January 2021. MDR is announced and expected to come into effect in 2022. There are a lot of similarities between the rules, but also a number of important differences. Primary reporting obligation is on “intermediaries”. If no intermediary has to report the information, the obligation fails on the “relevant taxpayer”. Reports can be sent to HMRC via the portal on gov.uk. Current status is ongoing reporting, monitoring and governance and preparation for MDR.

Financial Transactions Tax implications have been explained in a very pictorial language by Mark Huyan, Executive Director Tax at JP Morgan in London, based on the Spanish Financial Transactions Tax. At the time the Spanish parliament approved the FTT legislation in 2020 we had a global pandemic and US elections on the horizon, thus at that time there was one key message that industry gave to the Spanish authorities and it was “give us time”, since operational processes are technology driven and they just take time. The Spanish authorities gave the industry three times three months time to implement the legislation instead to say from the day one “you have nine months”. This would lead to more strategic decisions within the industry and at the end of the day all financial institutions would have better systems and processes in place. That would ultimately not only benefit financial industry but also the tax authorities as well.

Tom Howgate, Director at Deloitte explained us the recent changes to FATCA reporting requirements in relation to missing US TINs which have caused some operational issues. He also updated us on the ongoing consultation in relation to potential future changes to CRS reporting. The cnsultation is currently being given to whether other information, which is expected to be held by a financial institution, could be reported under CRS to help tax authorities better understand the context of the information they are provided. Tom also reported that OECD peer reviews were placing pressure on tax authorities around enforcement of compliance and requirements to review compliance periodically. The concequence of all these expansive requirements is that the cost of compliance is rising.

In the next session Gohar Kahn, Tax Partner at KPMG provided an update on withholding tax and potential post-brexit impact. He brought us two examples: Indian withholding tax and South Korea treaty reclaims for mutual funds. EU withholding tax reclaims had been tackled with an emphasis on the different rules and different treatment in different countries what leads to unequal treatment and discrimination and affects the EU principal of the free movement of capital which is the key element of the European Union. Talking about the impact of Brexit for UK funds in summary it could be said that withholding tax exemptions in some EU countries, e.g. Italy, Poland, Spain and Sweden, may be lost. This was a very insightful overview of withholding tax treatments internationally and within EU.

The panel discussion as an update about the TRACE implementation, chaired by Peter Grant from KPMG and atttended by Katja Pussila, Risk Manager at Finnish Tax Administration, Rupert Brandstetter, Product Manager at SDS and Paul Radcliffe, Partner at EY was a very insightful exchange of practical information between very experienced industry experts. Katja gave us a context and background on TRACE and the perspective how the journey to the implementation in Finland had been for the Finnish Tax Administration. It is very important to understand that TRACE was codeveloped by OECD, business and member states as a unique standardised model. The biggest benefit of TRACE is that it comprises all the elements of what you have to do when you have identified the investor and beneficial owner, what is the role of the AI (Authorised Intermediary) and reporting – and reporting is actually the key. With other words TRACE is about a standardised, international model for implementing treaty relief at source. In the long term the success would mean that the majority of investors would get the treaty benefits at source. Paul added his perspectives on the development of TRACE and in his view TRACE has been developing relatively slow. And the reason for that is in timing. If we go back in time at the very beginning of TRACE in January 2013 when OECD approved the TRACE Implementation Package, the focus of governments and authorities in the aftermath of the financial crisis 2007/2008 was on compliance and AEoI. At that time the FATCA regime has just started, followed by CRS and an absolute shift in focus was the main reason for TRACE to develop so slowly. Rupert gave us the technology view on TRACE and especially on reporting part of it. From technology point of view much of that is already on place for other regimes like e.g. QI. It’s just additional information you have to retrieve. For the reporting part many financial institutions are still in the process of making decisions whether to buy a standard solution or build something on their own. TRACE is similar to FATCA and CRS with regard to the XML schema, but it’s to expect that there will be a lot of country-specific deviations like we have seen them for CRS. Let’s assume that TRACE will be adopted in all EU countries. In that case the difference to CRS would be that with TRACE there would be 27 different files to 27 different authorities with 27 different rules (timelines, scope etc.). This adds huge complexity to TRACE reporting, thus TRACE will be a game changer and many banks are currently considering to change their reporting landscape, especially to abandon their tactical solutions developed on their own and to search for a standard vendor solution which plays all pieces.

CONCLUSION:
Despite the fact that it was an online-only event all sessions and especially panel discussions were very dynamic and vivid. The sessions provided us a fantastic overview of the current and future tax challenges in different tax regimes and led us through tax reporting landscape of three, four and five letters abbreviations like DAC 6/7/8, FTT, DTT, FATCA, CRS and TRACE. We have seen that on the one hand reporting regimes are getting more and more complex and on the other hand the scrutiny of tax authorities is getting more sofisticated and the question they ask more difficult to answer. Thus, there is an obvious trend on the market towards standardised technology-supported solutions which are capable of dealing with today’s reporting obligations and flexible and scalable enough for the challenges of tomorrow. This is where SDS can help – as one of the leading standard software vendors with a longstanding expertise in providing automated reporting solutions for OECD CRS, FATCA, QI, and TRACE.

Observation by:
Hrvoje Kajzer

Feel free to contact me for further information, an expert chat or any discussion about above-mentioned topics.

 

Panel discussion “TRACE – Implementation Update & Industry Views.”
Rupert Brandstetter from SDS participated at the panel chaired by Peter Grant from KPMG and attended by Katja Pussila from Finnish Tax Administration and Paul Radcliffe from EY.

On 21-22 October 2020, the first virtual SDS Community Forum took place with the active participation of international SDS customers and business partners. The concept of bundling expert and management rounds – previously organised on a product-specific basis – in a cross-portfolio event was realised in a completely digital form. This was on the one hand due to SDS’ promise of “Setting Digital Standards” and on the other hand, of course, due to the current pandemic framework conditions. The two virtual days of the forum were characterised by professional and exciting content. According to the motto of the event “Shaping the future together”, SDS also presented (additionally to the current highlights and future-oriented projects regarding the SDS product and service portfolio) a multitude of topics from the areas of securities processing with a focus on corporate actions and settlement, regulatory reporting, cost transparency as well as securities compliance and invited to regulatory focus sessions on SHRD, CSDR and ECMS. The programme was rounded off by cross-cutting issues such as process optimisation, project reporting, cloud readiness or testing innovations.

The number of participants surpassed the expectations and goals of SDS. The feedback of the customer community on the individual sessions – in terms of content as well as format – was thoroughly positive. The interactive exchange of lessons learned, expectations and new ideas via the digital event and interaction tool worked excellently and was well accepted by the participants.

Niv Graf, Head of SDS Service Delivery Management and organiser of the event, adds: “With the SDS Community Forum, we have successfully established a new interactive format for our customer community. We are very satisfied with the results regarding acceptance, dialogue and feedback quality. We will continue to use and enhance the SDS Community Forum as a platform for cooperation and exchange, but also for criticism, ideas and challenges. SHAPING THE FUTURE TOGETHER: Nomen est omen.”

The various industries, in particular the financial industry, cannot agree on a common tenor as to where the AI journey should lead. There is, however, consensus that modern learning algorithms have the potential to turn the industry completely upside down.

When Alibaba founder Jack Ma and Silicon Valley legend Elon Musk presented their ideas of artificial intelligence at the World Artificial Intelligence Conference in Shanghai last week, their views could not have been more different.

STATUS QUO AI: MOMENT SHOTS.

The current trend traces back to the first conceptual approaches in the 1950s, but the developments of the last decade in particular have led to numerous new attempts and breakthroughs in the implementation of artificial intelligence. The main drivers are the exceptional growth of data volumes data volumes as well as groundbreaking developments in IT hardware.

While the first big steps in face and image recognition have put AI back into the focus of public interest, it is now big data clusters such as the ones of Google, etc. which define the market standard.

The financial industry is particularly interested in the AI potential. On the one hand, this is due to the expectations of its customers and regulatory requirements and, on the other hand, even more due to the available data volumes in the banking companies – precisely these volumes turn out to be the most essential advantage compared to new FinTechs.

Nowadays, the concept of AI is a very broad one and constitutes an umbrella term for the topic of intelligent procedures. Machine learning (ML) is already seen as a more narrow term of artificial intelligence and comprises, for instance, clustering or regression procedures. The most elaborate, sophisticated and data-intensive level is referred to as deep learning (DL), which uses complex neural networks. AI is not able to act intuitively, but cognitive performance is enabled by training models.

It is striking that the term robotics is repeatedly used in connection with machine learning, even though it actually rather corresponds to a sequence of instructions and should thus be placed in the nomenclature of AI at best. A chatbot, however, can very well be regarded as an implementation of ML considering corresponding technological aspects.

Nowadays, more than 2.5 trillion bytes of new data are generated on a daily basis. If one were to print out this amount of data, the distance between the earth and the moon could be covered multiple times. The computing power available today makes it possible to process these data volumes. Banks do not primarily see their duty in basic research – instead, the focus is on the effort to integrate intelligent additions into existing and new applications. Required frameworks are obtained from commercial but also from free sources.

By now, there are numerous abstract examples for artificial intelligence, in particular complex procedures such as idiomatic translations as well as autonomous vehicles or sensor-aided learning. In the financial world, intelligent fraud prevention measures, e.g. for preventing credit card fraud, money laundering or the identification of digital identities (using similarities of names for fraud purposes) have prevailed. Text processing as part of document scanning or chatbots is particularly popular in the industry.

Current general AI market trends:

• Knowledge graphs – connecting different objects from a complex, unstructured data volume in a systematic way. Data is not saved in simple sequences, but in individual, partially connected nodes.
• Hypermind – summarises sensor-aided AI. Primarily, projections/augmented reality (glasses similar to “Google Glass”) in combination with image recognition support people in their activities.
• Multimedia opinion mining – is the umbrella term for multimedia segmentation, which clusters media according to personal opinions, preferences or feelings. For instance, negative news can be mitigated or defused in combination with a positive image. The spreading of fake news can be considered a negative example for this type of AI.

Currently, the financial industry still focusses on more tangible approaches such as:

• The intelligent automation of credit ratings
• AI processing of text documents
• Automated payment transactions according to default classification

Apart from this variety of chances, financial institutions are increasingly facing a large number of obstacles. In particular, the results are often not traceable, which primarily poses a problem to the supervisory and data protection authorities. Although autonomous learning processes ideally lead to seemingly correct results, they cannot be consistently checked for their causality and the corresponding decision-making basis.

Some first promising attempts at a solution to this problem are approaches regarding the textual output of important decision nodes, i.e. a kind of logging, which is intended to allow for a certain degree of traceability. This approach, however, is still in the early stages of research. The visualisation of (interim) results is a process which is significantly easier, although it will not always lead to plausible explanations.

The ethical component of artificial intelligence involves another substantial obstacle. A well-known and controversial example of this can be found in the recognition software of autonomous vehicles. Demonstrably, such systems had trouble detecting pedestrians if they did not match the typical white person. Particularly, darker skin tones were detected far less easily. This malfunction can be traced back to the selective choice of test data. The problem of such biased data will also affect the financial industry in one way or another, for instance in AI-supported lending, and the industry will have to deal with it accordingly.

CONCLUSION

It is a fact that financial institutions have made very little use of their AI potential so far, which is hard to understand given the enormous data volumes at hand. Artificial intelligence is in another heyday which – as recent progress has led to believe – will persist (unlike in the past).

Read more about this topic and the digression to PSD2 and GDPR in connection with artificial intelligence in our SDS Report. Download the report on the subject AI in Banking now.

Speaking of tradition: This year, the SDS GEOS management circle took place for the last time in its current form. Due to our growing portfolio and the fact that several of our products are often used simultaneously, we have decided to hold one joint event for all our products from next year onwards. But now back to the content of the management circle:

SDS is a sound, organically growing company

The most important news first: We can present steady growth in all areas of our portfolio over the past years. The number of employees, the turnover and the EBIT have increased according to plan and we have reason to believe that we can continue this success story in the years to come. This shows that our decision to expand the portfolio a few years ago was the right one and it gives our customers the reassurance that they have a long-term stable and attractive business partner.

Optimising the data volume for securities master data

The number of available securities on the market for index certificates and warrants is in no reasonable proportion to the instruments actually purchased by investors. This issue has been a topic of discussion across the industry for several years now. Recent analyses paint a dramatic picture: On the Austrian market, ÖWS provides more than two million instruments, over 90% of which belong to the aforementioned securities types. Only about 1% of these, however, have actual holdings. The rest – about 90% of the FI master data – is irrelevant for securities processing. This useless data volume has become a serious organisational and technical problem.

Therefore, it is an obvious idea to remove the unneeded master data or to only provide it on demand. At first glance, this task may seem manageable, but it requires thorough analysis of the affected processes as well as coordination between all parties concerned and it is probably not entirely trivial from a technical point of view either.

In the weeks to come and in collaboration with ÖWS and the Austrian banks, we will work out a solution which takes the technical and financial framework conditions into account and which is likely to offer an attractive business case for all parties involved.

Event-driven architecture

In addition to this current topic, we have focused on the future architecture of our company’s software products. We are faced with multiple challenges:

• The way our product portfolio is expanded creates the demand for an ideal architecture for the interaction of these components during joint usage.
• Modern user experience requires technologically advanced functions such as full-text search, statistics, configurable dashboards, etc.
• External systems should be able to react to status changes in the transaction processing system near time.

In order to accommodate all this, we are currently verifying a so-called event-driven architecture within the framework of a proof of concept (PoC). The core of this architecture is the relief of a transaction processing system (in our case SDS GEOS) from the preparation of data for user interaction, the creation of statistics and complex queries as well as from the process of making data available to external systems.

We have already taken steps in this direction in the past (for instance by supplying data for the Business Information Store) and we now intend to implement the interactions via front-end and the communication of changes back to SDS GEOS. The PoC deals with a specific task from the area of Corporate Actions and should ideally be further developed into a corresponding product for the processing of corporate actions. For this step, we are looking forward to a development partnership with a renowned financial service provider from custody business.

Gossip

In addition to these topics, informal communication over brunch and during the breaks was, of course, not neglected either. Since the composition of the circle has changed compared to last year, we were also able to welcome some new members to the community, and we are looking forward to an exciting and successful collaboration.

The imh Banking Congress KURS, which is held annually in Vienna, was received with great interest also this year. The multifaceted segmentation of the conference into the topics “Compliance & money laundering”, “IT in banking”, “Post-trade settlement & back office”, “Security” and “Payment transactions” attracted a wide audience from many different areas of the banking industry. Once again, SDS was present this year as sponsor and exhibitor at the “Security” conference.

On the first day, the conference started as a plenary assembly with presentations and discussions on current economic and political matters (Brexit, the trade conflict USA/China, the economic situation in Europe as well as the possible merger of Deutsche Bank/Commerzbank).

Initially, the main focus of the KURS 2019 “Security” conference was on the topic “Blockchain”. After presenting basic information and the potential of this technology, the successful productive use of the blockchain platform in the issuing process was illustrated by the example of a blockchain-based open-market credit. The impressive presentation led to lively and interactive communication in the auditorium.

The further course of the first conference day was characterised by information on current legal topics, with the focus on the following items:

• Compliance changes for increasing investor protection and avoiding conflicts of interest
• Research: Handling financial analyses which can affect the market
• Information on the Central Securities Depositories Regulation (CSDR), with the focus on settlement discipline measures for avoiding settlement fails (sanctions, coverage procedure/buy in) as well as the internalised settlement, which obligates banks to report their internal transactions

The first day of the KURS 2019 “Security” conference was concluded with the topic “Robo-advisory”, the digital investment counselling which is an option particularly for retail customers with few liquid assets.

On the second conference day, the EU Shareholder Rights Directive (SHRD) was subject of conversation twice. Currently, the bill “Change of the Securities Supervision Act 2018” is in the appraisal phase in Austria. The productive start is expected for the autumn of 2020. Both the challenges for banks and the expected consequences for customers and investors were examined. The areas data protection and bank secrecy still pose unresolved issues, particularly the saving of shareholder data and the obligatory identification of shareholders by the custodian. The practical implications on the customers are seen critically as well, since an information overflow is expected on the one hand and frequent requests for disclosure of personal data due to the shareholder surveys by the issuers are anticipated on the other hand. The banks will also have to find ways to meet the demands of customers who do not want this kind of information. This contrasts with the advantages of the customers’ extended possibilities of exercising the shareholders’ rights. Some banking representatives expect high costs with doubtful value. From a legal standpoint, the costs may be passed on to the customers, in practice, however, this option is doubted.

Another item on the agenda was the SFTR (Securities Financing Transactions Regulation), which aims to increase the transparency of securities financing transactions. The risks inherent in such financial transactions shall be recognised at an early stage and monitored accordingly. All counterparties whose branch offices are within the EU must report each securities financing transaction as well as each change or termination to a registered or acknowledged trade repository. Moreover, the further use of financial instruments received as collateral is only permitted under certain conditions. The Regulatory Technical Standard (RTS) is currently under review in the EU Parliament and the Council of the European Union. From today’s view, reporting is expected as of 11 April 2020.

In the overview of the recent essential tax innovations, the new procedures for CYT reimbursement, foreign CYT and exchange of securities based on the Kapitalmaßnahmen-VO (Austrian corporate actions regulation) were described. Furthermore, fund taxation in Austria and Germany, the account register, the Common Reporting Standard (CRS) as well as FATCA/QI and IRS 871m were outlined.

The consolidation of TARGET2 and TARGET2-Securities is scheduled for November 2021. It extends liquidity management and effects a separation of central banking operations from RTGS transactions. All of this is based on ISO 20022 and is implemented as a big bang migration. There will be no co-existence with ISO 15022 MT messages. The first customer tests are scheduled from March 2021 onwards.

After that, the Eurosystem Collateral Management System (ECMS), whose goal is the harmonisation and centralisation of the collateral management systems, is scheduled to go live in November 2022. In this context, the strongly fragmented environment of 19 national systems is to be consolidated into one uniform Eurosystem-wide collateral management system. One trigger is the increasing importance of collateral. The standardised messages are exchanged exclusively in ISO 2022 format. Additionally, new standards in the area of triparty and corporate actions will be introduced. The expected benefits are a harmonised settlement of collateral in the Eurosystem, an efficient mobilisation of collateral and another contribution to the establishment of the capital market union.

Our core business fields cover all of these topics for which our products SDS GEOS, SDS IREG, SDS MCOST and SDS CCONFORM offer corresponding solutions.

For SDS GEOS, for instance, we are currently implementing the last requirements for the reporting of internalised settlements as part of CSDR and simultaneously, we are already analysing the requirements for SFTR reporting and SHRD.

On 11 April 2019, the annual SDS IREG customer group meeting took place in Vienna. Numerous SDS IREG customers seized the opportunity to discuss topics related to the product and the reporting regimes CRS, FATCA and QI with SDS. On the night before, a joint dinner was organised for the participants at the “Salonplafond” restaurant in the MAK – Museum of Applied Arts, Vienna.

The event did not only reflect current and past developments and challenges, but primarily offered a preview of the innovations planned for the product in the coming months and years. The opportunity of discussion within the product community provides all customers with the option to actively participate in the further development of the product. We are pleased about the valuable input which will help us to customise SDS IREG even more specifically according to the users’ needs and to ensure that it will remain the leading solution for the international exchange of information in the years to come.

The positive feedback on the last as well as the current reporting period was, of course, also very delightful. This feedback encourages us to continue our approach of consistently and continuously enhancing SDS IREG. This development is one of the results of the SDS IREG customer group meetings of the previous years.

The lively exchange of experiences was particularly interesting for many participants. This is the advantage of a multi-faceted community with partly different challenges. The discussions provided insights into the advantages and disadvantages of different approaches and were not limited to the various options of utilisation and parameterisation of SDS IREG, but also covered the environment on a larger scale. This is especially important for SDS in order to gain a detailed understanding of our customers’ varied needs relating to bank-internal processes.

Last but not least, most of the participants gladly accepted our invitation to the “Salonplafond” restaurant. The relaxed atmosphere did not only provide the perfect platform for discussions regarding SDS IREG, but it particularly offered the chance for the participants to get to know each other better. This was, of course, especially interesting for those participants who attended the SDS IREG customer group meeting for the first time. In this context, we are very glad that we could welcome new participants this year as well.

Many thanks to all customers for their participation and the interesting discussions! We are looking forward to welcoming at lot of participants again next year.

SDS (Software Daten Service) is known as a leading provider of outstanding solutions in the area of financial market operations, regulatory reporting and compliance for the international financial services sector. With renowned European financial institutions in its customer portfolio and with almost more than 100 million transactions per year, SDS is one of the key players in the field of banking technology in Europe. The company’s portfolio encompasses sophisticated software products and services for all customer and market-related processes, ranging from global securities and derivatives processing to regulatory, tax-related and compliance automation as well as solution-based consulting.

For the last 20 years, the flagship product SDS GEOS has ranked among the leading solutions for financial market operations and covers the entire value-added chain within one single solution – from the securities order and the settlement to corporate actions processing for all securities classes. SDS GEOS’ service spectrum is complemented with software solutions for compliance with regulatory requirements such as MiFID II, CRS, FATCA, QI and MAD/MAR. The SDS product portfolio is continuously adapted to technical, functional and regulatory market requirements by more than 250 experts. Thereby, new application standards are set. The high flexibility that comes with SDS GEOS’ parameterisation and platform independence allows for a multitude of operating models for optimisation that are tailored to the respective customer situation.

Current SDS GEOS customers are, among others, the Austrian financial institutions UniCredit Bank Austria, the Raiffeisen banking group and BAWAG P.S.K., as well as the BCEE in Luxembourg and HSBC Transaction Services, the German market leader in the securities BPO business, which is active for European private banks and online brokers and acts as a regional sub-custodian for the HSBC group. Due to the cooperation with Commerzbank, which was announced at the beginning of 2018, the transaction volume of HSBC Transaction Services GmbH processed via SDS GEOS is doubled. Hence, SDS belongs to the major providers of standard software for the international financial industry in Europe.

The success story of SDS GEOS has been holding up for over 20 years now and constitutes an interesting example of how a highly complex software solution can be kept state of the art in a tight market.

For a financial institution, the implementation of a new securities processing system was and still is a risky and costly endeavour and therefore a long-term investment. Developed over 20 years ago, SDS GEOS was designed based on cutting-edge standards and with a functional and technical architecture oriented towards long-term maintainability. To this day, it has always been kept functionally and technically up to date. In the case of SDS GEOS, this has proven more than beneficial for the licensees, since most customers that have been with us from the very beginning are still highly satisfied SDS GEOS users.

The functional development was based on principles like an unrestricted multi-client institution capability, the support of numerous sourcing models as well as multi-country and multi-currency capability. Thus, the options that SDS GEOS offers its users go far beyond the optimisation of their own settlement processes. The division of labour within groups is, for example, facilitated through the centralisation of market and custodian access, and the supply of services like asset servicing is supported efficiently. It is not without reason that HSBC Transaction Services, with an excellent service portfolio based on SDS GEOS, has become the undisputed market leader in terms of cost and service quality in Germany. Of course, the functional complexity of SDS GEOS developed over the years contributes to this as well. Nowadays, there is hardly any transaction, fee model or corporate action that cannot be processed in an extensively automatic and clean manner via SDS GEOS.

Given the numerous functional and technical standards, it was already obvious during the designing process of SDS GEOS that these standards would be subject to regular changes, and for that case, according provisions have been made. Rules that are subject to fast and individual changes can largely be altered via parameterisation – immediately and without the vendor’s intervention. Examples for this are fee models, routes, custodians, approval rules or taxes. Standards that are subject to regular changes, such as the WM revision service for FI master data or SWIFT messages, have been maintained neatly and delivered on time for 20 years by SDS.

Aside from these foreseeable and thus predictable development steps, there are market changes that are significantly more time-consuming, involve higher risk and are a lot more challenging to implement. Since its commissioning, SDS GEOS has witnessed numerous fundamental changes, ranging from the euro conversion and the adaptation to the German and Swiss market through to the implementation of ISO 15022 and 20022, TARGET2-Securities. US QI, flat rate withholding tax and CYT new, as well as to the big market reforms MiFID und MiFID II.

20 years is a long time from a technological perspective as well, and the technical maintenance of a product as large as SDS GEOS forms the basis of keeping it up to date in terms of functionality. This task is anything but trivial, as there are numerous examples of software products of similar size that needed to be decommissioned due to outdated programming languages and system environments alone.

With SDS GEOS, SDS has proven that there are other ways. SDS products do not only operate on conventional IBM mainframe environments, but also on open operating platforms like LINUX/Oracle. This is not a small matter, because for a truly performant operation, these environments differ significantly in terms of programming. But the possibilities that thereby present themselves to the users are endless. In order to facilitate changeover, SDS is working on an architecture that allows for a partial migration of functions from mainframe to open system environments. At the same time, this results in a step-by-step revision of the front-end and the whole user experience.

Not only do new front-ends provide a better working experience for traditional users of SDS GEOS, but they also open up possibilities to new users. This way, monitoring tasks can be accomplished more efficiently, the application can be embedded into separate applications and even third parties, such as institutional customers, can directly access the application at minimal IT cost in order to give instructions, for example. This thought can obviously be developed further, right up to private investors, who could, for instance, authorise instructions via apps and take part in Annual General Meetings.

The integration and interaction with these latest possibilities is one of the driving forces for the further development of SDS GEOS. This year, one of our customers managed to offer a processing platform to a FinTech through a streamlined project. For SDS, this is only the first step towards ever more cost-effective and granular services that can be offered in the company’s portfolio. Additionally, a continuation of the ongoing technical and functional development of SDS GEOS into separately usable and implementable products is being planned. The first steps on this path have already been taken and will enable users to offer new services on the market in the foreseeable future.

Even 20 years after SDS GEOS’ first deployment, both the software and the company still remain youthful and agile. In the years to come, we will continue to systematically take the necessary steps to define the future of securities processing and its environment in accordance with the SDS customer promise.

Learn more about SDS GEOS.

On 4-5 December 2018, the 24th Handelsblatt Annual Conference Banking Technology took place in Frankfurt. We as SDS had our exhibition booth to present our products GEOS, i:Reg, m:Cost and c:Conform as well as our company. The major topic of the event was “Banking as a Platform”.
Platform economy has already been an integral part of other industries for years. Amazon, as the best example, acts as central international digital market place. Flights are often booked via travel platforms and not directly with the airlines, like hotels, to name just a few well-known examples.
A similar development is well underway in the banking sector. According to the consulting firm Roland Berger, platforms already have a market share of more than 30% for products for new retail customers – with an upward tendency. A bold thesis was put forward: “In 5-10 years, banking services will be used in the background, i.e., the customer won’t care which bank offers the service”. The banking service will then become a commodity.

A common topic is the increasing challenge for banks to maintain their current operating models in times of technological transformation and changing customer expectations. Some market watchers expect that a considerable part of the banks’ revenues, especially in the retail business, is at risk within the next ten years. Others predict that the banks can either accept the new competitors or compete with them, while they will at the same time improve their own performance and efficiency.

The most important question regarding the future scenarios of the banking sector is which actor will manage the customer relationships and the interface and which actor will finally render the services and take the risk. The rise of Fintech innovations and the development of tech giants in the banking area has already resulted in a fight for customer relationships and customer data. The result of this struggle will be decisive for the future role of the banks. All experts emphasise that a single bank will not be able to cover all financial needs. Opening up the systems (keyword “open banking”) to third parties will be one of the key success factors here.

E.g. Deutsche Bank’s digitisation strategy, on the one hand focuses on the transformation of its core business and on the other hand on the development of new business models via digital ventures. According to Mr. Pertlwieser, Deutsche Bank already offers a multitude of platform-based options, e.g. the digital house bank, various financial marketplaces as well as “beyond banking” ecosystems (via the Deutsche Bank API). Deutsche Bank plans to become the platform for all questions relating to financial issues. Mobile banking is regarded as critical success factor for the digital platform. Even today, the share of mobile login is about 62% at Deutsche Bank.

In terms of data security – an important element of digitisation – banks still seem to be the winners in the tough competition with Fintechs and tech giants. According to a survey of Deutsche Bank in 2018, 46% trust in their house bank, a value way above those of the new competitors.

Meanwhile more and more market participants pursue a platform strategy. Since a platform primarily relies on economies of scale, a tough selection process is expected. Like in other industries, most of those involved assume that only a few banking platforms will dominate the market and expect this competition on a national level in the first step. BBVA in Spain, BNP Paribas in France and the Dutch ING are considered to be in a good position.

Deeper insights into digital transformation at Commerzbank as well as insights into the modern open banking solution of Hypothekarbank Lenzburg AG rounded off the agenda of the Handelsblatt conference.