Global Custodian: Please give an overview of some of the key trends you see impacting the industry today
James Green: ESG [environment, social, governance] is becoming increasingly important in asset management yet it brings with it a number of challenges. Firstly, measuring ESG or determining ESG criteria is not just a quantitative process but highly qualitative too, which is not always straightforward. In addition, there are a plethora of different voluntary ESG standards, which creates yet further complexity for investors and asset managers.
Elsewhere, we are seeing growing appetite for digital assets – which include instruments such as crypto-currencies, security tokens and StableCoins. Although some of these crypto-assets are highly volatile, have limited liquidity, and pose significant risks, I believe they are here to stay. One of the primary responsibilities and roles of the depositary therefore is to ensure that there is proper oversight of the funds participating in these new asset classes, so that investors are protected.
GC: What role do you think data plays in the supplier-customer relationship?
JG: Without any structure, data is meaningless. If data is to become a valuable commodity to clients, then it needs to be refined and synthesised. Collecting data is a difficult process, but one of our defining roles as a depositary is to gather as much data as possible and turn it into valuable information. As such, we will receive, collect, and cleanse data from a diverse range of sources including fund accountants, custodians and so forth, and then turn it into useful information for clients. We will also make sure that the data being shared with clients is both of high quality and accurate.
GC: What are your current business priorities?
JG: In addition to digitalising a number of our core processes, NatWest Trustee and Depositary Services is looking to prioritise fund governance. This is an area we are focusing on – especially with the resounding growth of ESG investing. As part of our role in upholding ESG standards, we will review fund prospectuses to ensure that they are accurate and monitor underlying investments to validate that there are no mandate breaches or violations of voluntary or mandatory standards. Our systems are designed to flag any breaches automatically. Furthermore, our systems are also highly sophisticated and are trained to spot very subtle violations in managers’ ESG policies. Take a fund that is investing in a paper company but has an exclusionary policy around tobacco for example. If the company manufactures paper that is then used to make cigarettes, our system can detect the breach and warn the manager accordingly.
GC: How will depositary change in the next 12 months?
JG: I anticipate there will be major changes in the industry. Moving forward, I think depositaries will need to start monitoring portfolios on a daily basis. With new asset classes like crypto emerging, depositaries must adapt if they are to fulfil their responsibilities and demonstrate to regulators that they have the right skills to perform their role. Most importantly, depositaries need to be independent if they are to carry out their oversight obligations effectively.
About Depositary Services: RBS International provides independent depositary services (through separate legal entities) to fund managers in the UK and Luxemburg, under both the UCITS and AIFMD regimes. Our services are not offered to any person in any jurisdiction where their advertisement, offer or sale is restricted or prohibited by law or regulation or where we are not appropriately licensed.