The Northern Trailblazer
24th July 2019
The Nordics stands as a trailblazer for ESG initiatives and a stalwart when it comes to pension funds. As the back-office is changing globally, what’s happening in the Nordics asset servicing world?
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As part of the ‘operations’ stream at this year’s FundForum in Copenhagen, one panellist explained that in the last 10 years, asset servicing has changed at an “unprecedented pace”.
Though this discussion reflected asset servicing across the board, is this the case for the Nordics too? What challenges does the region face and what opportunities can the region gain through technology, utilisation of data, regulatory compliance and environmental, social and corporate governance (ESG) initiatives?
Culturally, the Nordics is seen by the rest of the world as one of the most forward-thinking regions in terms of sustainable living and general well-being–essentially covering many aspects of the ESG spectrum.
Maybe this is why the Happiness Index indicated Finland as the happiest country in the world in 2018, with Norway, Denmark and Iceland following close behind in the rankings.
To mirror this, the Nordics has always been one of the frontrunners of pushing forward with the ‘E’ aspect of ESG and Nordic financial institutions have made it clear that their investment initiatives are not part of a fad or marketing ploy.
What opportunities can the region gain through its current ESG initiatives and, on another level, what can it gain through the advancement of technology and regulation? What does it still need to consolidate?
Jonas Modigh, head of sales for Securities Services at Handelsbanken, says: “We see it as challenging that we [the Nordics] still have four different central securities depository (CSDs) in the region and we lack consolidation, harmonisation and co-ordination among these CSDs.”
Though he adds: “At the same time, as we experience higher prices which are not coming with any benefits, we still have the same price pressure from clients. The margins in the Nordics are low and the competition is fierce, as it has been for quite some time now.”
Ann Magnusson, head of investor services at SEB, says: “We have been very focused on Denmark. There has been a lot of hard work and issues to deal with.”
Johan Lindberg, managing director of global client coverage for RBC Investor & Treasury Services (I&TS), commented: “In the Nordics, there is the ongoing challenge of consolidation among asset managers and how those changes are managed organisationally.”
“From an asset servicing perspective, we [RBC] will continue to work closely with our clients with solutions such as outsourcing.”
Modigh further indicates that the complexities of the region should be taken into account.
He cites: “We have both TARGET2-Securities (T2S) markets and the non-T2S market, EUR markets and non-EUR markets as well as EU markets and non-EU markets.”
Pensions and fund administration
Magnusson indicates the Nordic pension system is traditionally quite different to other European countries.
She says: “Investment has been concentrated in equities, securities and global assets. The skill set around securities has been quite high in the Nordic region compared to some other countries. An important factor for the strong development of fund business in the Nordics, particularly in Sweden, is due to changes of the pension system in 2000.”
“The state pension has two components; an income pension and a premium pension. The premium pension assets are invested in mutual funds and it’s possible to select which funds to invest in.”
She adds: “When it comes to fund administration, most of the big fund companies have been doing that themselves in-house. If you look at the major bank owned fund companies, they have managed their own fund administration over the years.”
“There are however, some independent providers who offer services similar to some of the global banks, but you still see the majority of fund companies in the Nordic region having those functions in-house.”
The ‘E’ of ESG
ESG seems to be the buzzword across the world at the moment. Arguably, a matter of most prominence right now is the ‘E’ aspect of the initiatives–the environmental—and what the financial industry can actually do about it.
In the last few years, the tide has turned and the growing concern for the planet is beginning to infiltrate into the asset management world, changing attitudes and outlooks, quite radically.
The growing awareness of plastic pollution in our oceans, the rise in global forest fires and water shortages, environmental matters are starting to climb up the ladder of many financial firm’s priorities.
Jonas Modigh, head of sales at Handelsbanken Securities Services, cites: “Our asset management continues to divest from unsustainable sectors and assets under management in fossil free securities is now 44 percent. Handelsbanken Global Equity Research has performed sustainability analysis on over 200 listed companies across the Nordic region and they are assisting small to medium enterprise clients in the sustainability analysis of their own companies.”
Magnusson cites: “There is a lot of interest in sustainability and ESG. At SEB, from a securities services perspective, our current focus has been on helping clients with different types of reporting. I’m convinced there will be further focus and more solutions within this specific field based on clients’ needs and our capabilities.”
Lindberg also affirms that creating a positive social impact to help clients thrive and communities prosper is absolutely integral to everything that RBC I&TS does. He highlights: “As a service provider to the industry, we help our fund managers to monitor what they are communicating to their investors.”
Regulation
The Nordics, like the rest of its European neighbours, lie in a mist of regulatory cloud. There have been regulatory sensitive periods concerning UCITS V, the Alternative Investment Fund Managers Directive (AIFMD) and the second Markets in Financial Instruments Directive (MiFID II), in particular.
Lindberg confirms: “It has been a couple of years since UCITS V came into force. Slowly but surely, we have seen the effect of this; asset management companies and products are being merged and during this process, the option of outsourcing is being considered.”
Modigh says: “I would say that the most up to date challenge is the implementation of The Central Securities Depositories Regulation (CSDR) across the Nordics, where the Nordic CSDs are interpreting the regulation their own way and implementing functionalities in order to be compliant with totally different road maps.”
He adds: “This is causing us to adapt to different functionalities for different markets at different time lines. We do not see much harmonisation from CSDR either but rather leading to more of a protective approach.”
“We also now face the implementation of the Shareholder Rights Directive II, which we see will have an impact on our bank in various areas.”
What’s to come?
As we look towards a brand new decade, what does asset servicing in the Nordics face in the future?
Modigh highlights: “Going forward, we see the potential expansion of T2S across the Nordics, with Finland looking at joining sometime in 2022 or 2023, and the Swedish Central Bank is inviting all stakeholders in the Swedish securities market to a dialogue on the future where T2S is one potential way ahead.”
Magnusson highlights: “SEB have a very ambitious target within both sub and global custody. We have a solid sub-custody offering that we continuously want to develop and grow and we intend to increase our penetration into Nordic financial institutions. We are focused to continue developing strong solutions and exploring how best to structure and use data together with new technology to improve efficiency and ensure that our people provide the best value for money to our clients. Our main focus is still on people; this is still a people’s business that we continue to invest in.”
Though this discussion reflected asset servicing across the board, is this the case for the Nordics too? What challenges does the region face and what opportunities can the region gain through technology, utilisation of data, regulatory compliance and environmental, social and corporate governance (ESG) initiatives?
Culturally, the Nordics is seen by the rest of the world as one of the most forward-thinking regions in terms of sustainable living and general well-being–essentially covering many aspects of the ESG spectrum.
Maybe this is why the Happiness Index indicated Finland as the happiest country in the world in 2018, with Norway, Denmark and Iceland following close behind in the rankings.
To mirror this, the Nordics has always been one of the frontrunners of pushing forward with the ‘E’ aspect of ESG and Nordic financial institutions have made it clear that their investment initiatives are not part of a fad or marketing ploy.
What opportunities can the region gain through its current ESG initiatives and, on another level, what can it gain through the advancement of technology and regulation? What does it still need to consolidate?
Jonas Modigh, head of sales for Securities Services at Handelsbanken, says: “We see it as challenging that we [the Nordics] still have four different central securities depository (CSDs) in the region and we lack consolidation, harmonisation and co-ordination among these CSDs.”
Though he adds: “At the same time, as we experience higher prices which are not coming with any benefits, we still have the same price pressure from clients. The margins in the Nordics are low and the competition is fierce, as it has been for quite some time now.”
Ann Magnusson, head of investor services at SEB, says: “We have been very focused on Denmark. There has been a lot of hard work and issues to deal with.”
Johan Lindberg, managing director of global client coverage for RBC Investor & Treasury Services (I&TS), commented: “In the Nordics, there is the ongoing challenge of consolidation among asset managers and how those changes are managed organisationally.”
“From an asset servicing perspective, we [RBC] will continue to work closely with our clients with solutions such as outsourcing.”
Modigh further indicates that the complexities of the region should be taken into account.
He cites: “We have both TARGET2-Securities (T2S) markets and the non-T2S market, EUR markets and non-EUR markets as well as EU markets and non-EU markets.”
Pensions and fund administration
Magnusson indicates the Nordic pension system is traditionally quite different to other European countries.
She says: “Investment has been concentrated in equities, securities and global assets. The skill set around securities has been quite high in the Nordic region compared to some other countries. An important factor for the strong development of fund business in the Nordics, particularly in Sweden, is due to changes of the pension system in 2000.”
“The state pension has two components; an income pension and a premium pension. The premium pension assets are invested in mutual funds and it’s possible to select which funds to invest in.”
She adds: “When it comes to fund administration, most of the big fund companies have been doing that themselves in-house. If you look at the major bank owned fund companies, they have managed their own fund administration over the years.”
“There are however, some independent providers who offer services similar to some of the global banks, but you still see the majority of fund companies in the Nordic region having those functions in-house.”
The ‘E’ of ESG
ESG seems to be the buzzword across the world at the moment. Arguably, a matter of most prominence right now is the ‘E’ aspect of the initiatives–the environmental—and what the financial industry can actually do about it.
In the last few years, the tide has turned and the growing concern for the planet is beginning to infiltrate into the asset management world, changing attitudes and outlooks, quite radically.
The growing awareness of plastic pollution in our oceans, the rise in global forest fires and water shortages, environmental matters are starting to climb up the ladder of many financial firm’s priorities.
Jonas Modigh, head of sales at Handelsbanken Securities Services, cites: “Our asset management continues to divest from unsustainable sectors and assets under management in fossil free securities is now 44 percent. Handelsbanken Global Equity Research has performed sustainability analysis on over 200 listed companies across the Nordic region and they are assisting small to medium enterprise clients in the sustainability analysis of their own companies.”
Magnusson cites: “There is a lot of interest in sustainability and ESG. At SEB, from a securities services perspective, our current focus has been on helping clients with different types of reporting. I’m convinced there will be further focus and more solutions within this specific field based on clients’ needs and our capabilities.”
Lindberg also affirms that creating a positive social impact to help clients thrive and communities prosper is absolutely integral to everything that RBC I&TS does. He highlights: “As a service provider to the industry, we help our fund managers to monitor what they are communicating to their investors.”
Regulation
The Nordics, like the rest of its European neighbours, lie in a mist of regulatory cloud. There have been regulatory sensitive periods concerning UCITS V, the Alternative Investment Fund Managers Directive (AIFMD) and the second Markets in Financial Instruments Directive (MiFID II), in particular.
Lindberg confirms: “It has been a couple of years since UCITS V came into force. Slowly but surely, we have seen the effect of this; asset management companies and products are being merged and during this process, the option of outsourcing is being considered.”
Modigh says: “I would say that the most up to date challenge is the implementation of The Central Securities Depositories Regulation (CSDR) across the Nordics, where the Nordic CSDs are interpreting the regulation their own way and implementing functionalities in order to be compliant with totally different road maps.”
He adds: “This is causing us to adapt to different functionalities for different markets at different time lines. We do not see much harmonisation from CSDR either but rather leading to more of a protective approach.”
“We also now face the implementation of the Shareholder Rights Directive II, which we see will have an impact on our bank in various areas.”
What’s to come?
As we look towards a brand new decade, what does asset servicing in the Nordics face in the future?
Modigh highlights: “Going forward, we see the potential expansion of T2S across the Nordics, with Finland looking at joining sometime in 2022 or 2023, and the Swedish Central Bank is inviting all stakeholders in the Swedish securities market to a dialogue on the future where T2S is one potential way ahead.”
Magnusson highlights: “SEB have a very ambitious target within both sub and global custody. We have a solid sub-custody offering that we continuously want to develop and grow and we intend to increase our penetration into Nordic financial institutions. We are focused to continue developing strong solutions and exploring how best to structure and use data together with new technology to improve efficiency and ensure that our people provide the best value for money to our clients. Our main focus is still on people; this is still a people’s business that we continue to invest in.”
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