SWIFT demands automation rollout to prevent 'failure' in global forex trades

SWIFT, the global standards body and network that underpins financial transaction data between 200 countries, is urging the financial services industry to boost automation and remove inefficiencies that hamper global forex/FX trades, a report by the financial telecommunications service reveals.

Transacting in more than 180 currencies and managing millions of confirmation messages between counterparties each day, the global standards body declared it would no longer be able to operate its forex service without greater levels of automation, risking “discrepancies [that] can lead to thousands of potential settlement failures every day.”

“Once trades are captured, efficient settlement depends on prompt and accurate confirmation of the terms of the trade between the counterparties and of details of the accounts through which the trade will be settled," the report said.

Titled The value of standards in the FX markets, the report calls upon a “common” and “collaborative” approach by all participating institutions in SWIFT-based forex trades – including all major Australian banks – to identify networking bottlenecks, inefficiencies, and manual processes that it believes can be eradicated through higher levels of automation.

While Juliette Kennel, Head of Securities and FX Markets at SWIFT, acknowledged the already high degree of automation present within the forex trade market today, she urged the industry to avoid complacency and to “work together to remove the remaining barriers to efficient exchange.”

“Increased levels of automation through more use of and better use of standards will unlock higher operational, commercial and financial performance for all participants in the global FX market.”

“SWIFT is adapting standards used in FX, in conjunction with industry, to lower the cost of doing business, increase returns on investment and reduce the levels of risk involved, but there is more to do. Industry must collaborate further to enhance standards by identifying the operational bottlenecks and barriers to great efficiency for all,” she said.

Working with the forex industry, SWIFT said it is determined to adapt existing standards to “iron out the areas that still create unnecessary costs, delays and risk that hamper the market.”

The existing MT 300 standard – required by all forex traders transacting through SWIFT – has been revised under the 2019 Standards Release, supporting further automation of the matching process that enables a forex trade to be confirmed, which “[saves] counterparties time and money repairing data”, it said.

Meanwhile, Australian banks are currently undertaking an extensive upgrade of legacy systems to conform with SWIFT’s incoming ISO 20022 standard for payments services. However, SWIFT said there are currently no plans to migrate the FX market onto the new standard in the foreseeable future.

“FX market participants believe existing standards are adequate to present needs and that the adoption of the new technologies the ISO 20022 standard can support is too remote to warrant immediate change.”

According to Bank for International Settlements data from 2016, foreign exchange spot and over-the-counter (OTC) derivatives markets averaged $5.1 trillion in exchanges per day.