SWIFT: Real-Time Payments Demands Real-Time Security And Compliance

Swift on security in payments

Speed isn’t the only factor to consider in the deployment of real-time payments systems. Security and compliance are also vital components in ensuring that payments are delivered safely and without delay. To compare payment rails to real-life rails, no rail passenger wants to travel faster without assurance that they are traveling safely.

The cross-border payments community has had to respond quickly to bring compliance processes up to speed to meet global businesses’ expectations.

The need to work together to solve these challenges was the main takeaway from a PYMNTS discussion between Karen Webster and Heather Lee, financial crime compliance and sanctions strategy at SWIFT, the global financial messaging cooperative.

Rapid Growth

The conversation took place against a backdrop of rapid growth in demand for real-time payment systems in some domestic markets. Global businesses now expect cross-border payments to have the same speed as domestic payments.

“Financial crime is bigger than any one organization,” Lee said. “To solve the problem, organizations need to take more of a community-based approach. For example, when banks try to solve these issues individually, they only see one small piece of the puzzle.”

In Lee’s view, financial institutions are indeed coming together to share common compliance concerns, and are working openly to create innovative solutions.

In the domestic payments space, the U.S. Federal Reserve recently revealed plans to build its own instant clearing and settlement rails. While domestic payment systems face entirely different challenges and a less hefty regulatory compliance burden, they offer a window into the functionality expected in the cross-border space. The challenge that cross-border payments organizations face is meeting consumer demand across a global regulatory patchwork that traverses local, regional and international compliance regimes.

“There are different levels of understanding about what real-time ‘payments’ means in terms of compliance,” Lee told Webster. “For example, in the cross-border space, innovation in payments is speeding up as organizations respond to changes in consumer expectations, but making real-time cross-border payments a reality means some compliance processes have to move to real-time, too.”

This has meant rethinking compliance processes and reassessing the way compliance tools are deployed.

“In some cases, this means ‘front-loading’ the compliance process and carrying out more of your checks ahead of the transaction,” Lee said.

In the same way that a train ticket is often inspected before the start of a journey, several compliance processes – such as know-your-customer (KYC) – can begin before the transaction takes place.

“As many compliance processes become more collaborative in nature, revolving around the secure sharing of information and using a community-based approach, we are finding that pre-validation can cut down potential delays because it eliminates many of the hold-ups before a transaction takes place,” Lee noted.

KYC Issues

KYC, for example, can be handled through a standard framework that streamlines the data process through a trusted and neutral repository. This means permissions don’t have to be given repeatedly for the same information to be exchanged over and over again.

For those processes that must be handled in real time, two factors are vital: continuous training and development, and the best technology.

“It is crucial that organizations dedicate resources to keep up with the evolution of financial crime,” Lee said. “Financial criminals are always evolving, and those working in compliance in the payments space have to keep evolving, too, in order to avoid becoming easy targets for bad actors.”

This is equally true of technology in anti-financial crime processes. “The old rules-based systems are giving way to more dynamic and data-driven solutions in the market,” Lee noted. “In the long run, these will enable more compliance professionals to carry out higher-level tasks, so they can add more value as machine learning and AI take on more basic manual tasks.”

The Role of Collaboration

Even as compliance professionals examine how to create new efficiencies in the compliance lifecycle with the tools available, new practices sometimes have to be laid down to enable new, faster technologies. In the case of cross-border payments, these new “smart” rails are in the form of a common standard.

In 2018, SWIFT launched a consultation with the community to enable the full vision of ISO 20022 – an open, international standard that defines critical business processes and data, and is compatible with both mature and emerging technologies like distributed ledger technology (DLT) and APIs. ISO 20022 is already the dominant standard in the instant payments market, and has been implemented in Australia, the U.S., Canada, Sweden, Denmark and Singapore.

From a compliance perspective, the data-enriched format of ISO 20022 means a significant decrease in the amount of missing data across each transaction. Most importantly, this will result in a smoother overall compliance process with fewer hold-ups due to transposition errors and false positives.

Safe, secure real-time cross-border payments relies on community involvement above all else.

“This is an opportunity to build greater levels of trust across the banking community and discover new, more collaborative ways to address financial crime,” Lee said.