Cash & Liquidity ManagementPaymentsClearing & SettlementSweden and Norway: Implementing a 2nd-Generation RTGS System

Sweden and Norway: Implementing a 2nd-Generation RTGS System

Scandinavian countries such as Sweden and Norway have been characterised in the past few years by the high level of advancement in the development of IT infrastructures for their financial systems and by their capability to foresee important changes within the global financial market and react accordingly.

Scandinavian central banking systems are among the first ever established – the Central Bank of Sweden is one of the first in history – and are still considered to be sophisticated by today’s standards. Sweden and Norway are among the first countries in the world to have adopted an electronic real-time gross settlement (RTGS) system. With an economy strongly dependent on commerce with foreign countries, the rapidly evolving globalisation process has led these countries to understand the importance of establishing efficient and secure payments systems. At the same time, Scandinavian countries have experienced an incredibly high pace in the widespread use of electronic money.

Furthermore, both Norwegian and Swedish banking systems historically feature large players who dominate the market. The gradual development of an international environment augmented their need for more reliable and efficient IT infrastructures. In particular, the need to rely on state-of-the-art technology and create a similar environment in both Scandinavian countries in terms of processes and costs management. Thanks to the combination of these factors, Sweden and Norway are considered to be among the most sophisticated, electronically enabled economies in the world.

Due to this level of advancement, not only did these countries forecast the need for new functionalities to be able to face the challenges of the global economy, they also proved to be long-sighted in understanding the importance of developing cost-efficient payment systems in order to improve the overall efficiency of each country’s central bank.

RTGS Development in Sweden and Norway

In 2005, Sveriges Riksbank, the Central Bank of Sweden, decided to replace the technical system and platform for its large-value payment system for inter-bank funds transfer – the in-house developed RIX system (one of the first RTGS systems in world when launched in 1990). This was due to a number of reasons. First, the central bank realised it needed to endow its banking system with new and advanced functionalities in order to successfully overcome the growing challenges of the inter-bank global system, to be up-to-date with international best practices, foster more efficient IT systems, and be able to deal effectively with the new-born eurozone.

The same decision-making process, grounded in a very similar set of reasons, occurred within Norges Bank, the Norwegian central bank, approximately one year later. In fact, Norway wanted the implementation of a second-generation RTGS system integrated with the whole national financial system to replace its internally developed payment settlement system.

Both central banks wanted a solution that was in compliance with international standards as well as being linked to the Scandinavian Cash Pool (SCP), where cross-currency liquidity among Norway, Sweden and Denmark is managed. Previous experience in the implementation of international banking and financial systems in other countries also played a role in the selection processes. Norway and Sweden set up international competitions to select a provider for this solution. In both cases, the SIA-SSB Group was awarded with the contracts to deliver the RTGS system solution developed by its subsidiary, Perago.

Challenges of Implementation

Given the sophistication of the financial system infrastructure in both Sweden and Norway, when the SIA-SSB Group was awarded the contract of creating a second-generation RTGS system for the two central banks, it was assumed that it would be fairly easy to implement a solution that was relatively similar to the existing one. However, some interesting cultural facts emerged, which made implementation more challenging.

In contrast to an emerging economy, where the creation from scratch of an RTGS system means a real and dramatic evolution to electronic settlement, developed economies such as Norway and Sweden have relied on up-to-date RTGS systems for a number of years. This meant that processes, rules and procedures were well established and consolidated on the RIX system and the introduction of a new solution represented a real challenge.

Complexity emerged not only in cultural terms, such as defining requirements to implement new functionalities for fulfilling them, but also integrating the new system with the existing ancillary systems.

When you start from scratch, product functionalities include fulfilling business needs and the major effort lies in setting up the proper system for live operations (e.g. procedures, support, etc.). On the other hand, when you replace an existing system, the goal is mainly minimising the impact of migration and then leveraging the benefits of the new system. This means that special attention should be paid to compatibility features (e.g. format conversion), product enhancements to comply with previous users habits and integration with external systems (e.g. collateral management).

The RTGS system chosen by Sweden and Norway represents an infrastructure that allows both countries to satisfy their general requirements as well as more sophisticated needs that will eventually emerge within the new global landscape.

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