Building resilience and efficiency in reserves management, risk and treasury is a common challenge for central banks. Given their collegiate nature, it is usually to their benefit to share best practices.
So, if one central bank experiences a particular success or difficulty with a technology provider, the details are likely to spread quickly throughout the industry, affecting the vendor's fortunes. This dynamic appears to have worked to the benefit of Calypso Technology, which has recently added the central banks of Denmark, France, South Africa and Spain, among others, to its client list.
"Many of the software vendors we looked at had strong asset management and treasury solutions, but didn't really understand central banking in the way Calypso did," says a senior official at a mid-sized central bank. "Calypso has delivered fit-for-purpose technology with reasonably easy implementation at a competitive cost."
Calypso, established in 1997, has developed cross-asset trading and risk management systems for banks, asset managers, insurance companies and corporates. Over the past decade, the firm has zeroed in on central banks, which now represent one of the fastest-growing segments of its client base.
This has coincided with a period of unprecedented change for central banks. With negative yields on government bonds and a falling supply of high-quality liquid assets, as a result of regulation and currency reserves reaching record highs, many central banks have been forced to diversify and increase trading activity to support growing balance sheets.
Dealing with unprecedented change
This change has put a strain on legacy systems and prompted many central banks to reconsider their technology provision, with the aim of integrating reserves management, treasury and risk within a single platform. Calypso has sought to build on its experience with multiple client types to deliver such an integrated offering.
"Every implementation is different, but there is a common trait that central banks are looking for front-to-back integrated systems covering multiple functions and asset classes. We are investing heavily in our portfolio management capabilities, including asset allocation, rebalancing and investment risk analytics, which are significant requirements for central banks," says Sylvain Privat, head of investment management solutions at Calypso.
For the most part, Calypso implements its technology on a phased basis, with individual clients determining their own priorities for each project. Its central bank offering comprises: a treasury solution aggregating treasury and currency reserve portfolio data into one database; a trade-processing function that enables banks to automate and scale their trading operations; and a portfolio workstation enabling reserve managers to monitor and conduct analytics on their portfolios in real time.
Many of the software vendors we looked at had strong asset management and treasury solutions, but didn't really understand central banking in the way Calypso did
Senior official, mid-sized central bank
As collateral management becomes an increasingly important function for central banks, Calypso can provide users with a consolidated view of all pledged and available collateral, as well as outstanding margin calls. In addition, the platform provides a wide range of risk analytics, connectivity to real-time gross-settlement systems, and internal and external reporting.
"Central banks are very different to most financial institutions, in that they combine both banking and asset management, but are less able to outsource functions to third parties and custodians. Using multiple systems has often been a challenge in the past, and the technology has become outdated, so our aim is to cover all aspects from one platform," says John Murray, strategic account manager at Calypso.
The South African Reserve Bank (Sarb), which went live on Calypso's platform for reserves management in March 2016, chose the vendor in 2014 to replace Wall Street Systems' Trema platform. The other two providers on its final shortlist offered more traditional investment management platforms that would have had to be combined with other systems to meet the central bank's requirements.
During 2017, the Sarb is expected to add further asset management and risk modelling functionality as it continues the implementation with Calypso, and it is also considering its collateral management service. The project has taken some time, and the central bank has proceeded cautiously, with the implementation managed by a local third party, Andile, but it has already been deemed one of the Sarb's most successful IT projects to date.
"Sarb was looking for a complete central banking solution, covering asset management, treasury management, payments and processing, and we were the only provider that could deliver all of that from a single platform. So far it has come in on time and under budget," says Murray.
The National Bank of Denmark has been another success story for Calypso, having started a project in 2012 to consolidate several systems into a single front- to back-office treasury and reserves management platform. The central bank went live in 2014, and more recently added Calypso's collateral management system to support its domestic Treasury intraday liquidity facility operations.
"We have very good experiences using the system, and can see that it is becoming popular among central banks," says Jesper Troelsgaard Nielsen, product manager at the National Bank of Denmark.
"The solution is fully integrated from front to back, and across business areas and functionalities. The workflow functionality in the system is good, and we have reached a high degree of automation. Furthermore, the flexibility has enabled us to handle very central-bank-specific transactions, such as collateral management for monetary policy transactions."
As it approaches its twentieth birthday this year, Calypso is fast becoming a leading provider of technology to central banks. The vendor was acquired in June 2016 by private equity firm Bridgepoint and global growth equity investor Summit Partners, and with a network of 725 employees in 19 countries, it has more large central banks in its sales pipeline.
As for any service provider that grows quickly into a new client segment, Calypso had faced some criticism that its client support during implementation and platform maintenance was not always up to scratch. Responding to that feedback, the company has increased the headcount on its client helpdesk and is introducing a dedicated central bank user forum where clients can share challenges with and receive support from Calypso experts.
"We are actively working to make improvements in service provision to this sector, which will include system configurations that are optimised for central banks, as well as full documentation about process workflows. This will help standardise Calypso deployments at central banks, making it faster, easier and more efficient," says Privat.