What are the trends in the Nordic markets?
I believe that we see similar trends in the Nordics as the rest of Europe, and clients are working hard to be compliant with all regulatory requirements.
Clients expect the local providers to have an equally high standard for their settlement and safekeeping services, which is seen as a commoditised service.
However, what we see is an increased focus on asset servicing and an increased demand for an adaptable solution such as asset servicing on a stand-alone basis.
We also see an increased interest for clients to go directly to the Nordics, either by leaving a global custodian set up, or by going directly all the way to the central securities depository (CSD), using different account operator models. We are not sure if this is a trend but we definitely see an increased interest in our products from clients.
In the region we also see changes in tax and relief at source rules coming up in a near future. On top of this, the exit of a Norwegian sub-custodian has affected the whole Nordic market for the local providers.
What changes in the market infrastructure will we see in the next 12 months?
We mainly see changes in the next 12 months driven by Central Securities Depositories Regulation (CSDR) and the upcoming TARGET2-Securities (T2S) implementation in Denmark for the Danish currency, which is the first non-Euro currency going live in T2S. There is of course now also an uncertainty on when Finland will join T2S, and we will have to wait and see what the new timeline for implementation will look like.
For the rest of the Nordics, we do not think that any T2S progress will be made in the next coming years, even though the Swedish central bank wrote in their yearly report that they would like to see the local market taking a position on the issue fairly soon. The delays and failures of the Finnish T2S implementation have clearly shown the complexity of such a project, and that the original target date is often difficult to meet.
The CSDR requirements for preventing settlement fail will lead to a system change for Euroclear Sweden in order to be compliant, and the change is planned to be implemented in October 2019. The preparations for the second part of CSDR, which includes penalties and buy-ins will have a huge effect on all Nordic CSDs, as well as the local market participants. However, the final implementation across the Nordics is indicated to take place somewhere between Q3 2020 to Q1 2021.
Do you see any signs of harmonisation between the Nordic CSD’s?
Unfortunately, not as many as we would hope for, and we also see all four CSDs being fully occupied with their internal projects to be CSDR compliant. However, this work to be CSDR compliant will in itself have a harmonising effect for the Nordic markets. We have also seen some development in the issuance area, mainly driven by VP Securities in Denmark and Euroclear in Sweden. As a consequence of CSDR and the new competitive landscape among CSDs, we have recently also seen some price reductions for issuance in the region. We follow this progress with great interest as we service several large issuers in all the Nordic markets.
Handelsbanken Securities Services is very actively engaging in these harmonisation efforts, as well as actively participating in all committees and working groups across the Nordic region in order to achieve a higher degree of standardised solutions in the market that are beneficial to our clients.
What are the biggest challenges for Handelsbanken (or all Nordic custodians) for the coming three years?
We certainly believe that the CSDR changes for settlement discipline and buy-in will be a challenge for many market participants in the Nordic markets, requiring a lot of investments in existing IT infrastructure. A major challenge looking forward over the next three years will be the uncertainty around the local Nordics CSD’s outdated IT infrastructure and how this will be handled going forward. Another challenge is the Finnish T2S project where the market once again will need to engage in the project with testing and implementation. And as we currently have no new indications of any timeline, it is very hard to plan for the project.
How well prepared is Handelsbanken for all regulatory and market infrastructural changes?
Since we have already made a huge investment in our securities services platform, we believe that we are in a better situation than most of the other Nordic market participants. Thanks to our new pan-Nordic platform, we are able to respond to changes, or client demands, in an agile and efficient way with improved time to market. This also reduces the risk for our clients who place trust in our modern and stable IT infrastructure.
Our new platform consists of two systems operating across the region, one for settlement and safekeeping and one for asset servicing, which means that harmonised changes like CSDR only requires development in one system for the whole region. This is a huge advantage, both for us and our clients, since it makes the development faster, cheaper and requires fewer resources. This also applies to Handelsbanken Group, for example, having as few platforms as possible with centralised links and connections to the market infrastructure.
What competitive advantages can your new platform bring to clients?
The new pan-Nordic settlement system is fully automated with practically no need for manual intervention at all, and it is operating on extremely high straight-through processing (STP) levels. This is a huge advantage as operational staff can solely focus on exception handling and servicing the client in the best possible way. The asset servicing system created enormous efficiencies after being able to automate the absolute majority of the corporate actions processes in a way we didn’t believe was possible before the project started. We are running the whole process for all mandatory events with full automation without manual intervention and most of the processes around voluntary events have also been automated. This is an enormous advantage for our clients, clearly reducing the risk in such a complex area as corporate actions. Both the settlement system and the asset servicing system has been built to support bespoke reporting, where the client can benefit from alternative reporting methods containing tailor-made information. The standard communication is of course built around SWIFT, but our clients continue to have the need for additional or supplementary reporting in other formats and through alternative communication channels.
The entire new platform is able to support different account operating models above the traditional sub-custodian operating model, where clients are seeking to go directly to the local CSD. We experience more and more discussion with clients intending to achieve higher asset safety, higher transparency, visibility in the market and in some cases lower costs. Our platform fully supports these alternatives, including a stand-alone asset servicing product.
What will your stand-alone asset servicing product look like?
Handelsbanken Securities Services has during the year launched two different account operator models in addition to the traditional custody operating model: Handelsbanken Direct Nordic Access (DNA) and Handelsbanken Custody Account Mirroring (CAM). The DNA model is set-up where the clients have their accounts directly opened at the CSD while Handelsbanken, through power of attorney from the client, is operating the accounts. For example, the client outsource both settlement, asset servicing and cash to Handelsbanken. The common area maintenance model is taking it a step further as the client also is taking care of settlement in-house while Handelsbanken, through a power of attorney from the client, mirrors all activity at the CSD and process asset services on behalf of the client.
How close are you to go live with such a stand-alone asset servicing product?
We are actually going live with our CAM-model in November this year, and all preparations have been made and the tests have been very positive. We are really excited about this, and we believe that several other clients will follow in the coming years.
Do you believe we will see agent banks pulling out from the Nordic subcustody scene?
We have already experienced one single market provider exiting one of the Nordic markets this year. This has affected the market, both clients and other agent banks in the region, initially by experiencing the number of request for proposal’s booming in the market. Naturally, changes like this open up for business opportunities for the remaining custody providers in the region. However, our primary objective is to focus on our own business and not if our competitors will pull out or not. Our commitment is to continue to generate value for our clients and securing the highest client satisfaction in the market. We are this year celebrating 20 years of pan-Nordic custody services, and we are looking forward to continuing servicing clients for many years to come.
How does Handelsbanken differ from your competitors? Can you offer something unique?
Apart from our new platform, which we believe is something unique in the market, I would definitely say our operating model. Handelsbanken works with select clients, and our aim is not to be the biggest but the best. We take pride in providing equally high service quality to our entire client base, which consists of financially stable banks and institutions.
What Handelsbanken Securities Services also offer is a true Nordic model, where everything is processed within the Nordic region. All our operational processes, IT, customer relationship management, management and supporting units are located within the Nordic region. This is the Handelsbanken model—to always be local. We believe it goes without saying that if clients want to go directly to the Nordic markets, they should go direct and not through the Baltics, Poland or any other off-shore processing site. We are confident that we are able to service our clients the best possible way by being local and thanks to the high automation of our platform, we are able to process the flows in an extremely cost-efficient way. This unique combination makes it possible for us to deliver the highest service levels and still be very competitive on pricing.
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