Absa Bank has made a significant investment in technology and systems as part of its preparation to become a liquidity member of the Continuous Link Settlement (CLS) Bank, which offers a multi-currency settlement service to some 280 institutions worldwide.
"The CLS service is supported by the world"s largest global financial institutions, which account for a substantial majority of the cross-currency transactions across the globe," explains Hendrik Oppermann, GM: operations at Absa Corporate and Merchant Bank. "Once a bank is a member, it can settle foreign exchange (FX) transactions with other members according to the rules set out by the CLS constitution. This reduces a lot of the systemic settlement risks for the banks involved, and, instead of settling on a transaction by transaction (gross) basis, settlements are made on a nett basis."
"Once Absa decided to join CLS, it immediately started co-operating on a global level with global banking organisations and their associated IT environments," he adds.
"Part of the commissioning and implementation of the new infrastructure involved CLS representatives coming to SA for a week to certify the solution we aimed to implement," says Stephan Fick, of Absa"s technology enablement environment. "We provided the architectural designs, which CLS had to sign off to ensure that the solution complied with the bank"s requirements."
Infrastructurally, the CLS messaging system leverages SWIFTNet (SWIFT is the financial industry-owned co-operative that supplies secure, standardised messaging services and interface software). This has proved a bonus for Absa, which, Fick says, had implemented the latest SWIFT Alliance Access and SWIFT Alliance Gateway software some time previously, and, as such, did not need to make any further investment in that area.
The bank also elected to implement the Meridian Link messaging solution, supplied by Misys. Meridian Link is a middleware product that integrates banking applications developed by Misys, the banks themselves and other third parties. "We then took all the messaging structures and routing rules and implemented them within Meridian," says Fick.
For the integration with CLS, Absa implemented PAYPlus 4, a technology solution that inter-operates with the CLS settlement member, user members, and third party systems to provide banks with a full set of integrated CLS services.
Such services include:
* Capturing FX trade confirmations as transactions occur, and processing them according to CLS rules and settlement member operating procedures.
* Monitoring liquidity requirements in real time.
* Monitoring and enforcing the CLS daily pay-in and pay-out schedule.
* Capturing, monitoring and controlling third/fourth party CLS activities.
* Processing multi-way settlement information for the settlement member"s accounts and the accounts of branches, user members and third parties according to the specific business agreements with each entity.
* Providing information to internal bank systems and third parties for final settlement of FX trades.
The matching and reconciling of individual FX trades with CLS pay-ins and pay-outs, as well as the internal settlements of these trades, is done with IntelliMatch (cash and securities reconciliation software) and TRAM (transaction confirmation software).
"Apart from the challenges associated with integrating the CLS system into the Absa environment, the real challenge came with the fact that CLS operates in a 24 x 7 environment," Fick says, "and SA banks largely operate on an 8 - 5 basis. With CLS, banks have five specific hours in a day when settlements must be made. Once a bank has received a settlement instruction, it only has 20 minutes to settle." "This required a high-availability system which had to be constantly monitored," says Oppermann. "The bank, as such, is running a live production and failover environment, and has a DR system set up 30km away from its head office."
Once Absa decided to join CLS, the timeline to implement was five months, including the installation of various applications, all customisations to the PAYPlus solution, testing for the eleven currencies that were already CLS members, and user testing. Implementation and testing was completed within 75% of the scheduled timeframe, and the bank began settling payment instructions on the CLS service in late November last year.