Non-settlement bank members - checklist

A checklist of issues for consideration by non-settlement member banks:

Ten steps to success
A number of financial institutions have positioned themselves to offer third-party CLS services. As a potential buyer of such services, you will want to ensure that you maximise your involvement in CLS by appointing as your settlement member a bank that is able to offer you a truly global, multi-currency settlement service and one which has already demonstrated a current and ongoing commitment to CLS.

1. Select a settlement member
Consider entering into an agreement with an experienced settlement member to help you through the complex issues surrounding CLS. This member should be prepared to work with you to explore the opportunities, features and benefits of CLS and help you get up to speed with the issues.

2. Appoint a project manager
Appoint a project manager, probably on a part time basis, to lead the initiative internally and to represent your needs in discussions with your designated settlement member. The project manager will need to form an internal working group representing a number of business functional areas including treasury, risk management, institutional banking and IT. HSBC would appoint a dedicated resource as your principal interface.

3. Undertake an internal impact analysis study
Undertake an internal impact analysis study with the assistance of your prospective Settlement Member so that you fully understand the impact of CLS, the changes you will need to make and the costs/benefits involved, albeit at this stage at a high level.

4. Obtain internal approvals
Obtain the necessary internal approvals including budget allocations, executive management commitment etc.

5. Decide on a start date
Decide and agree with your prospective settlement member the date by which you intend to start using CLS. Your HSBC contact would agree with you a project plan, including key milestones to achieve your CLS live date.

6. Contact your software supplier
Begin a dialogue with your software supplier to ensure that they are able to deliver the changes you require to your back office trading settlement and messaging systems in order to:

• Identify CLS eligible trades from non eligible trades
• Suppress payment instructions on the out leg of your eligible trades
• Suppress risk entries against your trading counterparty and raise new entries against your prospective settlement member
• Introduce new standard settlement instructions that will apply to CLS eligible trades
• Generate an input message to your prospective settlement member for all eligible trades (probably by T copy of the MT300 confirmation message)

Alternatively, consider the installation of a CLS gateway 'plug and play' solution that may offer significant savings and a quicker path to going live. HSBC can provide you with introductions should this be required. Implement the necessary changes to back office structure and procedures, test and implement changes to back office systems.

7. Detailed discussions with settlement members
Begin detailed discussions with your prospective settlement member in respect of the mechanics of using CLS including:

• SWIFT message types
• Reporting requirements
• Credit limits
• Standard settlement instructions
• Reconciliation of net pay/receive values
• Funding and disbursement arrangements
• Critical time deadlines

Negotiate a service level agreement with your settlement member.

8. Establish suite of accounts
Request your settlement member to establish a suite of accounts in all eligible currencies to be used for your CLS activity.

9. Join SWIFT
Join SWIFT as required by your prospective settlement member to enable your institution to T copy MT300s to them.

10. Final testing
Undertake final testing of all systems and procedures.

GO LIVE
At HSBC we undertake a post-implementation review in order to ensure that the customer is entirely satisfied with the level of service they have received.