Published on 11 July 2018
Lyddon Consulting has sent the third and final call in its series to the Wolfsberg Group, this time regarding the “Country Risk – Frequently Asked Questions” that Wolfsberg issued in March 2018.
The call asks Wolfsberg put into the public domain the Competition Law advice it has taken about its governance and activities on a general level, to be followed by the specific advice taken in relation to its intervention in the area of Country Risk.
This call follows the two previous ones, firstly on Wolfsberg to revoke its guidance on SWIFT RMA Due Diligence, and secondly to amend and complete its Wolfsberg’s Payment Transparency Standards 2017 in respect of “On behalf of” payments.
This latest paper is more general and poses the question as to why the topic of Country Risk is one that Wolfsberg should address at all, and what the impacts on the marketplace can be of Wolfsberg’s intervening in it.
This goes to the point of the validity of Collaborative work being engaged in areas of the banking market that have in the past been in the Competitive space, and what the impact of such work can be on the scope of competition.
This must be of particular concern where the organization conducting the collaborative work consists of competitors to one another, and of competitors who have a high combined share of the market that the collaborative work concerns itself with.
Wolfsberg’s membership is 13 of the world’s 30 Global Systemically Important Banks. The Country Risk FAQs concern themselves with the international payments market. International payments tend to be channeled through one or more intermediary banks, as a result of which it is conceivable that a Wolfsberg member may touch every single cross-border SWIFT payment, even if they are neither the Account-With Institution for the order party, nor the Beneficiary Institution at which the payment is finally credited to a customer.
Wolfsberg’s various emissions have taken on the status of quasi-regulation. Their true status has become blurred in the process of their being passed along, incorporated into the outputs of other bodies, and recycled around the marketplace.
Wolfsberg has become an important, although not the only, channel through which matters that historically have sat in the Competitive space – meaning that each bank has to make up its own mind and act accordingly, for good or ill – now start to sit in the Collaborative space.
In that space banks wait for guidance from an authority – real or otherwise.
A cycle can set in of waiting for initial guidance, then for a clarification, then for both to be included in further emissions from another authority, then for a revised version of the original, and so on – leading to ossification at best, or, at worst, to banks all behaving in the same way, assessing risk in the same way, leading to homogenized products and services and harmonized pricing.
Country Risk Assessment used to be a function of the in-country operations of each bank, or of the Correspondent Banking officers for the country as a fallback, with a mandate to build up a network of contacts and obtain primary information, as a platform for creating Competitive Advantage in products and services.
The Wolfsberg FAQs, by contrast, foresee the function being conducted in a Head Office and based on secondary information sources, and with a view to guidelines issued by whatever source. This is the archetype of a “de-risked” bank, with a much-reduced number of “home markets” and trying to get some kind of handle on the remaining 200+ countries in the world without first-hand experience.
This is bound to lead to risk-aversion, conformity, less competition and fewer choices for customers.
That an organization like Wolfsberg Group should be a channel for any of this is surely highly questionable from a Competition Law perspective.
Industry initiatives undertaken through utilities with very large memberships aimed at creating a customer service proposition – like EBA Priority Payment and SWIFT for Corporates (“SCORE”) – have tended not to lead to better outcomes in terms of feature and function for customers, but rather to an undifferentiated product available from many sources (in the UK we might say “never mind the quality, feel the width”) or indeed no product at all, and/or they have tended to inhibit the development of proprietary products in the same field through which market actors would seek to attain competitive advantage.
Collaborative projects between competitors should be constructed as pro-competitive collaborations, aimed at bringing new propositions to customers that cannot be offered by one market actor working on its own.
Wolfsberg Group is a private organization consisting of competitors to one another but has no customer service proposition. Its emissions have, however, an impact on the Competitive space by influencing the specifications of products and services available to customers. This is because its emissions are directly heeded by financial institutions far beyond Wolfsberg’s membership, and because they are referred to as an authoritative source in guidance issued by public authorities to financial institutions, e.g. by the UK’s Joint Money Laundering Steering Group.
This is why we believe it behoves Wolfsberg to put into the public domain the Competition Law advice it has taken about its governance and activities on a general level, to be followed by the specific advice taken in relation to its intervention in the area of Country Risk.
That should be followed in turn by publication of the analogous guidance sought in all the other areas Wolfsberg has intervened in up to now, and then the publication of future advice taken on each new area that Wolfsberg proposes to intervene in. Each piece of guidance should address what impacts the intervention may have on the competitive environment and, if there are any detrimental impacts to the intervention, why the intervention is still justified.