Forex Industry Needs More Automation, SWIFT Report Says
The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, released a report on Wednesday, encouraging the players of the foreign exchange (forex) market to increase automation and improve standards.
SWIFT itself has grown into a leading network that handles cross-border transactions between financial institutions.
Forex Industry Needs More Automation
According to SWIFT, the forex industry has to bet on automation to tackle the current inefficiencies and fragmentation within the market. The report, called “The value of standards in the FX markets” recommends banks and financial institutions to figure out the obstacles of the industry that can be addressed with automation.
The Belgium-based company considers that an increased harmonisation via standards can lead to a higher degree of automation. While SWIFT admits that its existing messaging standards are doing a great job, the forex industry has to continue to improve. The report says:
The scope to lift operational, commercial and financial performance further and higher, through more and better use of standards, remains immense. A series of mandatory steps taken by SWIFT Standards Releases have proved it is possible for FX market participants to capture an ever-growing proportion of that potential value. None of the obstacles to capturing all of it is insuperable.
SWIFT mentioned several obstacles in the forex market, such as confirming trades via email, telephone, and fax. The company said that the industry couldn’t operate without adopting higher levels of automation.
The forex market is huge, comprising over 190 currencies currently in circulation worldwide. Thus, forex is both global and fragmented, having a broad and diverse range of participants, from retail consumers, central banks, multinational banks, local banks, corporations, liquidity providers, brokers, trading platform providers, asset managers, hedge funds, fintechs, and so on. With over $5 trillion in daily turnover, forex is by far the largest market in the world. Thus, trading such immense volumes on a daily basis, across a wide range of participants, requires decent levels of automation.
The report noted:
Further standards evolution will be required to keep pace with the commercial, operational and regulatory changes affecting the global FX market to ensure continued efficient operation.
Standards Can Bring Automation
SWIFT came out to establish international standards so that the banks and financial institutions could carry out cross-border transactions. Thus, the value of standards in risk mitigation is well-known to the company. In light of this, SWIFT is urging market participants to collaborate and create improved standards that would enable higher automation and would consider the current technological achievements.
Juliette Kennel, head of Securities and Forex Markets at SWIFT, commented on the report:
While there is a high level of automation in FX markets already, the industry cannot be complacent and must 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.
The report says that SWIFT’s standards are regularly adapting to fit the commercial, regulatory, and operational changes impacting the forex markets.
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.
Earlier this week, Visa launched its B2B Connect platform, which enables financial institutions executive corporate cross-border payments worldwide. The system relies on the distributed ledger technology (DLT), which deploys the standards automatically and might help Visa become a real competitor to SWIFT.
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