In exigent economic times, data and information are crucial for banks – and more than ever.

As banks and corporates are gearing up to equip themselves with the appropriate strategy, service and products to meet an array of regulatory requirements – think SEPA, Basel III, for instance – real-time overview of intraday liquidity becomes a more and more essential business stream.

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As the cost structure of financial institutions changes with ongoing economic woes and oncoming regulation, an efficient intraday liquidity system could result in systematic risk reduction and control. Another consequence would also be transparency of services and eventually standardisation and convergence in the market.

These will be the goals of regulation and, ultimately, they will have an impact on the cost structure of financial institutions, say Kevin Brown, global head of products and transaction services at Royal Bank of Scotland (RBS), and Ashley Dowson, chairman of the SEPA Consultancy.

Basel III, and other liquidity-related regulation, will drive collaboration among institutions to facilitate standartisation, according to Brown and Dowson.

In the UK, the Financial Services Authority (FSA) has already published the Capital Requirements Regulation IV (CRD), and the Capital Requirements Regulation (CRR). Together, they form the FSA’s CRD IV package, which mirrors the Basel III capital proposals, but also states “new proposals on sanctions for non-compliance with prudential rules, corporate governance and remuneration”.

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At EBA Day in Edinburgh, Brown and Dowson explained that the FSA rules include what is called Individual Liquidity Adequacy Assessments (ILAAs), whose intraday component include:

  • Specification of the amount of liquidity that an institution needs,
  • Consideration of stress scenarios,
  • Maintenance of dedicated liquidity buffers, unencumbered high-quality assets,
  • Review and update of the numbers on a regular basis and
  • Detailed plans of customer or counterparty stresses and defaults.

Financial institutions in the UK are required to meet the FSA standards as of 1 January 2013 and the FSA says that there will be “transitional arrangements for some elements”.

In other European countries, however, the rules are different, and therefore, in some cases, more relaxed.

Brown and Dowson described the key challenges and solutions to collaborative efforts on a cross-border basis as thus:

  • Identifying all payment system memberships globally,
  • Improving real-time dash-boarding,
  • Having historical information to support intraday liquidity modelling,
  • Distinguishing propriety flows from client flows and
  • Monitoring and controlling intraday liquidity on a real-time basis.

Ultimately, such efforts will drive competition among banks, but they will also spur on innovation and regulation, Brown and Dowson said.