Sebastien Danloy, global head of asset owners & managers, markets & securities services, HSBC
2021 will be the year when ESG regulations start to take effect, with the Sustainable Finance Disclosure Regulation (SFDR) commencing in the EU, requiring asset managers to categorise and disclose on their funds according to climate and wider environmental criteria. Regulators are also consulting in Hong Kong and Singapore. In 2020 there have been greater inflows into ESG funds so there are clear drivers for integration across custody products, including post-trade periodic reporting and digital and data solutions. We expect our clients’ requirements to become more complex and to support this we’ll need ESG data content to become more consistent and comparable. The time for action is now and most custodians already offer ESG products. We offer reporting based on a choice of leading ESG data providers, so that the differing results can be easily compared, to provide meaningful insights for our clients until quantitative ESG data becomes available.
Cécile Nagel, CEO, EuroCCP
Despite the one-year delay to February 2022, preparations for the upcoming implementation of the Settlement Discipline Regime (SDR) under CSDR will likely dominate the agendas of all market participants, including custodians, CSDs, CCPs, venue operators as well as buy- and sell-side firms. Over the past year, regulators have worked closely with the industry to listen to its feedback and to clarify any ambiguities to help market participants prepare for this game-changing regulation, but some questions remain and will need to be resolved over the coming year. One outstanding point is the role of CCPs in the collection of penalties and reimbursements in the cases of failed trades. Clarity is needed as to whether this process will remain the responsibility of CCPs or CSDs, in order to help all market participants prepare for SDR from a technical and operational perspective.
Virginie O’Shea, founder, Firebrand Research
New regulation or business continuity guidelines incoming. Expect MAS, ESMA, the FCA and other regulators to adapt their guidelines and industry recommendations for business continuity to reflect the lessons learned in 2020. An important component of these new regimes will relate to operational risk assessment and technology management, which could place legacy infrastructure under further industry scrutiny. There will also be increased emphasis on requiring firms to measure metrics related to operational risk across silos—think more dashboards and management-level reporting functionality.
Daniel Carpenter, head of regulation, Meritsoft (a Cognizant company)
With the costs of doing business skyrocketing, is it sustainable for financial houses to persevere with their current approach to settlement fails? Although CSDR is postponed until 2022, the costly nature of settlement fails means that they are all looking at improving their fails management process, even without the immediate regulatory requirement. What is needed is a single, centralised platform through which they process all their settlement fails data. Once this is in place, analytics can be applied enabling them to examine the factors behind why trades are failing to settle, and which counterparties are repeatedly contributing to the fails. Using Artificial Intelligence (AI), they can improve their settlement rate by accurately predicting how and when trades are likely to fail based on historical performance analysis. Analytics and AI are increasingly prevalent in capital markets and in 2021 we will see more widespread use of these technologies to reduce previously tolerated costs of settlement fails.
Joakim Strömberg, head of triResolve solutions, TriOptima
The clock is ticking for asset managers to choose how they comply with phase five of the uncleared margin rules (UMR) and those who pick the most pragmatic approach for their business, as soon as possible, will stand to benefit in September. Asset managers should be considering whether they outsource with a tri-party or go the third party route to manage their collateral segregation. The firms in-scope might go for a tri-party solution where the collateral is allocated for them and requires little effort on their part because the process is outsourced to someone else, but with this comes extra cost. On the other hand, the firm in question would achieve segregation via the third-party route but would be required to manage the collateral allocation and settlement process on their end.