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Safety of payments
| 3-1-2017 | Lionel Pavey | GT News
Fraud and cybercrime protection is of major importance for corporate treasurers. In the past year a new risk had to be added to the list: connectivity. Reports of banks being hacked and losing millions through unauthorised payments appeared more and more frequently and since protecting payment connectivity workflows was not a high priority item on the list of treasurers, it created damage in the industry.
GT News deals with the topic of how to protect payments in their article’ ‘Five tips for keeping your payments safe‘ on december 21st, 2016. We asked our expert Lionel Pavey to comment on the article and give us his own view on how to protect payments.
Safety of payments
As even medium size companies can easily have over 100,000 bank transactions per year, it is imperative for a company to ascertain the validity of all payments so that no fraudulent payments take place.
Authorisation Matrix
It is necessary to embed a clearly defined matrix within the company. This should follow a six-eye principle and be traceable within the payment system – invariably a bank payment system. The matrix should include the names of all those authorized; the amount they may authorize; the distinct legal entities they may represent etc. This data also needs to maintained and secured away from the payment centre (IT or legal department). If a new person needs to be added to the list who implements the procedure – Treasury or IT?
Types of payments
There are various workflows that will generate payments and these should be mapped and a complete process should be designed for each one – procurement system and creditors in the book keeping; financial obligations from the existing financing operations (loans, bonds etc.); tax on wages; social premiums; Value Added Tax (BTW); manual payments normally arising from expense claims and incidental purchases outside the normal procurement channel.
Validity of payments
Normal payments relating to creditors are relatively easy to follow – authorization has taken place in 2 different areas (procurement and book keeping). VAT requires data from book keeping for both debtors and creditors. Tax on wages and social premiums are normally presented just once a month either through the administration/controller channel or directly from HR. The biggest area of concern relates to manual payments.
Manual payments
These generally relate to purchases (normally one-off). The obvious question that arises is why is there a need for suppliers that are not in the existing procurement system? It is not impossible to ensure that there are preferred suppliers for all normal desires. Another source is repayments to debtors that are not balanced off against outstanding balances. If a company does not have dedicated software relating to the financing operations who, beyond the Treasury Department, can verify the amounts and dates? The area that requires the greatest vigilance relates to expense claims. Just because a line manager authorizes an expense claim does not mean that it is always compliant with company policy – this is an area where the onus should be on the controller to validate the integrity of the expense claim. Is the expense a genuine expense made in direct relationship to working for the company? An employee away on business and staying in a hotel is entitled to a meal at the expense of the company, but what is the policy towards alcohol and entertainment? Is the amount being claimed excessive and work related?
Integrity of bank systems
How secure is the bank system? When a batch is prepared for payment and an authorisation code produced, how is the code produced – what are the underlying factors that generate the code? Is it possible to alter the beneficiary’s account number after the batch has been produced? Would an alteration be seen by the system, resulting in an incorrect authorisation code? Banks generally do not provide a lot of information as to how their system generates codes.
Reconciliation
Who can extract data from the bank systems? Does this occur daily? Are all entries processed the following day in the book keeping system? What happens to items that are not immediately reconciled?
Conclusion
With regard to standard procurement, it should be easy to construct a solid working system that can be followed at all times. Manual payments are a weak link and a serious amount of time and effort has to be used in constructing a strong framework that has to be enforced and maintained at all times.
Lionel Pavey
Cash Management and Treasury Specialist
Blockchain: What happened during my stay in South Africa? (Part II)
| 30-12-2016 | Carlo de Meijer |
A number of interesting reports were launched, amongst others by Euroclear and Deloitte. And there has been growing blockchain and distributed ledger activity in the financial industry from start-ups, to banks, central banks, the market infrastructure and consortia. But also from advisory companies, central government bodies and others.
In my first article on treasuryXL, earlier this week, I wrote about two reports and startups. I want to focus on banks and consortia in this second article about blockchain developments.
BANKS
BNP Paribas completed its first blockchain-based live cross border B2B payments
BNP Paribas has completed its first live cross-border B2B payments between corporate clients using blockchain technology. The transactions, conducted on behalf of packaging outfit Amcor and trading cards group Panini, were cleared in various currencies between BNP Paribas bank accounts located in Germany, the Netherlands and the United Kingdom. For the ‘cash-without borders’ project, the payments were fully processed and cleared in a few minutes. This highlights the potential of the technology to eliminate delays, unexpected fees and processing errors, and pave the way for real time cash management. The bank has strong commitment to follow closely and further accelerate their participation in a number of market initiatives aiming at improving the corporate payments experience using blockchain technology.
Citi backs blockchain startup
Citi has invested in blockchain venture Cobalt DLT, ahead of what the company expects will be a second round of funding in 2017. Cobalt DLT is a blockchain startup aiming to bring distributed ledger technology to the processing of foreign exchange trades. Transactions in the FX market are notoriously inefficient and costly. Currently, foreign exchange trades need multiple records for buyer, seller, broker, clearer and third parties and then reconciliation across multiple systems. Cobalt is now building a post-trade processing network based on distributed ledger technology. The Cobalt DL solution has the potential to significantly improve post-trade services by cutting costs and reducing risk for our industry. Cobalt DL’s FX solution is set to launch in 2017, with 15 institutional participants committed to using the service.
CONSORTIA
While the number of consortia in the blockchain arena are further growing, the bank-backed R3CEV sees some cracks in the consortium. Some of its biggest founding members parted ways. Big names like Goldman Sachs and Banco Santander are leaving the R3CEV consortium. And new reports are surfacing suggesting that others such as JP Morgan, Morgan Stanley, Macquiries, US Bancorp and National Australia Bank may follow soon.
The R3 consortium has its first Spanish-speaking Latam member
But there is also some good news. Creditcorp, a Spanish-speaking Latin American financial institution, has joined the R3 consortium to design and apply distributed and shared ledger-inspired technologies to global financial markets. The bank provides corporate and personal banking, brokerage services, and other financial services across its six principal subsidiaries in Peru, as well as other South American countries including Bolivia, Columbia and Chile, and is listed on the Lima and New York stock exchanges.
R3 and Calypso to develop blockchain trade confirmation system
Blockchain consortium R3 continues to press ahead with new initiatives, partnering with Calypso Technology to develop a multi-party trade confirmation system running on its Corda distributed ledger-based smart contract platform. Calypso will be the first application partner to adopt the R3 platform, utilising the technology to enable counterparties to see all trade tickets on the distributed ledger so they can be sure they are matching against the correct trade.
JPX to form Japanese blockchain consortium
Japan Exchange Group (JPX) is to form a consortium of financial institutions to run trials of the use of blockchain technology in capital markets infrastructures. The exchange will seek participation from a wide range of Japanese financial institutions in order to gather broad industrial expertise ahead of testing in spring 2017. They will consider a structure for efficient information sharing between the DLT engineer community and financial institutions through efforts such as training on DLT technology. The Tokyo Stock Exchange together with the Osaka Exchange and Japan Securities Clearing Corporation (JSCC) will lead the coalition which intends to create a test environment for Proof of Concept (PoC) using Hyperledger fabric, the open source DLT platform, in cooperation with IBM.
Blockchain applications, consortium for Malta Stock Exchange
Malta Stock Exchange (MSE) has announced plans to research and develop into the blockchain technology, and to establish its own consortium. MSE’s committee will be run by MSE board members, blockchain experts and its chairman. The consortium will be sharing knowledge and establishing connections or joint-ventures with each other to assist fintech companies based on the blockchain technology, to grow by supporting them in designing and implementing blockchain applications. Furthermore, with this consortium, the Malta Stock Exchange could be planning its first blockchain application. It is very likely their first application on blockchain will replace standard stock exchange platforms.
South Korea rolls out blockchain consortium
The Korea Financial Investment Association (FIA), along with 21 financial investments and five blockchain companies, have teamed up to form a blockchain consortium. The group has signed a memorandum of understanding (MoU) to collaborate on projects and share their expertise on blockchain technology. Moreover, the group aims to create business opportunities for the consortium as well as establishing a platform with the member companies. Its future research projects include the establishment of a common platform for personal authentication due in 2017, researching into clearing and settlement automation in 2018 and 2019, and a platform for over-the-counter trading for 2020.
Microsoft creates Asia’s first blockchain consortium on Azure
Microsoft has teamed up with AMIS and the Industrial Technology Research Institute of Taiwan (ITRI) to form Asia’s first and the most advanced consortium blockchain network on Azure. The consortium includes members such us: Ubon Financial, Cathay Financial Holdings, MegaBank, KGI, Taishin, and CTBC Bank. Aim is to further develop blockchain opportunities in the Taiwan financial market.
The pilot blockchain project is developed using ITRI’s technology (to create an internal application program interface (API)) and Microsoft Azure. AMIS chose Ethereum, to develop a permissioned blockchain, an infrastructure specific to the needs of Taiwan’s financial market. As part of the project, ITRI provided its advanced technology to create an internal application program interface (API), while Azure provided high-speed cloud computing to ensure high security and efficiency for the blockchain infrastructure.
XBRL and ConsenSys work on deploying blockchain tokenization standards
XBRL US, a US non-profit consortium for business reporting standard, has teamed up with Consensys, a blockchain technology company, to work on deploying blockchain tokenization standards. The working group aims to establish a standardized method to represent a token across all blockchain networks in order to eliminate transactional friction and reduce processing costs; enable automation and provenance tracking; and allow interoperability of transactions on a global scale.
The working group will establish goals and action steps by early 2017, and is requesting participation from individuals representing technology, finance, and accounting to provide their expertise in developing tokenization standards that can be used worldwide, for all asset classes.
Source: LinkedIN/Carlo de Meijer
Carlo de Meijer
Economist and researcher
Blockchain: what happened during my stay in South Africa? (Part I)
| 28-12-2016 | Carlo de Meijer |
A number of interesting reports were launched, amongst others by Euroclear and Deloitte. And there has been growing blockchain and distributed ledger activity in the financial industry from start-ups, to banks, central banks, the market infrastructure and consortia. But also from advisory companies, central government bodies and others.
In this first article I will focus on two reports and on startups.
REPORTS
A new report by Euroclear has looked at the regulatory and legal aspects of the use of blockchain technology in post-trade settlement in a European context. The report found that central securities depositories (CSDs) would play an important role in a blockchain-based settlement system. It also stated that regulators should not fear the use of smart contracts and distributed ledger technology any more than any other automated computer-based process prevalent throughout the settlement industry.
As ‘custodians of the code,’ CSDs could exercise oversight of, and take responsibility for, the operation of the relevant blockchain protocol and any associated smart contracts. CSDs may continue to perform an important role as trusted, centralised FMIs (financial market institutions), providing gatekeeping services and oversight of the relevant blockchain.
With the implementation of a DLT-based settlement process there is no need to change the existing regulatory architecture. The authors believe that a blockchain-based settlement system would not present a weaker cybersecurity proposition than any present system, which is not immune to cybersecurity. By allowing regulators to participate as a node in the blockchain system, they could have complete oversight of all the transactions occurring within the settlement system and receive transparent transaction data in real time.
According to a recent Deloitte online survey of more than 300 senior executives at large US companies in order to find out about corporate sentiment towards blockchain technology, understanding of the technology is uneven and many senior executives (39 per cent) still know little or nothing about it, while others place it among their company’s highest priorities.
The survey revealed that blockchain investment and adoption patterns may be more complex than many observers believe. For instance, despite the relative immaturity of the technology, 21 percent of Blockchain-informed senior executives across a wide range of industries indicated that their firms have already brought blockchain into production, and 25 percent plan to do so within the next year. Key findings from the survey showed that 28 per cent of respondents had invested $5 million or more in blockchain technology, while 10 per cent had invested $10 million or more. Looking forward, 25 percent of respondents expect to invest more than $5 million in Blockchain technology during the next calendar year.
Many of these blockchain-informed executives (more than a quarter) see the technology as crucial for their company and their industry. Fifty-five percent of this group said their company would be at a competitive disadvantage if it failed to adopt the technology. Forty-two percent of those surveyed who claimed some knowledge of Blockchain believe it will disrupt their industry.
STARTUPS
Goldman, JPMorgan take a stake in blockchain startup Axoni
Goldman Sachs and JPMorgan Chase have announced finalizing an investment that is said to be in a range of USD 15 million to USD 20 million) in blockchain startup Axoni. The Axoni deal represents the latest Wall Street effort to gain traction with blockchain technology. Axoni is a New York-based technology company that helps banks and other institutions develop blockchain software to run capital markets processes. Furthermore, other financial institutions including inter-dealer broker ICA, Plc’s venture arm, are also interested in investing in the startup.
Over the past six months, Axoni has run a number of high-profile experiments with some of the financial industry’s largest players, in areas such as post-trade processing of credit default swaps and foreign exchange.
Digital Asset rolls out blockchain platform allowing confidential trades
Blockchain startup Digital Asset Holdings (DAH) has developed a platform to allow traders use blockchain technology without giving out confidential information on their trades. The new platform provides a solution to confidentiality issues holding back adoption of the blockchain technology in financial markets. They solve the privacy issue by dividing the distributed ledger of transactions into two components: one where participants can confidentially store their transactions data, and another that is shared by all participants without the confidential data.
Moreover, the new platform will form the basis of the technology that DAH is building for financial institutions including Australian stock exchange ASX and US post trade services provider the Depository Trust and Clearing Corporation (DTCC).
Manifold Technology rolls out easy-to-use blockchain platform
Manifold Technology, a US-based fintech, has made its patented blockchain platform available allowing non-technical developers to build enterprise-ready, blockchain-enabled applications. The platform has already been used by the Royal Bank of Canada for a rewards program, and by R3CEV consortium member banks to demonstrate instant trading of fixed income assets. The fintech’s platform can handle more than 10,000 transactions per second in operational environments, surpassing the largest credit card companies that can handle between 2,000 and 8,000 transactions per second.
Stellar’s blockchain powers ICICI Bank’s money transfers in India
Stellar, the open blockchain platform and non-profit payment protocol has partnered with ICICI Bank to bring low-cost, near instantaneous remittance solutions in India, the Philippines, Africa and Europe. Besides the bank, other three new partners in some of the largest remittance markets in the world were revealed by Stellar including: Philippines-based financial inclusion-focused fintech startup Coins.ph, pan-African fintech company Flutterwave which is notably plugged into the popular M-Pesa network, and French remittance provider Tempo Money Transfer, a licensed money transfer operator in Europe. This will allow Stellar customers be able to move money from France to Nigeria to Kenya to India in real-time and securely.
Overstock Issues Shares Using the Bitcoin Blockchain
Overstock.com, the online retailer, has become the first publicly-traded company to issue stock over the Internet, distributing more than 126,000 company shares using the blockchain technology. The company announced in October that it would allow its stockholders to purchase shares of its preferred stock. The company is making the offering to demonstrate its tØ platform, while providing its stockholders the opportunity to participate and trade exclusively using the platform.
Fintech Firm Wyre Raises $5.8 Million for “Fastest Blockchain Cross-Border Payments Platform”
San Francisco-based Fintech startup Wyre has launched its blockchain remittance platform alongside a successful $5.8 million funding round. Wyre intends to add its blockchain solution as a layer on top of existing blockchain-based platforms adopted by payment giants around the world. Fundamentally, the Wyre platform works by taking deposits from large payment companies via an API. These transactions are sent over Wyre’s ledger. Wyre then delivers the funds as per the transaction’s instructions, “typically in less than six hours”. Wyre’s focus lays in the cross-border payments corridor between China and the United States.
Sources: Euroclear Report: Blockchain Settlement – Regulation, Innovation, and Application, Deloitte Survey: Corporate Executives Having Hard Time Wrapping Heads Around Blockchain, Carlo de Meijer/LinkedIN article
Carlo de Meijer
Economist and researcher