The road ahead
05 Jan 2022
The asset servicing industry shares its predictions for 2022 and what obstacles and opportunities may lie in wait down the track
Image: sergey_nivens/stock.adobe.com
It is no understatement to say the last two years have changed the world completely; since March 2020, life has certainly not been the same. 2021 found us stopping and starting with everyday life and business, between lockdowns and the emergence of new COVID-19 variants. The new COVID-19 variant of Omicron may be a force to be reckoned with in the early months of 2022, and others may unfortunately develop as the year goes on. But as Monty Python’s Eric Idle once said (or sang), let us look on the “bright side”.
Looking on that side of life, industry heavyweight J.P. Morgan predicted that 2022 will be the year of full global economic recovery from COVID-19, while Microsoft mogul Bill Gates envisioned 2022 to be the end of the “acute” phase of the global pandemic.
Industry experts share with Asset Servicing Times why they remain aware of — and prepared for — the uncertainties that may still lie down the road amid the ongoing uncertainty. But beyond this, they also discuss the impending Central Securities Depositories Regulation (CSDR), the ever-widening appeal and necessity of environmental, social and corporate governance (ESG), the challenges and opportunities that lie in digital assets, and why it is imperative to invest in people, not just technology this year.
Facing the first hurdle
The first point of call for the market next month will of course be the implementation of cash penalties under the CSDR and their allocations, which are, at time of writing, still set to come into force on 22 February.
As has been well-documented, the postponement of the CSDR’s mandatory buy-in rules were announced by the European Commission on 25 November 2021, but despite that delay, this is no time for market participants to sit on their laurels.
“The mandatory buy-in rules deferral may reduce the current workload, but there is still work to be done before 22 February, and the larger problem has not gone away,” says Neil Sheppard, global head of business development for transaction lifecycle management corporate actions at SmartStream.
The mandatory buy-in postponement was almost a forgone conclusion by Q3 2021, with many industry participants confident that by that point, the European Commission would have no choice but to postpone them. However, the penalties framework is still going ahead in its current form and may be more of a wait-and-see game, to which no one yet has a crystal ball for.
As Karan Kapoor, head of regulatory solutions and regtech at Delta Capita, outlines: “The penalties framework was the far less contentious cousin of the now infamous mandatory buy-in regime. All in all, the market will need to wait to see what happens when the penalty rule goes live in 2022. Yet to be seen is whether efforts around settlement efficiency have been enough.”
Down the track
The pandemic has been a long road for many of us, both personally and professionally, but although it is beyond clear that COVID-19 will not leave us overnight, 2022 may be the first year that it begins to topple off the headlines, particularly for the financial industry.
“We expect that the next year will present continued challenges associated with the pandemic; it is reasonable to assume there will be more bumps in the road,” says Andrew Lelliott, managing director of fund administration and financial investments at Link Group. “The good news is that many of the industries hit hardest came through the difficulties of 2020/21, with almost all economies in the most developed countries open for business.”
The difficulties of 2020 and 2021 profoundly changed the way we work — in the financial industry in particular, technology was already evolving at a rapid pace, though there was widespread criticism that, broadly speaking, it was not moving fast enough before the pandemic hit — whether that meant removing legacy systems from post-trade, or moving data management toward the cloud.
But, of course, the need for speed was hastened through the necessary logistics that the pandemic demanded. Through the ongoing turbulence of 2021 most adapted to a hybrid way of working that first started in 2020, and will no doubt be the way of the future.
SmartStream’s Sheppard voices: “With the actual awful COVID-19 virus itself aside, quite honestly [2021 will be remembered for] how we have seen a major ‘reset’ of the life-work balance, how productivity increased, how flexibility around working hours and locations is now part of the standard working week.”
Beyond the landscape
The collective adaptation needed to work from home over the last two years, advanced into a collective effort to update or streamline other technological areas of asset servicing and did much to accelerate the use of cloud and data technologies, in particular, to a degree that may have not been seen if it had not been for the pandemic.
“Asset servicing is becoming a distinct differentiator,” says Thilo Derenbach, head of European custody product at Clearstream.
“Digital workflows and use of data capabilities will become even more important to improve client experience, allowing for further scalability of the service and to counter continuing margin compression in asset servicing.”
The necessary logistics the pandemic brought with it filtered down the asset servicing streams to vendors, asset managers and custodians.
The industry change is highlighted from post-trade to payments in which the removal of many barriers and sticking points that had been apparent and stubborn to move in the years prior, have since rapidly moved aside, or are at least, on their way out.
From the vendor’s perspective, Brian Collings, CEO of Torstone Technology, indicates: “The markets are constantly moving towards performance and efficiency that cannot be achieved via siloed, legacy post-trade systems.”
“There are banks still struggling when they do not need to, and we are looking forward to helping them win new business.”
From his side of the market, Ronan Doyle, global head of product management, transfer agency at RBC I&TS, says: “We expect to see further consolidation activity as asset managers review their operating models to achieve greater scalability and efficiency both regionally and globally.”
Such major operating models always come back to the quality of data, or the pace at which technology can provide data for both the investor and investment manager. Providing better and faster access to data in such a historically volatile time is crucial to stability of the market in the year ahead.
What’s that up ahead?
The emergence of digital assets and other cryptocurrencies came into their own in 2021 and added a new dimension to the understanding of tokenisation with businesses creating various avenues for investors.
In the closing months of last year, SEBA Bank launched its gold token, a regulated digital token for investment in and delivery of physical gold on-demand, while Genesis Custody Limited and Fidelity Digital Assets were both granted official registration status for cryptoasset activities by the UK Financial Conduct Authority (FCA). Though it is widely understood that while digital assets are a market evolution, the new (and to a degree) unregulated asset type may cause problems down the line. This became apparent last September when FCA chair Charles Randell published a speech on the risks of token regulation, which even highlighted concerns around TV stars like Kim Kardashian promoting crypto assets on social media.
Kardashian had recently been paid to ask her 250 million Instagram followers to speculate on crypto tokens by “joining the Ethereum Max Community”, which Randell said may have been the financial promotion with the single biggest audience reach in history.
According to the FCA chair, this momentum toward crypto could be of particular concern to investors and the financial market as there are “not always assets or real-world cash flows underpinning the price of speculative digital tokens, even the better-known ones like Bitcoin, and many cannot even boast a scarcity value”.
Link Group’s Lelliott expands on Randell’s concern over digital assets, which he says “[poses] challenges for the asset servicing industry”, in particular.
He adds: “Crypto investments tend to be more loosely regulated and riskier. The industry needs to ensure its clients and investors fully understand these risks and what they are investing in, as well as the regulatory requirements that come with these products.”
On the horizon
No matter the outcomes of future COVID-19 variants, or what the digital asset space might achieve or hinder in 2022, one thing is certain: ESG will continue to be not just a big talking point for the industry, but a cause for widespread industry action in 2022.
On this point, Peter Hughes, CEO of Apex, highlights: “It is encouraging to see that our sector continues to be characterised by a very strong growth, supporting ESG’s rise to prominence as an enduring reality for investors, not just a passing phase.”
Perhaps one of 2021’s most memorable phrases will be that of: “build back better” — an expression that has been used by leaders on both sides of the Atlantic, for the post-pandemic world, underlining a new awareness of climate risk, as well as a collective need to change behaviours and lessen carbon footprints in 2022.
To a degree, ??the pandemic helped those already engaged in environmental action captivate others to be aware of the environmental crisis, and this was also markedly felt in asset servicing.
“People are thinking more sustainably as remote working and digital communication means less travel, fewer paper communications and more efficient processing, all of which has a positive environmental benefit and reduces costs in our industry,” says Link Group’s Lelliott.
Though he adds: “It is both a challenge and an opportunity for the industry to help people invest in responsible companies with clarity and confidence.”
While there are those that are investing in the financial markets, there are those that are leaving it, with the pandemic acting as a catalyst for a career change. In the US, the trend is becoming known as the “Great Resignation”, a phenomenon where employees, particularly the under 40s, are leaving their jobs en masse, with Forbes predicting a “post-pandemic resignation boom”.
Expanding on this and what the asset servicing industry may be able to do about it, Apex’s Hughes voices: “Investment in technology must be paired with investment in people in order to support further growth of asset servicing businesses and to guarantee excellent client service delivery.”
Hughes concludes: “The talent market remains as competitive as ever and we remain excited to find, train and retain the best talents, combining their local expertise with our global reach and resources.”
Looking on that side of life, industry heavyweight J.P. Morgan predicted that 2022 will be the year of full global economic recovery from COVID-19, while Microsoft mogul Bill Gates envisioned 2022 to be the end of the “acute” phase of the global pandemic.
Industry experts share with Asset Servicing Times why they remain aware of — and prepared for — the uncertainties that may still lie down the road amid the ongoing uncertainty. But beyond this, they also discuss the impending Central Securities Depositories Regulation (CSDR), the ever-widening appeal and necessity of environmental, social and corporate governance (ESG), the challenges and opportunities that lie in digital assets, and why it is imperative to invest in people, not just technology this year.
Facing the first hurdle
The first point of call for the market next month will of course be the implementation of cash penalties under the CSDR and their allocations, which are, at time of writing, still set to come into force on 22 February.
As has been well-documented, the postponement of the CSDR’s mandatory buy-in rules were announced by the European Commission on 25 November 2021, but despite that delay, this is no time for market participants to sit on their laurels.
“The mandatory buy-in rules deferral may reduce the current workload, but there is still work to be done before 22 February, and the larger problem has not gone away,” says Neil Sheppard, global head of business development for transaction lifecycle management corporate actions at SmartStream.
The mandatory buy-in postponement was almost a forgone conclusion by Q3 2021, with many industry participants confident that by that point, the European Commission would have no choice but to postpone them. However, the penalties framework is still going ahead in its current form and may be more of a wait-and-see game, to which no one yet has a crystal ball for.
As Karan Kapoor, head of regulatory solutions and regtech at Delta Capita, outlines: “The penalties framework was the far less contentious cousin of the now infamous mandatory buy-in regime. All in all, the market will need to wait to see what happens when the penalty rule goes live in 2022. Yet to be seen is whether efforts around settlement efficiency have been enough.”
Down the track
The pandemic has been a long road for many of us, both personally and professionally, but although it is beyond clear that COVID-19 will not leave us overnight, 2022 may be the first year that it begins to topple off the headlines, particularly for the financial industry.
“We expect that the next year will present continued challenges associated with the pandemic; it is reasonable to assume there will be more bumps in the road,” says Andrew Lelliott, managing director of fund administration and financial investments at Link Group. “The good news is that many of the industries hit hardest came through the difficulties of 2020/21, with almost all economies in the most developed countries open for business.”
The difficulties of 2020 and 2021 profoundly changed the way we work — in the financial industry in particular, technology was already evolving at a rapid pace, though there was widespread criticism that, broadly speaking, it was not moving fast enough before the pandemic hit — whether that meant removing legacy systems from post-trade, or moving data management toward the cloud.
But, of course, the need for speed was hastened through the necessary logistics that the pandemic demanded. Through the ongoing turbulence of 2021 most adapted to a hybrid way of working that first started in 2020, and will no doubt be the way of the future.
SmartStream’s Sheppard voices: “With the actual awful COVID-19 virus itself aside, quite honestly [2021 will be remembered for] how we have seen a major ‘reset’ of the life-work balance, how productivity increased, how flexibility around working hours and locations is now part of the standard working week.”
Beyond the landscape
The collective adaptation needed to work from home over the last two years, advanced into a collective effort to update or streamline other technological areas of asset servicing and did much to accelerate the use of cloud and data technologies, in particular, to a degree that may have not been seen if it had not been for the pandemic.
“Asset servicing is becoming a distinct differentiator,” says Thilo Derenbach, head of European custody product at Clearstream.
“Digital workflows and use of data capabilities will become even more important to improve client experience, allowing for further scalability of the service and to counter continuing margin compression in asset servicing.”
The necessary logistics the pandemic brought with it filtered down the asset servicing streams to vendors, asset managers and custodians.
The industry change is highlighted from post-trade to payments in which the removal of many barriers and sticking points that had been apparent and stubborn to move in the years prior, have since rapidly moved aside, or are at least, on their way out.
From the vendor’s perspective, Brian Collings, CEO of Torstone Technology, indicates: “The markets are constantly moving towards performance and efficiency that cannot be achieved via siloed, legacy post-trade systems.”
“There are banks still struggling when they do not need to, and we are looking forward to helping them win new business.”
From his side of the market, Ronan Doyle, global head of product management, transfer agency at RBC I&TS, says: “We expect to see further consolidation activity as asset managers review their operating models to achieve greater scalability and efficiency both regionally and globally.”
Such major operating models always come back to the quality of data, or the pace at which technology can provide data for both the investor and investment manager. Providing better and faster access to data in such a historically volatile time is crucial to stability of the market in the year ahead.
What’s that up ahead?
The emergence of digital assets and other cryptocurrencies came into their own in 2021 and added a new dimension to the understanding of tokenisation with businesses creating various avenues for investors.
In the closing months of last year, SEBA Bank launched its gold token, a regulated digital token for investment in and delivery of physical gold on-demand, while Genesis Custody Limited and Fidelity Digital Assets were both granted official registration status for cryptoasset activities by the UK Financial Conduct Authority (FCA). Though it is widely understood that while digital assets are a market evolution, the new (and to a degree) unregulated asset type may cause problems down the line. This became apparent last September when FCA chair Charles Randell published a speech on the risks of token regulation, which even highlighted concerns around TV stars like Kim Kardashian promoting crypto assets on social media.
Kardashian had recently been paid to ask her 250 million Instagram followers to speculate on crypto tokens by “joining the Ethereum Max Community”, which Randell said may have been the financial promotion with the single biggest audience reach in history.
According to the FCA chair, this momentum toward crypto could be of particular concern to investors and the financial market as there are “not always assets or real-world cash flows underpinning the price of speculative digital tokens, even the better-known ones like Bitcoin, and many cannot even boast a scarcity value”.
Link Group’s Lelliott expands on Randell’s concern over digital assets, which he says “[poses] challenges for the asset servicing industry”, in particular.
He adds: “Crypto investments tend to be more loosely regulated and riskier. The industry needs to ensure its clients and investors fully understand these risks and what they are investing in, as well as the regulatory requirements that come with these products.”
On the horizon
No matter the outcomes of future COVID-19 variants, or what the digital asset space might achieve or hinder in 2022, one thing is certain: ESG will continue to be not just a big talking point for the industry, but a cause for widespread industry action in 2022.
On this point, Peter Hughes, CEO of Apex, highlights: “It is encouraging to see that our sector continues to be characterised by a very strong growth, supporting ESG’s rise to prominence as an enduring reality for investors, not just a passing phase.”
Perhaps one of 2021’s most memorable phrases will be that of: “build back better” — an expression that has been used by leaders on both sides of the Atlantic, for the post-pandemic world, underlining a new awareness of climate risk, as well as a collective need to change behaviours and lessen carbon footprints in 2022.
To a degree, ??the pandemic helped those already engaged in environmental action captivate others to be aware of the environmental crisis, and this was also markedly felt in asset servicing.
“People are thinking more sustainably as remote working and digital communication means less travel, fewer paper communications and more efficient processing, all of which has a positive environmental benefit and reduces costs in our industry,” says Link Group’s Lelliott.
Though he adds: “It is both a challenge and an opportunity for the industry to help people invest in responsible companies with clarity and confidence.”
While there are those that are investing in the financial markets, there are those that are leaving it, with the pandemic acting as a catalyst for a career change. In the US, the trend is becoming known as the “Great Resignation”, a phenomenon where employees, particularly the under 40s, are leaving their jobs en masse, with Forbes predicting a “post-pandemic resignation boom”.
Expanding on this and what the asset servicing industry may be able to do about it, Apex’s Hughes voices: “Investment in technology must be paired with investment in people in order to support further growth of asset servicing businesses and to guarantee excellent client service delivery.”
Hughes concludes: “The talent market remains as competitive as ever and we remain excited to find, train and retain the best talents, combining their local expertise with our global reach and resources.”
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