SDS (Software Daten Service) is a leading European provider of digital software and service solutions for the international financial service industry. With SDS GEOS, SDS provides a highly competitive off-the-shelf software for automated and global securities processing. For 2020, SDS expects processing volumes of about 100 million transactions via SDS GEOS applications at renowned banks all over Europe.

In order to further expand continuous business growth and the strong competitiveness of SDS GEOS, Susanna Scheffold will take on the position of Head of Product Management SDS GEOS. Susanna Scheffold already had product and customer responsibility in her leadership role of custody business for Austria and CEE at the Global Securities Services of the UniCredit group. Until 2016, she was successfully active at this group in various national and international segments in the context of securities operations, NAV calculation, Run and Change of the processing systems or efficiency strategies.

“Extensive industry knowledge is the prerequisite for the development of outstanding product solutions. SDS has always placed great importance on having profound and comprehensive banking know-how available within the team in addition to IT expertise in order to develop the best software solutions for the financial industry. With Susanna Scheffold, we gain a top expert and an industry insider,” adds Ernst Kendlbacher, SDS Managing Director.

Future-oriented applications push ahead the digital high-performance business. IT managers worldwide are looking for smart, innovative solutions for enhancing software quality. Digital transformation requires constant acceleration of the implementation with a simultaneous reduction of the production costs.

With SDS Professional Testing, SDS can demonstrably make an important contribution to coping with these challenges successfully. As a leading and highly specialised European software vendor, SDS can opt for a more holistic and analytical approach in dealing with requirements regarding state-of-the-future software testing. This fact is confirmed by renowned SDS customers from the financial industry and the telecommunications sector.

Instead of only testing with a focus on quality at the end, SDS Professional Testing covers all required tasks in the entire application life cycle – from the requirements analysis to the user acceptance test – with a high level of quality. In this context, SDS extensively and directly cooperates with its customers in order to significantly improve test productivity. Beyond the option of automated test execution, we are developing innovative approaches for the digitisation of testing workflows: Machine learning-based defect management for testing or production, automation of test data management by means of intelligent selection of available test data, automatic monitoring, analysis and fixing of issues in the test environment, etc.

The decisive advantage of SDS: experienced, certified top-level test engineers with a proven track record in large-scale E2E projects from software vendor, user and IT operation perspective as well as over 40 years of experience as software vendor in the highly sensitive banking technology environment and more than 10 years of experience in more than 700 digital transformation projects. For more information and contact options, please see testing.sds.at.

SDS will further expand the performance of its market-leading reporting software SDS IREG in collaboration with the renowned partner. Through this cooperation, SDS will increase the implementation speed of regulatory changes and thus ensure that SDS IREG continues to comply with the latest regulations. SDS IREG customers benefit from early information about new or changed requirements of the reporting regimes. Since its launch in July 2011, SDS IREG has been able to continually attain the highest degree of automation and compliance in international reporting. With more than 3,000 reporting FIs in more than 80 countries, SDS IREG is among the leading tax reporting applications worldwide. Moreover, by means of STP (Straight Through Processing), SDS IREG enables international financial institutions and service providers (such as tax consultants) to cover multiple reporting obligations (CRS, FATCA, QI, Italian FTT) with a single application and minimum resources.

The various industries, in particular the financial industry, cannot agree on a common tenor as to where the AI journey should lead. There is, however, consensus that modern learning algorithms have the potential to turn the industry completely upside down.

When Alibaba founder Jack Ma and Silicon Valley legend Elon Musk presented their ideas of artificial intelligence at the World Artificial Intelligence Conference in Shanghai last week, their views could not have been more different.

STATUS QUO AI: MOMENT SHOTS.

The current trend traces back to the first conceptual approaches in the 1950s, but the developments of the last decade in particular have led to numerous new attempts and breakthroughs in the implementation of artificial intelligence. The main drivers are the exceptional growth of data volumes data volumes as well as groundbreaking developments in IT hardware.

While the first big steps in face and image recognition have put AI back into the focus of public interest, it is now big data clusters such as the ones of Google, etc. which define the market standard.

The financial industry is particularly interested in the AI potential. On the one hand, this is due to the expectations of its customers and regulatory requirements and, on the other hand, even more due to the available data volumes in the banking companies – precisely these volumes turn out to be the most essential advantage compared to new FinTechs.

Nowadays, the concept of AI is a very broad one and constitutes an umbrella term for the topic of intelligent procedures. Machine learning (ML) is already seen as a more narrow term of artificial intelligence and comprises, for instance, clustering or regression procedures. The most elaborate, sophisticated and data-intensive level is referred to as deep learning (DL), which uses complex neural networks. AI is not able to act intuitively, but cognitive performance is enabled by training models.

It is striking that the term robotics is repeatedly used in connection with machine learning, even though it actually rather corresponds to a sequence of instructions and should thus be placed in the nomenclature of AI at best. A chatbot, however, can very well be regarded as an implementation of ML considering corresponding technological aspects.

Nowadays, more than 2.5 trillion bytes of new data are generated on a daily basis. If one were to print out this amount of data, the distance between the earth and the moon could be covered multiple times. The computing power available today makes it possible to process these data volumes. Banks do not primarily see their duty in basic research – instead, the focus is on the effort to integrate intelligent additions into existing and new applications. Required frameworks are obtained from commercial but also from free sources.

By now, there are numerous abstract examples for artificial intelligence, in particular complex procedures such as idiomatic translations as well as autonomous vehicles or sensor-aided learning. In the financial world, intelligent fraud prevention measures, e.g. for preventing credit card fraud, money laundering or the identification of digital identities (using similarities of names for fraud purposes) have prevailed. Text processing as part of document scanning or chatbots is particularly popular in the industry.

Current general AI market trends:

• Knowledge graphs – connecting different objects from a complex, unstructured data volume in a systematic way. Data is not saved in simple sequences, but in individual, partially connected nodes.
• Hypermind – summarises sensor-aided AI. Primarily, projections/augmented reality (glasses similar to “Google Glass”) in combination with image recognition support people in their activities.
• Multimedia opinion mining – is the umbrella term for multimedia segmentation, which clusters media according to personal opinions, preferences or feelings. For instance, negative news can be mitigated or defused in combination with a positive image. The spreading of fake news can be considered a negative example for this type of AI.

Currently, the financial industry still focusses on more tangible approaches such as:

• The intelligent automation of credit ratings
• AI processing of text documents
• Automated payment transactions according to default classification

Apart from this variety of chances, financial institutions are increasingly facing a large number of obstacles. In particular, the results are often not traceable, which primarily poses a problem to the supervisory and data protection authorities. Although autonomous learning processes ideally lead to seemingly correct results, they cannot be consistently checked for their causality and the corresponding decision-making basis.

Some first promising attempts at a solution to this problem are approaches regarding the textual output of important decision nodes, i.e. a kind of logging, which is intended to allow for a certain degree of traceability. This approach, however, is still in the early stages of research. The visualisation of (interim) results is a process which is significantly easier, although it will not always lead to plausible explanations.

The ethical component of artificial intelligence involves another substantial obstacle. A well-known and controversial example of this can be found in the recognition software of autonomous vehicles. Demonstrably, such systems had trouble detecting pedestrians if they did not match the typical white person. Particularly, darker skin tones were detected far less easily. This malfunction can be traced back to the selective choice of test data. The problem of such biased data will also affect the financial industry in one way or another, for instance in AI-supported lending, and the industry will have to deal with it accordingly.

CONCLUSION

It is a fact that financial institutions have made very little use of their AI potential so far, which is hard to understand given the enormous data volumes at hand. Artificial intelligence is in another heyday which – as recent progress has led to believe – will persist (unlike in the past).

Read more about this topic and the digression to PSD2 and GDPR in connection with artificial intelligence in our SDS Report. Download the report on the subject AI in Banking now.

Usage of a one for all solution for FATCA, CRS and QI reporting, coverage of all country-specific standards and excellent support throughout the maintenance period is key for sticking to a successful solution. Cost-friendly operations with having one single instance for servicing multiple (up to more than 1,000) CIs and utmost reliability adds to the acceptance of SDS IREG with all stakeholders of the top international bank. The extended business package includes among others full regulatory upgrading of local and standard schemas for more than 60 countries. SDS IREG also provides full compliance for these and future participants of the AEOI mechanism (e.g. OECD) and/or regulatory changes.

Austrian based SDS is a leading provider of state-of-the-future software and service solutions for the international financial services industry. With SDS IREG, originally launched in 2011, the company also became one of the key global players in the market for end-to-end and fully automated tax reporting solutions. SDS IREGs specific design for the Automatic Exchange of Information (AEOI) using the highest degree of automation and withholding international tax reporting compliance in one single application improves the tax reporting capabilities of international financial institutions and service providers. In a nutshell: A future-proof solution through a broad and top-level global customer base, continuous development and an ever-adapting product roadmap.

The need for comprehensive, globally applicable and highly automated tax reporting solutions is more topical than ever. Digitalization, automation, geographical coverage, validity, and reliability are – amongst others – the key challenges in the automatic exchange of information regarding tax matters (AEOI). Our comprehensive SDS Report summarises the most important challenges at a glance.

MAD II/MAR – The EU Market Abuse Regulation has created a uniform legal framework and catalogue of criminal law for the prohibition of market manipulation and insider trading since 2016. Moreover, financial institutions have been obliged to take active and proactive measures in order to avoid these criminal offences in their own backyard. The amendments pose significant challenges for the financial industry, especially the banking sector, and their IT systems. Traditional methods for monitoring securities compliance are no longer effective here – therefore, new procedures have to be implemented. Almost three years later, it is time to take stock of the success of MAD/MAR and of the current market developments. The Austrian software vendor SDS (Software Daten Service) continuously sets digital standards in terms of advanced solutions for securities processing, regulatory issues and compliance for the international financial industry. SDS’ latest white paper on MAD/MAR compliance concisely summarises the most significant findings and experiences from three years of practical application and also provides approaches for the automated monitoring of securities and derivatives transactions.

Speaking of tradition: This year, the SDS GEOS management circle took place for the last time in its current form. Due to our growing portfolio and the fact that several of our products are often used simultaneously, we have decided to hold one joint event for all our products from next year onwards. But now back to the content of the management circle:

SDS is a sound, organically growing company

The most important news first: We can present steady growth in all areas of our portfolio over the past years. The number of employees, the turnover and the EBIT have increased according to plan and we have reason to believe that we can continue this success story in the years to come. This shows that our decision to expand the portfolio a few years ago was the right one and it gives our customers the reassurance that they have a long-term stable and attractive business partner.

Optimising the data volume for securities master data

The number of available securities on the market for index certificates and warrants is in no reasonable proportion to the instruments actually purchased by investors. This issue has been a topic of discussion across the industry for several years now. Recent analyses paint a dramatic picture: On the Austrian market, ÖWS provides more than two million instruments, over 90% of which belong to the aforementioned securities types. Only about 1% of these, however, have actual holdings. The rest – about 90% of the FI master data – is irrelevant for securities processing. This useless data volume has become a serious organisational and technical problem.

Therefore, it is an obvious idea to remove the unneeded master data or to only provide it on demand. At first glance, this task may seem manageable, but it requires thorough analysis of the affected processes as well as coordination between all parties concerned and it is probably not entirely trivial from a technical point of view either.

In the weeks to come and in collaboration with ÖWS and the Austrian banks, we will work out a solution which takes the technical and financial framework conditions into account and which is likely to offer an attractive business case for all parties involved.

Event-driven architecture

In addition to this current topic, we have focused on the future architecture of our company’s software products. We are faced with multiple challenges:

• The way our product portfolio is expanded creates the demand for an ideal architecture for the interaction of these components during joint usage.
• Modern user experience requires technologically advanced functions such as full-text search, statistics, configurable dashboards, etc.
• External systems should be able to react to status changes in the transaction processing system near time.

In order to accommodate all this, we are currently verifying a so-called event-driven architecture within the framework of a proof of concept (PoC). The core of this architecture is the relief of a transaction processing system (in our case SDS GEOS) from the preparation of data for user interaction, the creation of statistics and complex queries as well as from the process of making data available to external systems.

We have already taken steps in this direction in the past (for instance by supplying data for the Business Information Store) and we now intend to implement the interactions via front-end and the communication of changes back to SDS GEOS. The PoC deals with a specific task from the area of Corporate Actions and should ideally be further developed into a corresponding product for the processing of corporate actions. For this step, we are looking forward to a development partnership with a renowned financial service provider from custody business.

Gossip

In addition to these topics, informal communication over brunch and during the breaks was, of course, not neglected either. Since the composition of the circle has changed compared to last year, we were also able to welcome some new members to the community, and we are looking forward to an exciting and successful collaboration.

The imh Banking Congress KURS, which is held annually in Vienna, was received with great interest also this year. The multifaceted segmentation of the conference into the topics “Compliance & money laundering”, “IT in banking”, “Post-trade settlement & back office”, “Security” and “Payment transactions” attracted a wide audience from many different areas of the banking industry. Once again, SDS was present this year as sponsor and exhibitor at the “Security” conference.

On the first day, the conference started as a plenary assembly with presentations and discussions on current economic and political matters (Brexit, the trade conflict USA/China, the economic situation in Europe as well as the possible merger of Deutsche Bank/Commerzbank).

Initially, the main focus of the KURS 2019 “Security” conference was on the topic “Blockchain”. After presenting basic information and the potential of this technology, the successful productive use of the blockchain platform in the issuing process was illustrated by the example of a blockchain-based open-market credit. The impressive presentation led to lively and interactive communication in the auditorium.

The further course of the first conference day was characterised by information on current legal topics, with the focus on the following items:

• Compliance changes for increasing investor protection and avoiding conflicts of interest
• Research: Handling financial analyses which can affect the market
• Information on the Central Securities Depositories Regulation (CSDR), with the focus on settlement discipline measures for avoiding settlement fails (sanctions, coverage procedure/buy in) as well as the internalised settlement, which obligates banks to report their internal transactions

The first day of the KURS 2019 “Security” conference was concluded with the topic “Robo-advisory”, the digital investment counselling which is an option particularly for retail customers with few liquid assets.

On the second conference day, the EU Shareholder Rights Directive (SHRD) was subject of conversation twice. Currently, the bill “Change of the Securities Supervision Act 2018” is in the appraisal phase in Austria. The productive start is expected for the autumn of 2020. Both the challenges for banks and the expected consequences for customers and investors were examined. The areas data protection and bank secrecy still pose unresolved issues, particularly the saving of shareholder data and the obligatory identification of shareholders by the custodian. The practical implications on the customers are seen critically as well, since an information overflow is expected on the one hand and frequent requests for disclosure of personal data due to the shareholder surveys by the issuers are anticipated on the other hand. The banks will also have to find ways to meet the demands of customers who do not want this kind of information. This contrasts with the advantages of the customers’ extended possibilities of exercising the shareholders’ rights. Some banking representatives expect high costs with doubtful value. From a legal standpoint, the costs may be passed on to the customers, in practice, however, this option is doubted.

Another item on the agenda was the SFTR (Securities Financing Transactions Regulation), which aims to increase the transparency of securities financing transactions. The risks inherent in such financial transactions shall be recognised at an early stage and monitored accordingly. All counterparties whose branch offices are within the EU must report each securities financing transaction as well as each change or termination to a registered or acknowledged trade repository. Moreover, the further use of financial instruments received as collateral is only permitted under certain conditions. The Regulatory Technical Standard (RTS) is currently under review in the EU Parliament and the Council of the European Union. From today’s view, reporting is expected as of 11 April 2020.

In the overview of the recent essential tax innovations, the new procedures for CYT reimbursement, foreign CYT and exchange of securities based on the Kapitalmaßnahmen-VO (Austrian corporate actions regulation) were described. Furthermore, fund taxation in Austria and Germany, the account register, the Common Reporting Standard (CRS) as well as FATCA/QI and IRS 871m were outlined.

The consolidation of TARGET2 and TARGET2-Securities is scheduled for November 2021. It extends liquidity management and effects a separation of central banking operations from RTGS transactions. All of this is based on ISO 20022 and is implemented as a big bang migration. There will be no co-existence with ISO 15022 MT messages. The first customer tests are scheduled from March 2021 onwards.

After that, the Eurosystem Collateral Management System (ECMS), whose goal is the harmonisation and centralisation of the collateral management systems, is scheduled to go live in November 2022. In this context, the strongly fragmented environment of 19 national systems is to be consolidated into one uniform Eurosystem-wide collateral management system. One trigger is the increasing importance of collateral. The standardised messages are exchanged exclusively in ISO 2022 format. Additionally, new standards in the area of triparty and corporate actions will be introduced. The expected benefits are a harmonised settlement of collateral in the Eurosystem, an efficient mobilisation of collateral and another contribution to the establishment of the capital market union.

Our core business fields cover all of these topics for which our products SDS GEOS, SDS IREG, SDS MCOST and SDS CCONFORM offer corresponding solutions.

For SDS GEOS, for instance, we are currently implementing the last requirements for the reporting of internalised settlements as part of CSDR and simultaneously, we are already analysing the requirements for SFTR reporting and SHRD.

On 11 April 2019, the annual SDS IREG customer group meeting took place in Vienna. Numerous SDS IREG customers seized the opportunity to discuss topics related to the product and the reporting regimes CRS, FATCA and QI with SDS. On the night before, a joint dinner was organised for the participants at the “Salonplafond” restaurant in the MAK – Museum of Applied Arts, Vienna.

The event did not only reflect current and past developments and challenges, but primarily offered a preview of the innovations planned for the product in the coming months and years. The opportunity of discussion within the product community provides all customers with the option to actively participate in the further development of the product. We are pleased about the valuable input which will help us to customise SDS IREG even more specifically according to the users’ needs and to ensure that it will remain the leading solution for the international exchange of information in the years to come.

The positive feedback on the last as well as the current reporting period was, of course, also very delightful. This feedback encourages us to continue our approach of consistently and continuously enhancing SDS IREG. This development is one of the results of the SDS IREG customer group meetings of the previous years.

The lively exchange of experiences was particularly interesting for many participants. This is the advantage of a multi-faceted community with partly different challenges. The discussions provided insights into the advantages and disadvantages of different approaches and were not limited to the various options of utilisation and parameterisation of SDS IREG, but also covered the environment on a larger scale. This is especially important for SDS in order to gain a detailed understanding of our customers’ varied needs relating to bank-internal processes.

Last but not least, most of the participants gladly accepted our invitation to the “Salonplafond” restaurant. The relaxed atmosphere did not only provide the perfect platform for discussions regarding SDS IREG, but it particularly offered the chance for the participants to get to know each other better. This was, of course, especially interesting for those participants who attended the SDS IREG customer group meeting for the first time. In this context, we are very glad that we could welcome new participants this year as well.

Many thanks to all customers for their participation and the interesting discussions! We are looking forward to welcoming at lot of participants again next year.