Klea Neza runs through the changes in the Nordic market over the past two decades, focusing on political reforms, regulations, and technological advancements
Over the past couple of decades, countries in the Nordic region have experienced many changes in the asset servicing world.
The region has transformed into a zone of innovation and financial growth, overthrowing the relatively conservative approach towards financial durability and replacing it with a mixed-market capitalist economic system.
Some argue that the economic transformation in the Nordic market has occurred as a result of technological advancements such as cloud-based technology and AI development.
Others comment on the impact of regulatory reforms incorporated into the region’s laws and regulations, particularly following the recessions in Sweden and Finland in the 1990s, as well as the enduring financial distress caused by the 2008 financial crisis.
With all this as a backdrop, how much has the Nordic market actually changed?
Overview of the market
When discussing the ‘Nordic market’, or ‘Scandinavia’, we are collectively referring to Denmark, Finland, Iceland, Norway and Sweden — countries that share a geographical region in Northern Europe.
Originally developed in the 1930s, the Nordic Model is an economic system that blends elements of capitalist and socialist ideologies, such as a society that is both economically efficient, but also values social welfare. Over time, the model has undergone changes to promote equality and overall economic well-being, overcoming the conservative, traditionalist approach to nation-building.
The Nordic Model has its strengths and weaknesses, and, accordingly, has had varied impacts on asset services business’ over the past 20 years.
A number of companies have entered and exited the Nordic Market in this time. Nordea, for example, entered into a referral agreement with Citi in 2021 after making the decision to exit their sub-custody business. Whereas companies such as Skandinaviska Enskilda Banken (SEB) have seen organic growth over the past 25 years, transforming into a dominant sub-custodian in Northern Europe across the seven Nordic markets.
SEB started as a Nordic regional sub-custodian in 1999 and is currently headquartered in Stockholm, Sweden.
The company has entered a period where technology is evolving, “settlement cycles will become compressed, markets will change their operative models by, for example, joining TARGET2-Securities (T2S) and the CSDs will step up their efforts”, comments Ulf Noren, SEB’s sub-custody and relationship sales manager.
Petra Sjögerås, head of the Nordic Region at asset servicing company Northern Trust, provides further insight into what is shaping the Nordic market.
She states: “The Nordics consist of five different countries, all with their own cultures, languages, pension systems, currencies, regulators and so on. There are a lot of similarities, but in order to be successful you still need to adapt to each of them. Additionally, two of the Nordic countries are not members of the EU, and so have different legislation.”
Regulation and political transformations
The financial crisis and past recessions have historically forced companies to fall into a poor economic state.
Sjögerås comments on the importance of regulations that influence a region’s geopolitics and macroeconomics, and summarises the impact this may have on the asset management industry.
She says: “The need for cost efficiency drives consolidation mainly within the asset management industry. Similar to other regions, the geopolitical and macroeconomic landscape impact everyone and put even more focus on risk management, combined with ongoing reviews in terms of asset allocation strategies and portfolio optimisation — in short providing services to help clients make the most of their assets.
“We take a consultative approach to all of this by reviewing client operating models front-to-back, with the aim of establishing future-proofed operating models from a cost, risk and efficiency perspective, together with high-touch client service, data and system integration that form vital parts of the client solutions we offer today.”
To truly assess the impact of regulations affecting the Nordic market over the last two decades, the recessions of the 1990s must be taken into account. Although some businesses were able to survive and fight their way back to financial stability, others were not able to do so or simply struggled to reposition themselves in the market.
The Nordics are known to be small, open economy countries, and in the past have been highly dependant on international developments such as “policy actions at global level, which they themselves were unable to influence”, as explored in the The Research Institute of the Finnish Economy (ETLA) report, ‘Nordic in Global Crisis, Vulnerability and Resilience.
The ETLA report shows that the 1990s had a particular negative impact on Sweden and Finland as a result of the “high degree of openness [of their economies] and their dependence on export goods, for which the decline in global demand was particularly pronounced”.
However, as a result, Sweden and Finland were able to learn from the recession and apply their new knowledge to the 2008 financial crash.
As stated in the ETLA report: “A second key lesson was that a fixed but adjustable exchange rate, in a world of free capital mobility, is a recipe for disaster. This is why both countries opted for a floating exchange rate at the time, but it is also a main reason why Finland later adopted the euro.”
This knowledge helped guide new policies and reforms, one of which was the change of their monetary unit from the Markka to the Euro in 1999. Euro banknotes and coins were introduced into Finland’s monetary circulation in 2002, prior to which it only existed as ‘book money’ in the country.
These lessons allowed the two Nordic countries to be relatively well prepared for what was to come in 2008.
Their experiences during the banking crisis were considered an important aid to other countries.
Due to this well-preparedness, Sweden and Finland had a strong influence on the way the Nordic countries’ economies ran, having already experienced how a recession could impact their economic systems.
Naturally these broad, macroeconomic shifts, have a more granular impact on the custodian business.
Expectations
Over the course of two decades, it is certain that as businesses evolve, so do their customers’ expectations.
Sjögerås suggests that the role of a custodian has seen significant evolution over the last decade. She comments: “While security and safekeeping of assets remain paramount, our role as a critical component in the operating and data model, especially as investment and regulatory complexity have increased, has seen the Northern Trust role evolve to be more integral across all elements of the operating model in the front, middle and back offices.”
There has been a notable shift in clients’ behaviour and demands over the years, and any challenges have been overcome by the company’s ‘eyes and ears’, according to SEB’s Noren.
He comments: “What we are meeting in the medium-term future are changed operating models by, for example, and the introduction of shorter settlement cycles. The impact of T2S will inevitably also change client behaviour and we need to be prepared for that.”
SEB has a variety of factors that have contributed to their clients’ change in demands, and also note the various number of Account Operator models becoming increasingly in play in the market, which Noren states the company will “need to have a model for, being feasible both for [them] and the cross border client base”.
Getting technical
Technological advancements have played a key role in moving the asset servicing industry forward, as seen in Northern Trusts’ decision to upgrade their cloud-based insurance accounting and analytics applications.
As further commented on by Sjögerås, an example of technological advancement has been seen in Northern Trust’s ability to support their clients evolving needs through their application, Front Office Solutions. She explains that the application allows them to “support all aspects of a client’s portfolio, from public to private assets, in a consolidated view.”
On the platform, Northern Trust offers a Customer Relationship Management (CRM) system for supporting documents needed for investments in this area, which aims to govern and manage the portfolio while supporting different functions such as risk and compliance.
She confirms: “In this area, Northern Trust has been successful in using AI to build efficiency into the service.”
Other companies in the Nordics have adapted to modern systems, such as SEB’s use of a single-system. Noren says: “From the very start of the Nordic journey, SEB used one single system with adaptations to local realities by using four instances of the system. It took the Nordic competitors a long time to get there.” Some, he says, did not adapt in time.
“The consistency of our sub-custody IT environment has served clients and SEB well, and it has proved to be resilient both in adopting fairly far reaching changes in infrastructure, methodologies and substantial volume increases.”
Future outlook
Gazing into the future, the Nordic market seems to be continuously expanding, specifically focusing on the financial institutions that are sub-custodians.
Noren comments on the company’s goals and focuses on “2024 and beyond”, as the business plans to maintain its involvement in SWIFT, with a significant presence at all organisational levels and across the countries they operate in.
Noren says: “SEB is on an ongoing basis evaluating the composition of its IT framework and is in dialogue with various stakeholders to ensure correct positioning and enable further growth and support for our clients.”
It seems that SEB will continue to evaluate and future-proof its IT infrastructure, and adopt complementary solutions.Over the past couple of decades, countries in the Nordic region have experienced many changes in the asset servicing world.
The region has transformed into a zone of innovation and financial growth, overthrowing the relatively conservative approach towards financial durability and replacing it with a mixed-market capitalist economic system.
Some argue that the economic transformation in the Nordic market has occurred as a result of technological advancements such as cloud-based technology and AI development.
Others comment on the impact of regulatory reforms incorporated into the region’s laws and regulations, particularly following the recessions in Sweden and Finland in the 1990s, as well as the enduring financial distress caused by the 2008 financial crisis.
With all this as a backdrop, how much has the Nordic market actually changed?
Overview of the market
When discussing the ‘Nordic market’, or ‘Scandinavia’, we are collectively referring to Denmark, Finland, Iceland, Norway and Sweden — countries that share a geographical region in Northern Europe.
Originally developed in the 1930s, the Nordic Model is an economic system that blends elements of capitalist and socialist ideologies, such as a society that is both economically efficient, but also values social welfare. Over time, the model has undergone changes to promote equality and overall economic well-being, overcoming the conservative, traditionalist approach to nation-building.
The Nordic Model has its strengths and weaknesses, and, accordingly, has had varied impacts on asset services business’ over the past 20 years.
A number of companies have entered and exited the Nordic Market in this time. Nordea, for example, entered into a referral agreement with Citi in 2021 after making the decision to exit their sub-custody business. Whereas companies such as Skandinaviska Enskilda Banken (SEB) have seen organic growth over the past 25 years, transforming into a dominant sub-custodian in Northern Europe across the seven Nordic markets.
SEB started as a Nordic regional sub-custodian in 1999 and is currently headquartered in Stockholm, Sweden.
The company has entered a period where technology is evolving, “settlement cycles will become compressed, markets will change their operative models by, for example, joining TARGET2-Securities (T2S) and the CSDs will step up their efforts”, comments Ulf Noren, SEB’s sub-custody and relationship sales manager.
Petra Sjögerås, head of the Nordic Region at investment management company Northern Trust, provides further insight into what is shaping the Nordic market.
She states: “The Nordics consist of five different countries, all with their own cultures, languages, pension systems, currencies, regulators and so on. There are a lot of similarities, but in order to be successful you still need to adapt to each of them. Additionally, two of the Nordic countries are not members of the EU, and so have different legislation.”
Regulation and political transformations
The financial crisis and past recessions have historically forced companies to fall into a poor economic state.
Sjögerås comments on the importance of regulations that influence a region’s geopolitics and macroeconomics, and summarises the impact this may have on the asset management industry.
She says: “The need for cost efficiency drives consolidation mainly within the asset management industry. Similar to other regions, the geopolitical and macroeconomic landscape impact everyone and put even more focus on risk management, combined with ongoing reviews in terms of asset allocation strategies and portfolio optimisation — in short providing services to help clients make the most of their assets.
“We take a consultative approach to all of this by reviewing client operating models front-to-back, with the aim of establishing future-proofed operating models from a cost, risk and efficiency perspective, together with high-touch client service, data and system integration that form vital parts of the client solutions we offer today.”
To truly assess the impact of regulations affecting the Nordic market over the last two decades, the recessions of the 1990s must be taken into account. Although some businesses were able to survive and fight their way back to financial stability, others were not able to do so or simply struggled to reposition themselves in the market.
The Nordics are known to be small, open economy countries, and in the past have been highly dependant on international developments such as “policy actions at global level, which they themselves were unable to influence”, as explored in the The Research Institute of the Finnish Economy (ETLA) report, ‘Nordic in Global Crisis, Vulnerability and Resilience.
The ETLA report shows that the 1990s had a particular negative impact on Sweden and Finland as a result of the “high degree of openness [of their economies] and their dependence on export goods, for which the decline in global demand was particularly pronounced”.
However, as a result, Sweden and Finland were able to learn from the recession and apply their new knowledge to the 2008 financial crash.
As stated in the ETLA report: “A second key lesson was that a fixed but adjustable exchange rate, in a world of free capital mobility, is a recipe for disaster. This is why both countries opted for a floating exchange rate at the time, but it is also a main reason why Finland later adopted the euro.”
This knowledge helped guide new policies and reforms, one of which was the change of their monetary unit from the Markka to the Euro in 1999. Euro banknotes and coins were introduced into Finland’s monetary circulation in 2002, prior to which it only existed as ‘book money’ in the country.
These lessons allowed the two Nordic countries to be relatively well prepared for what was to come in 2008.
Their experiences during the banking crisis were considered an important aid to other countries.
Due to this well-preparedness, Sweden and Finland had a strong influence on the way the Nordic countries’ economies ran, having already experienced how a recession could impact their economic systems.
Naturally these broad, macroeconomic shifts, have a more granular impact on the custodian business.
Expectations
Over the course of two decades, it is certain that as businesses evolve, so do their customers’ expectations.
Sjögerås suggests that the role of a custodian has seen significant evolution over the last decade. She comments: “While security and safekeeping of assets remain paramount, our role as a critical component in the operating and data model, especially as investment and regulatory complexity have increased, has seen the Northern Trust role evolve to be more integral across all elements of the operating model in the front, middle and back offices.”
There has been a notable shift in clients’ behaviour and demands over the years, and any challenges have been overcome by the company’s ‘eyes and ears’, according to SEB’s Noren.
He comments: “What we are meeting in the medium-term future are changed operating models by, for example, and the introduction of shorter settlement cycles. The impact of T2S will inevitably also change client behaviour and we need to be prepared for that.”
SEB has a variety of factors that have contributed to their clients’ change in demands, and also note the various number of Account Operator models becoming increasingly in play in the market, which Noren states the company will “need to have a model for, being feasible both for [them] and the cross border client base”.
Getting technical
Technological advancements have played a key role in moving the asset servicing industry forward, as seen in Northern Trusts’ decision to upgrade their cloud-based insurance accounting and analytics applications.
As further commented on by Sjögerås, an example of technological advancement has been seen in Northern Trust’s ability to support their clients evolving needs through their application, Front Office Solutions. She explains that the application allows them to “support all aspects of a client’s portfolio, from public to private assets, in a consolidated view.”
On the platform, Northern Trust offers a Customer Relationship Management (CRM) system for supporting documents needed for investments in this area, which aims to govern and manage the portfolio while supporting different functions such as risk and compliance.
She confirms: “In this area, Northern Trust has been successful in using AI to build efficiency into the service.”
Other companies in the Nordics have adapted to modern systems, such as SEB’s use of a single-system. Noren says: “From the very start of the Nordic journey, SEB used one single system with adaptations to local realities by using four instances of the system. It took the Nordic competitors a long time to get there.” Some, he says, did not adapt in time.
“The consistency of our sub-custody IT environment has served clients and SEB well, and it has proved to be resilient both in adopting fairly far reaching changes in infrastructure, methodologies and substantial volume increases.”
Future outlook
Gazing into the future, the Nordic market seems to be continuously expanding, specifically focusing on the financial institutions that are sub-custodians.
Noren comments on the company’s goals and focuses on “2024 and beyond”, as the business plans to maintain its involvement in SWIFT, with a significant presence at all organisational levels and across the countries they operate in.
Noren says: “SEB is on an ongoing basis evaluating the composition of its IT framework and is in dialogue with various stakeholders to ensure correct positioning and enable further growth and support for our clients.”
It seems that SEB will continue to evaluate and future-proof its IT infrastructure, and adopt complementary solutions.
Despite the challenges faced by the Nordic Model in the last 20 years, events such as the recession and financial crisis have allowed them to learn and guide their economy to what some may say is a more modern and innovative system.
The ongoing changes that have occurred in society have led to Scandinavian countries adapting to the process of altering policies and regulations, becoming what they currently are under the Northern Lights.
Despite the challenges faced by the Nordic Model in the last 20 years, events such as the recession and financial crisis have allowed them to learn and guide their economy to what some may say is a more modern and innovative system.
The ongoing changes that have occurred in society have led to Scandinavian countries adapting to the process of altering policies and regulations, becoming what they currently are under the Northern Lights.
