Positively planning
16 March 2016
Delegates at the ALFI Spring Conference were feeling good about blockchain, responsibility and even regulation—although speakers had some warnings, too
Image: Shutterstock
The Association of the Luxembourg Funds Industry (ALFI) Spring Conference 2016 was brimming over with optimism about the future, with speakers embracing disruptive technologies, raving about responsible investment, and even welcoming UCITS V
with a smile.
In one panel discussion, experts argued that disruption should be a driver for innovation in financial institutions, with Lyron Wahrmann, panel moderator and head of the Citi Markets Innovation Lab at CitiGroup in Tel Aviv, pointing out that the “pace of change and disruption has been dramatically increasing”.
While Olivier Renault of Societe Generale Securities Services said that banks’ “current model is under attack”, with business models changing piece by piece, another speaker, Furio Pietribiasi of Mediolanum Asset Management, argued: “We must be optimistic.”
Pietribiasi added that the industry is aware of the technology changes that have to be made, but suggested that instead, “the biggest issue we have in our industry is a culture change”, and that success is no longer achieved by simply defining a strategy and sticking to it.
Wahrmann pointed out that expectations are changing, both from banks’ customers and their employees, and that they now expect mobile solutions. Citing driverless cars as an example, he suggested that with the ‘internet of things’, anything can be a computer. Pietribiasi responded to this by suggesting that such dramatic innovation requires massive changes to infrastructure—for example, a driverless car will not work if the roads are not yet mapped, he said.
Real mobility, he argued, is not necessarily achieved through accessing data through “funky” dashboards or apps, but through adapting that data to create more meaningful information, which is much more challenging.
Renault added to this, pointing out that a lot of the data currently available is not ‘clean’, and that too many intermediaries can render any data effectively unusable. He said: “That is why new entrants have a great advantage.”
With regards to big data, however, Pietribiasi reiterated his optimism, suggesting that the industry is in good stead.
Partly, this is because banks tend to have good margins, meaning they have the finances available to restructure their systems, but it is also related to the fact that there is a better awareness of big data now, with banks no longer “hiding behind regulation” or making excuses not to invest in it.
He added that market disruption, both in the areas of big data and blockchain, would be positive, and could be the push that institutions need to get their own projects off the ground.
“We’ve been talking a lot about this but we need to see more successes,” Pietribiasi said.
Renault added that innovation is “a journey” and “something we need to embrace”, and that institutions could learn a lot from startups. He suggested that by working with startups either through investment, through purchasing and integrating new technology or through participating in initiatives, institutions could avoid being left behind in the future.
One such technology that is never far from the limelight is blockchain—and, generally speaking, it is a welcome development. Justin Morgan-Harwood of Fidelity Investments suggested that blockchain could affect the entire post-trade value chain including transfer agency, custody, central securities depositories and depository services, as well as having the ability to transfer value through payments, clearing and settlement.
Morgan-Harwood expressed some excitement over the potential, saying it’s “not often you get to totally re-engineer a process”, while Olivier Portenseigne of Fundsquare said there are “definitely” benefits for asset managers.
Another panellist, Philippe Denis of BNP Paribas Securities Services, added that the full operations of securities services could be affected and that, rather than considering blockchain as additional to the value chain, it should be thought of as a whole new value chain.
Several speakers cited the transparency allowed by the technology, suggesting that this could lend itself to technology for regulatory compliance, or ‘reg tech’.
Portenseigne added that blockchain aligns with the industry agenda of creating better transparency, reducing risk and reducing costs, adding that it allows service providers to begin “really designing products for investors”.
Morgan-Harwood echoed this sentiment, pointing out that the industry is customer-based, while suggesting “we have to do things faster, cheaper, more transparently”, in order to create a better customer experience.
While the general message was positive, panellists also warned that the industry must adopt standards for blockchain in terms of semantics, messaging and processing in order to make it work at all, let alone to glean any value from it.
The panel also agreed that the industry must work together on the technology, with Portenseigne stressing: “Collaboration will be key”, while Laurent Kratz of Scorechain warned: “Don’t let others innovate for you.”
Moving away from technology, another panel focused on the increasing prominence of responsible investment and environmental, social and governance (ESG) factors in the funds industry, as speakers suggested that ignorance of this could be perilous.
Panel moderator Jane Wilkinson, a partner at KPMG Luxembourg, suggested that in the future, ‘millenial’ investors will be looking for tailored responsible investment products, simple platforms, and good branding, as well as simplicity, flexibility and transparency in their investments.
She added that responsible investment funds are “well positioned to seize these opportunities”.
Louise Hedberg, head of corporate governance at the Swedish East Capital International, said that companies that are well managed in every sense are those more likely to achieve long-term results. Although responsible investment may pose a risk, such firms will be better placed to mitigate these risks while capturing the opportunities.
By actively engaging with the emerging and frontier market companies that it invests in, East Capital International can help them to integrate ESG factors and understand where they “can influence valuation over time”.
The panel also discussed the recent decision of Morning Star and MSCI to rate investment funds for sustainability.
Hedberg called this “a good start” and a step toward helping investors and retail clients understand what they’re getting from responsible investment. She said: “It will certainly help to at least illustrate what actually comes out of responsible investment strategies.”
Another panellist, Philippe Zaouati, CEO of Mirova in Paris, also called this a “very important move” that will help to promote ESG funds in the market. But he also expressed concern over the use of only one data provider.
Zaouati added that there are significant differences in the ways that data providers and rating agencies come to a rating conclusion, suggesting that this “could create some strange results”.
The panel concluded with Hedberg stressing that management firms are typically aware of the risks involved, but should start to focus on the opportunities, too.
Zaouati expects responsible investment to be a success, as it is in line with conventional society and the demands of millennials. He added that it is important to create a convergence between the fund industry and the way that society is moving forward, advising attendees that it is a case of “investing in the world we would like to happen, not the world we have today”.
The attention of ALFI delegates was eventually bought back to the ever-present topic of regulation, with a panel dedicated to the UCITS V regulation, which comes into force on 18 March. However, the mood remained positive, with a panel suggesting that banks are generally welcoming, and in some cases exceeding, requirements for the regulatory update.
From a depository bank’s point of view, Jean-Marc Crépin, a partner at Brown Brothers Harriman, said: “UCITS V has led to an improvement of the operational risk framework that a depository bank has.”
Although banks complained about the changes, he said, they understand the reasons for the regulations, and welcome industry standards that protect investors.
He also pointed to some parts of the regulation, such as cash flow monitoring, saying that although they’re new in a regulatory sense, banks already had these processes in place. These original processes may have required some adapting, but the changes didn’t require too much effort.
With regards to client onboarding rules under UCITS V, Judith Robinson, managing counsel at BNY Mellon, highlighted the importance of exercising due diligence and working in partnership with the client.
She said that procedures should be in place to understand what the client wants from the investment, to identify market coverage and investment strategies, thereby ensuring that a bank can provide the service the client requires. She stressed that the process is “a dialogue with the client”.
Crépin agreed that the relationship between clients and depository banks should be a partnership, specifying that relationship managers are “the first line of defence”, and an important part of the bank’s culture.
He added that regulations are not necessarily set in stone, suggesting that institutions should take into account the ‘spirit of regulation’, going above and beyond the specific requirements, if they deem it necessary in order to protect the client.
“It’s a more collaborative, transparent process now,” said Robinson, adding that it is also much clearer where the assets of a fund actually are. Although some aspects of UCITS V still need to be smoothed out, such as the rules around collateral management, she said the regulation is generally a positive thing.
Moderator Marc-André Bechet, director for tax and legal at ALFI, concluded with a simple warning ahead of the impending UCITS V implementation. Bechet told attendees: “Be ready on time.”
with a smile.
In one panel discussion, experts argued that disruption should be a driver for innovation in financial institutions, with Lyron Wahrmann, panel moderator and head of the Citi Markets Innovation Lab at CitiGroup in Tel Aviv, pointing out that the “pace of change and disruption has been dramatically increasing”.
While Olivier Renault of Societe Generale Securities Services said that banks’ “current model is under attack”, with business models changing piece by piece, another speaker, Furio Pietribiasi of Mediolanum Asset Management, argued: “We must be optimistic.”
Pietribiasi added that the industry is aware of the technology changes that have to be made, but suggested that instead, “the biggest issue we have in our industry is a culture change”, and that success is no longer achieved by simply defining a strategy and sticking to it.
Wahrmann pointed out that expectations are changing, both from banks’ customers and their employees, and that they now expect mobile solutions. Citing driverless cars as an example, he suggested that with the ‘internet of things’, anything can be a computer. Pietribiasi responded to this by suggesting that such dramatic innovation requires massive changes to infrastructure—for example, a driverless car will not work if the roads are not yet mapped, he said.
Real mobility, he argued, is not necessarily achieved through accessing data through “funky” dashboards or apps, but through adapting that data to create more meaningful information, which is much more challenging.
Renault added to this, pointing out that a lot of the data currently available is not ‘clean’, and that too many intermediaries can render any data effectively unusable. He said: “That is why new entrants have a great advantage.”
With regards to big data, however, Pietribiasi reiterated his optimism, suggesting that the industry is in good stead.
Partly, this is because banks tend to have good margins, meaning they have the finances available to restructure their systems, but it is also related to the fact that there is a better awareness of big data now, with banks no longer “hiding behind regulation” or making excuses not to invest in it.
He added that market disruption, both in the areas of big data and blockchain, would be positive, and could be the push that institutions need to get their own projects off the ground.
“We’ve been talking a lot about this but we need to see more successes,” Pietribiasi said.
Renault added that innovation is “a journey” and “something we need to embrace”, and that institutions could learn a lot from startups. He suggested that by working with startups either through investment, through purchasing and integrating new technology or through participating in initiatives, institutions could avoid being left behind in the future.
One such technology that is never far from the limelight is blockchain—and, generally speaking, it is a welcome development. Justin Morgan-Harwood of Fidelity Investments suggested that blockchain could affect the entire post-trade value chain including transfer agency, custody, central securities depositories and depository services, as well as having the ability to transfer value through payments, clearing and settlement.
Morgan-Harwood expressed some excitement over the potential, saying it’s “not often you get to totally re-engineer a process”, while Olivier Portenseigne of Fundsquare said there are “definitely” benefits for asset managers.
Another panellist, Philippe Denis of BNP Paribas Securities Services, added that the full operations of securities services could be affected and that, rather than considering blockchain as additional to the value chain, it should be thought of as a whole new value chain.
Several speakers cited the transparency allowed by the technology, suggesting that this could lend itself to technology for regulatory compliance, or ‘reg tech’.
Portenseigne added that blockchain aligns with the industry agenda of creating better transparency, reducing risk and reducing costs, adding that it allows service providers to begin “really designing products for investors”.
Morgan-Harwood echoed this sentiment, pointing out that the industry is customer-based, while suggesting “we have to do things faster, cheaper, more transparently”, in order to create a better customer experience.
While the general message was positive, panellists also warned that the industry must adopt standards for blockchain in terms of semantics, messaging and processing in order to make it work at all, let alone to glean any value from it.
The panel also agreed that the industry must work together on the technology, with Portenseigne stressing: “Collaboration will be key”, while Laurent Kratz of Scorechain warned: “Don’t let others innovate for you.”
Moving away from technology, another panel focused on the increasing prominence of responsible investment and environmental, social and governance (ESG) factors in the funds industry, as speakers suggested that ignorance of this could be perilous.
Panel moderator Jane Wilkinson, a partner at KPMG Luxembourg, suggested that in the future, ‘millenial’ investors will be looking for tailored responsible investment products, simple platforms, and good branding, as well as simplicity, flexibility and transparency in their investments.
She added that responsible investment funds are “well positioned to seize these opportunities”.
Louise Hedberg, head of corporate governance at the Swedish East Capital International, said that companies that are well managed in every sense are those more likely to achieve long-term results. Although responsible investment may pose a risk, such firms will be better placed to mitigate these risks while capturing the opportunities.
By actively engaging with the emerging and frontier market companies that it invests in, East Capital International can help them to integrate ESG factors and understand where they “can influence valuation over time”.
The panel also discussed the recent decision of Morning Star and MSCI to rate investment funds for sustainability.
Hedberg called this “a good start” and a step toward helping investors and retail clients understand what they’re getting from responsible investment. She said: “It will certainly help to at least illustrate what actually comes out of responsible investment strategies.”
Another panellist, Philippe Zaouati, CEO of Mirova in Paris, also called this a “very important move” that will help to promote ESG funds in the market. But he also expressed concern over the use of only one data provider.
Zaouati added that there are significant differences in the ways that data providers and rating agencies come to a rating conclusion, suggesting that this “could create some strange results”.
The panel concluded with Hedberg stressing that management firms are typically aware of the risks involved, but should start to focus on the opportunities, too.
Zaouati expects responsible investment to be a success, as it is in line with conventional society and the demands of millennials. He added that it is important to create a convergence between the fund industry and the way that society is moving forward, advising attendees that it is a case of “investing in the world we would like to happen, not the world we have today”.
The attention of ALFI delegates was eventually bought back to the ever-present topic of regulation, with a panel dedicated to the UCITS V regulation, which comes into force on 18 March. However, the mood remained positive, with a panel suggesting that banks are generally welcoming, and in some cases exceeding, requirements for the regulatory update.
From a depository bank’s point of view, Jean-Marc Crépin, a partner at Brown Brothers Harriman, said: “UCITS V has led to an improvement of the operational risk framework that a depository bank has.”
Although banks complained about the changes, he said, they understand the reasons for the regulations, and welcome industry standards that protect investors.
He also pointed to some parts of the regulation, such as cash flow monitoring, saying that although they’re new in a regulatory sense, banks already had these processes in place. These original processes may have required some adapting, but the changes didn’t require too much effort.
With regards to client onboarding rules under UCITS V, Judith Robinson, managing counsel at BNY Mellon, highlighted the importance of exercising due diligence and working in partnership with the client.
She said that procedures should be in place to understand what the client wants from the investment, to identify market coverage and investment strategies, thereby ensuring that a bank can provide the service the client requires. She stressed that the process is “a dialogue with the client”.
Crépin agreed that the relationship between clients and depository banks should be a partnership, specifying that relationship managers are “the first line of defence”, and an important part of the bank’s culture.
He added that regulations are not necessarily set in stone, suggesting that institutions should take into account the ‘spirit of regulation’, going above and beyond the specific requirements, if they deem it necessary in order to protect the client.
“It’s a more collaborative, transparent process now,” said Robinson, adding that it is also much clearer where the assets of a fund actually are. Although some aspects of UCITS V still need to be smoothed out, such as the rules around collateral management, she said the regulation is generally a positive thing.
Moderator Marc-André Bechet, director for tax and legal at ALFI, concluded with a simple warning ahead of the impending UCITS V implementation. Bechet told attendees: “Be ready on time.”
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