TNF Journal Issue 3

THE FUTURE OF SECURITIES POST-TRADE

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THE DIGITAL OPPORTUNITY FOR CUSTODIANS

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GAME OF NORDICS

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Contents Welcome

Dear TNF Friends,

It is hard to believe that we are just a few weeks away from our third Annual Meeting – last year’s event in Vienna feels like yesterday! We are really looking forward to catching up with many of you in the ancient city of Athens, and to be brought up to date on all the latest news on a professional and a personal level.

The theme that has emerged around this year’s Annual Meeting is “Transformation, Innovation & Collaboration – Embracing The Future”, which I think perfectly summarises what we consider to be the ethos and impetus behind The Network Forum.

even less clear, but what is interesting is that it does not seem to be holding back innovation in our industry at all – as you will read in this Journal.

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Since we formed at the beginning of 2017, we have seen a great deal of evolution in all of the markets to which we are actively exposed to via our membership, now over 1,500 individuals worldwide, and our various gatherings – Africa, Americas, Asia and, new for 2019, the Middle East, alongside the Annual Meeting. Technology, regulation, efficiency and security are the main pillars underpinning this change, and the rate at which this is happening is only increasing.

The number of organisations – from established players, both financial and non-financial, to new startups – offering solutions based on fine-tuned “legacy” technologies, leading edge DLT/blockchain concepts and even solutions based on a blend of the existing and the emerging – is at an all-time high. A significant number of the articles in the publication you are now holding shed some light on many of these, as well as some of the challenges and opportunities resulting from the current trading environment.

This time last year, we were all contemplating a European Union without the United Kingdom. Sadly, the Brexit saga rumbles on, and the outcome is seemingly

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The Network Forum, we believe, is uniquely positioned to help promote the dialogue and collaboration that is so important to the ongoing health and vitality of our industry, and with this in mind I hope you find this Third Issue of The Network Forum Journal an informative and enjoyable read, and that we will see one another on our travels very soon!

Edward Jones Managing Director THE NETWORK FORUM

THE FOUNDING PARTNERS

The Network Forum are honoured to be supported by The Founding Partners below.

The securities services business has long struggled with the concept of technology innovation. Product innovation is a constant, but IT often struggles to keep pace with the changing demands of clients and regulators. These firms are faced with a low-margin environment, intense competition, high costto-income ratios, and global and local regulatory changes that are altering the way industry participants operate. In this era of increased transparency, securities services firms are being compelled to address their legacy architectures and this

has resulted in the launch of numerous digital transformation programs. The remit of such programs, however, is often less than clear.

Overall, the increase in the number of executives dedicated to digital transformation within securities services firms reflects a gradual move within the industry away from a product-centric approach to marketing and sales to a more client-centric approach over the last few years as firms seek to identify and target their most profitable clients more effectively. Market forces have pushed firms to shift from a largely product-based orientation and remuneration structure to a services-based approach. Thin margins and high operational costs in a volume-sensitive business have led to the industry’s increased focus on fostering client stickiness, which has resulted in a desire to better understand clients’ risk appetites and product preferences through a joined-up approach to product marketing across silos. Creating a single view of a client

is a business imperative for new client acquisition and existing client retention, and this process needs to be initiated during onboarding (which can itself prove a sticking point due to slow and duplicative processes). This single view also enables firms to accurately classify and categorize clients for regulatory reporting purposes. Digital transformation is therefore often focused on the client experience—though in the institutional realm this is very different from similar efforts in retail banking. It remains much harder for institutional clients to swap providers than for retail clients and this is unlikely to change in the short term.

achieve due to the barriers posed by archaic processes and mindsets around servicing clients. The use of the latest technology tools is hindered by old processes and technology. The journey toward customer-centricity will be achieved more easily if firms can overcome the poor data quality of customer information related to preferences and sentiment. Understanding what kinds of tools are out there and what can practically be achieved in the short term and the longer term is a basic first step toward implementation.

Client and counterparty data management isn’t just about client experience, however, there are a lot of reasons why it’s a focus for digitalization. In order to meet the reporting requirements of the European and U.S. recovery and resolution regimes, firms need on-demand access to consolidated data about their counterparties and clients to prove to regulators that the unwinding process could proceed in an orderly fashion if bankruptcy occurs. The European regulatory community is also working on the fifth Anti-Money Laundering Directive, which requires greater tracking of data related to clients across the firm. Moreover, understanding the interconnectedness of key clients and counterparties, the changing exposures to certain markets, and even the internal structures within the financial institutions themselves becomes a much more important task when one considers this information’s impact on capital requirements.

The strict regulatory focus on compelling firms to provide an audit trail for all their decision-making related to their clients has also buried many firms in a mountain of data. Digging out of this mountain and focusing on the competitive advantages that can be gleaned by correlating some of this information with other client communication-based data sets is a task yet to be tackled by most.

But adding in new technology bells and whistles will not fix the important underlying problems related to data consistency and aggregation. This is why the remit of digital transformation teams is a lot less glamourous than it appears on the surface. Multiple systems create data silos, and customer communications and referential data sets may not be aligned correctly. The bigger the firm, the bigger the problem. Tracking an institutional or broker client’s services and support across an entire enterprise is incredibly challenging for a securities services firm—for example, because the firm may have different systems per business line. Mergers and acquisitions have been frequent over the last couple of decades, which has added to operational and organizational complexity at the industry level. Better alignment and control of data is critical for financial institutions to not only survive but also thrive in the current competitive and regulatory environment. Firms still have a lot of aging systems in the middle and back offices. Data alignment is therefore not easy to

All of this work also needs to be conducted in the face of resistance to, and fear of, change and innovation that can emanate from various corners of every firm. Tackling this is all about changing the mindset and the culture of the firm. There needs to be a clear alignment on how the business is going to be driven, which roles need to be created, and what kinds of collaboration with external firms need to be established to tackle data quality problems. This type of program needs to be both topdown and bottom-up. In the realm of capital markets, the most successful innovation programs involve C-suite executives clearly communicating goals and metrics for success in a phased manner and line-of-business champions engaging in providing feedback and guidance from the coalface. It’s a long hard road for the digital transformers, data quality champions in disguise.

Virginie O’Shea, Research Director, Aite Group

To Get Digital Transformation Right, It Has To Be Boring.

How Client Service & Technology In Post-Trade Is Evolving

In securities services, for example, since 2017 Commerzbank has been working in partnership with HSBC Transaction Services GmbH through which our securities settlement business processes is transferred to a joint venture, with operations scheduled to begin early next year. The partnership, which allows us to leverage our expertise and HSBC’s state-of-the-art securities platform, complements our wider commitment to simplify and improve processes to clients, while also reducing costs and process complexity.

Rob Scott argues that the evolving focus of FI clients requires a change of tack by correspondent and transaction banking partners and how the use of technology in client interaction is on the up.

The post-trade business is markedly different compared to years gone by. While it still necessitates that banks maintain regulatory robustness and become increasingly cost-efficient, there’s greater demand for more personable client relationships, supplemented with state-of-the art technologies.

Delivering in this new environment is no easy feat: it requires new thinking and approaches to how we as banks govern our client interactions. In this new and increasingly complex environment digital services, though critical, is only one part of the equation; after all, banking remains a business founded on human relationships. So, what exactly has changed?

Changing business

It’s simple: banking is no longer solely product-driven. Gone are the days when an FI client has a dozen contacts at their correspondent banking partner – each offering an individual service or product with no joined-up thinking.

Banks are instead favouring relationships that can better guarantee the exchange of expertise and more integrated thinking. For instance, FI clients are not looking for singular custody or clearing products, rather they require a more rounded, strategic dialogue to solve business challenges. We, as a strategic partner, strive to gain a holistic insight to a client’s operations through one point of contact. This consideration is addressed by our dedicated relationship managers, able to align business objectives whatever they may be and in doing so mobilise resources the bank has to offer in a holistic manner and delivery to the client: from ensuring regulatory processes are watertight, reducing costs, to service client needs, or to help expand and grow a domestic or regional client’s presence either in its local market or in the international markets it operates.

Strategic partnerships

This holistic approach also enforces collaboration with third-parties.

How does this work, in practice?

Let’s say, for example, that a client executes via another bank’s trading desk but wishes for us to handle all post-trade activities. Thanks to Open Banking principles, our technological capabilities can allow that to happen seamlessly via a single portal.

The new way isn’t only underpinned by collaboration with fellow banks. Robotic Process Automation (RPA) is allowing us to devote more human capacity to our clients, thanks to the help of technology providers. We are engaged in a pilot scheme using artificial intelligence (AI) solutions to automate mundane and predictable data processes, leading to time efficiencies. The end-result is that our energies are redirected to providing meaningful and enhanced client interaction – at the beginning of the working day. Again, this ensures that we are better connected to our clients and solving problems sooner for our clients activities.

Banking today is a markedly different game – one where careful collaboration is likely to breed the winners. But even if the industry’s modus operandi for client service has changed, our dedication to meeting the client’s needs and best interests remains unwavering, as before. In this respect, we are never standing still - always seeking to bring the very latest products, services and innovation direct and simply to address client needs in a comprehensive manner.

Technology Transformation

The post trade landscape is going through a wholesale metamorphosis. New technologies are constantly evolving with various business and use cases being

established, piloted and tested. Robotics, AI, RPI, Blockchain, Tokenised assets, Big Data and advanced analytics to name a few, all looking to strip cost and complexity from legacy infrastructure and provide the necessary scale, speed and user experience in order to connect better with the clients. It is true that some of these technologies will take time to be more widely adopted and accepted by the community. Some will take different paths from the current thinking and some will fall by the wayside. What is a certainty is the service landscape will go through considerable transformation over the coming years. Technologies will enable banks to connect better, faster and simpler with clients with far richer personal interactions.

It’s a fact, that post every industrial revolution in modern history output and productivity has significantly increased. From today, new products and services will evolve and come through in new and innovative ways, designed to connect and service clients in a more productive and interactive manner. Changing the engagement model with clients is just the start.

Rob Scott Head of Market Services Commerzbank

Distributed Ledger Technology In The Capital Markets Game Changers – Future Trends In Securities Services

cash equities clearing and settlement activities onto Digital Asset’s proprietary ledger by 2021 (1). More recently, large asset managers such as Schroders have started major DLT programmes as they too look to leverage the technology. While it is hard to separate global levels of investment in DLT from cryptocurrency-related spending, a recent study estimated DLT spending in financial services hit USD1 billion in 2017, adding it would increase to USD1.7 billion per year going forward (2).

is moving closer to achieving implementation at scale.

DLT’s ability to establish a ‘single version of truth’ allows it to cut across corporate boundaries and existing market structures. One of the most obvious applications for DLT is as a single asset register for asset managers or brokerdealers. This ‘golden source’ would eliminate internal reconciliations, enhance capital efficiencies and give clients or regulators controlled access to real-time data. Other DLT applications may include the facilitation of operational efficiencies in derivatives clearing, payments, trade finance and fund administration.

Integrating DLT across multiple market participants opens up vast potential benefits in the post-trade arena. For exchange traded assets this scope is illustrated by the ASX’s (Australian Securities Exchange) decision to move its

DLT has the potential to deliver extensive commercial benefits and cost savings across financial services. By streamlining processing and eliminating intermediate steps, DLT should deliver significant savings across the operations, technology and finance operations of buy side and sell side firms alike. Shorter settlement times and more efficient use of collateral, for example, could reduce capital costs, especially on the sell side. The annual savings of this are estimated to be in the billions of dollars (3) . Generating such efficiencies will be very valuable for individual firms in this current macro climate, which is dominated by rising regulatory costs, increasing operational requirements and performance constraints.

Elsewhere, the technology could play a critical risk mitigation role. Through a simplification of capital market processes, DLT can help institutions reduce their settlement risk, counterparty risk and operational risk, thereby making the financial system much safer. Meanwhile, the technology’s encryptions and cryptography are an effective preventative tool against cyber-risk, which is becoming an increasing problem for the industry. In time, DLT could also provide institutions with new revenue streams, especially if the technology can help generate liquidity savings through its ability to tokenise securities.

Set against these positive drivers, the evolution of DLT is also likely to face a number of obstacles over the next few years. Firstly, a lot of institutions simply do not have the correct skills or adequate knowledge to develop, operate and oversee DLT. Even though efforts are presently underway to create common industry standards on DLT, an agreement has yet to emerge. Without any harmonised principles underpinning DLT, interoperability of the technology across multiple business streams and institutions will be very difficult. In many instances, there were unrealistic expectations about what DLT would achieve. As a result, firms invested into costly POCs which were never going to deliver on their stated objectives, mainly because they were trying to fix a “problem” which was never a real issue to begin with. In short, DLT integration is a process that needs to be executed intelligently.

Hong Kong, Japan, Singapore and the UK are studying DLT and allowing trials to take place in what could act as a spur for further private sector investment. For institutions looking to develop DLT programmes, they will need to engage with fin-techs, DLT specialists, service providers and each other through established consortiums such as R3 or Hyperledger. At an industry-wide level, partnerships with academic bodies participating in forums such as the Post-Trade Distributed Ledger Working Group could also be a catalyst for DLT adoption (4).

Within two to three years DLT applications will begin circumventing existing processes and structures, with the possibility of re-arranging the investment value chain. HSBC expects DLT to achieve adoption at scale in capital markets within five years, and to be running alongside and even replacing core market infrastructures within ten. For now, a theoretical scenario of totally decentralised global markets is harder to foresee. In HSBC’s view, every investment firm should take an interest in DLT, even if they do not wish – for now – to take an active role in its actual development. This will enable firms to monitor progress, identify opportunities and avoid being caught out by DLT’s capacity to redistribute economic value.

Stephen Bayly, Chief Information Officer, HSBC

As DLT moves into the mainstream, the technology will find itself under growing regulatory scrutiny. While it is still unclear how supervisors might apply existing regimes (MiFID II, EMIR, GDPR) to the technology, regulators and central banks across Australia, France,

Following several years of development, applications for Distributed Ledger Technology (DLT) in capital markets and the investment industry are multiplying fast and moving rapidly towards implementation. DLT is an entirely new way to construct highly secure and widely distributed databases. As development requires extensive co-operation, it can be relatively slow to implement. After several years of effort, proofs of concepts (POCs) are evolving into customer facing platforms and DLT

CHESS Replacement (2). France to allow blockchain for trading unlisted securities (3). The Bank of Canada, Bank of England and Monetary Authority of Singapore share assessment on emerging opportunities for digital transformation in cross-border payments

Message From Singapore

Coinciding with the Singapore Fin-Tech Festival and the ASEAN gathering of regional leaders, The Network Forum (TNF) Asia Meeting took place in a turbocharged atmosphere, which was arguably quite fitting for an industry going through so much change. Attended by more than 130 people drawn from banks and infrastructures across the world, TNF concluded 2018 on a high, following a series of successful conferences in Cape Town, Vienna and New York. TNF takes a look at some of the burning issues facing the securities markets in Asia.

Custody makes a digital play

In December 2017, the price of Bitcoin was trading at around $20,000, whereas today the cryptocurrency is valued at around $4,500. For most institutional investors and custodian providers, such levels of volatility make the asset class a somewhat toxic, unstable construct. Together with the anonymity of the transactions, most custodians would rather stay focused on servicing the more traditional financial instruments. Some audacious providers are, however, bucking this trend, and are attempting to monetise crypto-custody.

For digital assets to institutionalise, custodians need to have some sort of a role in the entire process. Few

institutional investors in digital assets will even touch digital exchanges, a number of whom are unregulated, preferring instead to put their private keys into new crypto-custody solutions, a product which is offered by a few up and coming tech firms. While these cryptocustodians are more secure than digital exchanges and usually have fairly watertight insurance policies, they do not have the balance sheet of a large bank.

Blockchain keeps on rolling

Over the last few TNF Meetings, a number of industry experts have said their organisations are in the process of initiating Blockchain proofs of concept (POCs). TNF’s timing was fortuitous, happening shortly after Hong Kong Exchange and Clearing (HKEX) said it

was working on incorporating Blockchain in order to facilitate more seamless processing of northbound Stock Connect trades. Simultaneously, Australian Securities Exchange (ASX) is also on the cusp of reengineering its post-trade equity platform with a solution offered by Digital Asset.

Very few people in the securities industry do not take Blockchain seriously. A poll at TNF found 22% of respondents believed DLT would be the norm for market users when interacting with their infrastructure providers moving forward whereas only 7% of people said not much will change. However, the securities industry’s paranoia about indiscriminate disintermediation by startups – a common theme at previous TNF Meetings - has evaporated, as participants choose instead to work with fin-techs to create client-centric solutions.

Nobody’s insulated from cyber

During the 2000s/early 2010s, cyber-incidents were usually seen as nothing more than an easily avoidable irritant caused by opening a corrupted attachment from a dubious source or clicking on a link to an untrustworthy or unsavoury website. Nowadays, cybersecurity is a systemic risk which – if serious enough – could seriously disrupt or destroy the activities at market infrastructures and custodian providers. Experts only need to look at events in Bangladesh and Ecuador to see that such hacks are a lucrative revenue source for criminals.

According to experts at the TNF Asia Meeting, the problem with cyber is going to get worse before it gets better. A noxious mix of cyber-criminals becoming more astute, people sharing personal information online without restraint and organisations attempting to digitalise their businesses aggressively is arguably creating a recipe for disaster. While it is obviously a good thing that financial institutions are becoming more innovative, there are certainly concerns that banks are opening themselves up to new cyber-risks which they barely understand.

It is certainly an issue that is keeping network managers up at night. While network managers are highly proficient in understanding concepts like asset safety and account segregation, cyber-security is a topic which many find too academic. As a result, some network managers are delegating cyber-matters to colleagues who are better versed on the subject, while a handful have advised that questions covering cyber be expunged from the Association for Financial Markets in Europe’s due diligence questionnaire (DDQ)

A quick update on Asian capital markets

Despite the complex geopolitics and unflinching US trade tariffs, APAC is holding up quite well. Stock Connect has extended beyond Hong Kong and Shanghai as a link between the UK and China – once described as being operationally impractical – and is edging closer to launch. MSCI’s inclusion of A Shares was in part a recognition of China’s reform drive. Tweaks to Bond Connect have also been given the seal of approval by index providers, in what could lead to greater active and passive flows bringing increased liquidity to China.

In terms of regional-wide developments, T+2 is increasingly becoming the normal settlement model with Thailand and Japan the latest markets to accept the international standard. Outside of Stock Connect, trading links are also being discussed between Malaysia and Singapore although very few experts at the TNF Asia Meeting predict it will succeed, as a previous, similarly well-meaning initiative designed to boost stock exchange connectivity did not materialise. Even so, these efforts are welcome and will help boost investment in the region.

Charles Gubert Founder, GTL Associates

Five Years After Adoption, Where Are We With The CSD Regulation?

the CSD Regulation (Regulation EU 909/2014 on settlement and CSDs) and the roll out of the T2S platform. It is now time to take stock on the implementation, draw the first lessons and see what needs to be improved further. Have CSDs

and their participants implemented CSDR in full?

With regard to the CSDR, from the CSD participants perspective, we understand that they are focused on the settlement internalisers’ reporting. During the Network Forum panel, CSD participants will explain the main challenges in their work on that topic.

From the CSD side, although thirteen European CSDs are already authorised under the new panEuropean law, significant pieces of work are still to be done in order to implement the regulation in full, in particular in the area of settlement discipline, CSD links and passporting. It is also in these areas that some clarifications by the European regulators are still pending. So, CSDs are waiting for the clarification to be able to fully roll out their service.

Despite numerous areas of work still to be done, we can already say that the CSDR has had a positive effect, and it is indeed, first and foremost, the highest level of security for European CSDs. CSDR has resulted in creating a new global standard for regulation of settlement and Central Securities Depository services. In the area of links, ECSDA has helped the CSDs to set up a single link assessment questionnaire that will result in a harmonised approach towards CSD links by all CSDs who are subject to CSDR. The ECSDA CSDR

questionnaire is also meant to be responded to by third country CSDs having links with CSDs in the European Economic Area. Therefore, through their links, European CSDs will be raising the level of safety for the market infrastructure globally. ECSDA, including 40 CSDs in 35 jurisdictions, is supporting European CSDs in the process of gathering the link assessments.

CSDs are also working to define how the future penalties framework will look and we are advancing based on assumptions we have taken that remain, in some cases, unconfirmed by the regulator. The delay of T2S mechanism for calculation and settlement of cross-CSD penalties is now confirmed for November 2020 and we expect acknowledgement by European authorities of this delay.

Should the CSDR be reviewed this year?

The review of the CSDR is formally planned to take place in September 2019. Some may say that it is too early for that exercise, as the Regulation is not yet fully implemented and we cannot predict the outcome of the regulatory changes in a way that would allow us to define the areas for an eventual future policy intervention.

During the panel at the Network forum in Athens, we will also consider how imperfections in the first version of the CSDR could be corrected and the new themes that may need to be introduced in order to get the setup of the European infrastructure backbone right.

The Future Of Securities Post-Trade

If you can order physical goods online and have them delivered the next day or even the same day on Amazon, why should you have to wait two days for electronically delivered securities to arrive in your account? A new Deutsche Bank whitepaper looks at how far the industry has come and what is needed going forward to “Amazonise” the securities post-trade landscape. Deutsche Bank’s Emma Johnson and Mike Clarke capture the key points

While the European securities post-trade industry is taking steps towards harmonisation and integration, a standardised interface for investors, as well as uniform rules and regulations, are still needed to drive true market efficiency.

In the years following the financial crisis of 2008 to 2009, custodians have found themselves performing an increasingly difficult balancing act of compliance with tightening regulatory requirements, while adapting to infrastructure changes and meeting the growing demands of their clients.

The industry as a whole has experienced considerable development, upheaval and financial commitment, but where does it leave us now? Participants could be forgiven for wondering whether it has taken us far enough. Why is it, for example, that physical goods can be ordered and delivered within the space of 24 hours, while an electronically delivered security still takes two days to arrive in the beneficiary’s account?

To address this question, and avoid being disrupted, the roles of industry participants will need to evolve. Custodians need to become hyper efficient and apply a series of technical solutions to do so, be they Application Program Interfaces (API), Artificial Intelligence (AI), Enterprise Data Platforms, or the use Micro Services alongside existing architectures.

The opportunities are certainly exciting, and the benefits enticing. However, the challenges here are numerous. First, the wholesale change of market infrastructure tends to be a long process with large scale projects spanning many years. Second, we need to be able to innovate digital services for our clients, to focus on using technology to solve business problems, promote efficiency and streamline process in each service. Third, different use cases will require the deployment of various technology tools, targeted towards each use case.

In our latest whitepaper, we explore how far the last 10 years of regulatory and industry change have taken us, what harmonisation has been achieved by initiatives such as TARGET2-Securities, and what barriers and threats to harmony remain. At the same time, we also explore what a future vision of a new “Amazonised” post-trade landscape might look like and how the industry can get closer to this kind of experience.

While the current post trade agenda takes us further forward, perhaps the largest challenges remain. Without a solid foundation, including tax and securities law reform, new technology and new market entrants will do little to shift the status quo. But, by tackling the challenges head on, removing the barriers which challenge the innovation and the evolution of the industry, there is an opportunity to create a new and exciting landscape for post-trade in Europe.

To read more about the future of securities post-trade, please visit: https://cib.db.com/insights-and-initiatives/ white-papers/transitioning-into-the-future-of-securitiespost-trade.htm

Emma Johnson Director of Regulatory and Market Initiatives Deutsche Bank Securities Services

Mike Clarke Head of EMEA Product Management - Securities Services Deutsche Bank Securities Services

In recent years, we have seen the adoption of

Advanced Post-Trade Infrastructure As A Competitive Advantage Of The Polish Capital Market.

The year 2019 is a special time for KDPW and its clients. It has been 25 years since KDPW launched post-trade services for the financial market, both locally and internationally.

Today KDPW is a capital group which offers specialised solutions for the financial sector, including a depository of non-certificated financial instruments, clearing and settlement of transactions in many markets, the payment of benefits to holders of securities, data collection and maintenance, as well as the issuance of codes and numbers.

The offered services are supported by technologies largely developed in-house by KDPW IT experts, which not only helps to align the solutions with the expectations of clients present on the Polish market but also makes KDPW independent of global vendors and the high costs of licensing

Over the years, operating in a dynamically changing market and regulatory environment, the KDPW Group has developed a package of complementary services addressing the latest requirements of the most advanced financial hubs. The Group has been authorised by regulators to provide its services and successfully expanded to international markets with its offer. The Group is adding new solutions and expects to launch them later this year.

A broad range of services

In addition to traditional solutions offered by central securities depositories, including securities records and related services (payment of dividends, split of shares, payment of benefits, etc.) as well as settlement of transactions, the KDPW Group includes a clearing company, KDPW_CCP, which operates as a central counterparty responsible for the clearing of transactions on the regulated market and in the alternative trading system and for the operation of a clearing guarantee system. Over the years the KDPW Group has expanded its offer of services for the financial market.

Trade Repository KDPW_TR

The trade repository operated by KDPW is one of nine trade repositories registered in the European Union. As a result, entities obligated to report trades under different legal regimes, including EMIR and SFTR, can meet the obligation thanks to solutions available on the Polish market. KDPW_TR users include both local and international companies: the trade repository has 254 participants in 9 countries (Italy, Lithuania, Latvia, UK, Czech Republic, Estonia, Malta, Romania, Poland). KDPW Trade Repository participants report trade on behalf of more than 25 thousand entities. More than 1.38 bn derivative trades have been reported to KDPW since the launch of the service.

Blockchain in support of the capital market

In 2019, KDPW is planning to launch eVoting, the first service available to capital market participants on a blockchain platform currently under development. eVoting will support general meetings of public companies by providing remote voting functions based on electronic channels. The service is a one-stop-shop solution for issuers which integrates the voting function with features already available in KDPW’s general meeting service, including registers of beneficial holders of non-certificated bearer shares. The service will be provided as an online application with dedicated access interfaces for issuers and for shareholders.

KDPW has over the past 25 years built an unparalleled position on the international financial market. The next 25 years is where you come in.For more information on what we can do, please visit www.kdpw.pl

Maciej Trybuchowski, President of the Management Board of KDPW and KDPW_CCP

21st Century Liability – Legal Risk In Focus

challenged in courts to ensure certainty and eliminate liability for any injured party. The amount at risk in central clearing dwarfs the current day value of the risks at the time in the gilt market. And one can add to that toxic option of frozen settlement pending completion of legal process, the possibility that hedge funds see that event as an opportunity and adopt the same approach as they have in leveraging the Greek, Argentine or Venezuelan debt crises.

During my career, I have come up against two major horror stories on legal risk. The first was in 1991 when Hammersmith and Fulham, a UK municipality, argued that the swaps it had taken out were invalid as the municipality had acted ultra vires and, although the malfeasance was by the municipality, banks had to unwind this, and many other similar, swaps at great expense to themselves. The second came in 2008 with Lehman Brothers where the perils of rehypothecation were first identified at a potential cost of some billions to the industry.

Network managers should peruse carefully their legal documentation, including RFPs, side letters, operating manuals, emails and texts or notes and recordings on verbal communications. Are there potential pitfalls that could provide the third of my career horror stories on legal risk? Candidates for inclusion are multiple. Delivery versus payment are three simple words loaded with liability. Novation of contracts is a demanding concept especially where there could be conflict of cross border jurisdictions. The legal liability for safety of client assets is a pitfall for the unwary that has

been born of the good intentions of AIFM and UCITS legislation. And overshadowing all of these are the concept of caveat venditor, regulatory ambiguity and post event hindsight.

DvP, or “Delivery versus Payment”, really worries me for it used so casually across multiple aspects of our business. The legal definition has to be simultaneous and final exchange of cash and stock on an irrevocable basis. Markets like T2S have the concepts hard wired into their platforms and any legal analysis would assume that is inviolate. But many other markets move cash and securities independently, linked by the concept of freezing one or another and a contractual arrangement that is written into the market rule books. We may be far from the days when markets with next day payment finality or the potential for payments (but not stock) to be unwound on default claimed this constituted DvP, but the reality is that many of the arrangements in markets are just that - arrangements - rather than certainty, especially when default may be cross border and occur during the processing runs of the impacted markets.

Novation of contracts is a splendid tool for risk reduction. But it is a tool that could come under scrutiny in the event of a default. Perhaps it will survive challenge but the sheer quantum of value that is novated makes me nervous. Imagine frozen settlement across multiple clearings, for that is, albeit remote, a possibility. I recall a conversation with the indigenous insolvency practitioners, as we introduced DvP into the UK gilt market in the late 1980’s. Quite simply, at a meeting where I represented the UK banking industry, the chairman of their august, if somewhat macabre, association explained that the legal structure we had put in place looked robust but would, in a default, need to be

Safety of client assets has become a buzzword but it is often ill defined. First of all, there remains a lack of clarity as to the boundaries between commercial liability, agent or counterparty performance and country or CSD risk. There is a potential legal challenge if ever a case impacts an investor, as distinct from an issuer, CSD or even one of the ICSDs where agents have a choice of CSD location. A further dangerous boundary is between assets held protected for AIFMD or UCIT purposes and all other assets. If they are held in the same manner, there is an illogicality in ever treating them differently. I assume it would be commercial suicide to do so, even if a legal challenge did not work.

the client, especially if they represent the individual saver, the pension fund or another entity whose losses could hit compensation funds or state coffers. Regulatory ambiguity serves the same purpose and network managers are faced with the impossible task of identifying such pitfalls often in remote locations with untested legal systems. Overshadowing all this is that post event hindsight that now dictates that the network manager is the expert who should have realised in advance the fact that Hammersmith were acting ultra vires; or that Lehman were rehypothecating stock and that impaired the ownership chain. Welcome to liability twenty first century style!

John Gubert Chairman, GTL Associates

When I started in business the mantra was caveat emptor or buyer beware. Contractual agreements, at that time flimsy documents of 6-8 pages, were mainly about codifying the absence of liability for the seller. Regulation has changed that and the pendulum has moved to seller beware or caveat venditor. Those carefully crafted areas of ambiguity in legal documents or those casual comments on related papers, will in this day and age more likely be interpreted to favour

Risk Management

The cascading effect of a default on contracts between institutions could have heavy repercussions for the whole financial community. The underlying risk behind this kind of default is a counterparty risk and has to be considered as a credit risk that financial banks have to face when entering into contractual relationships with each of their peers.

During the last ten years, central banks, clearing houses, banks and many other financial institutions successfully implemented new practices to mitigate risks. In 2017, the European Central Bank (ECB) published its ECB Guide on Materiality Assessment (EGMA) related to changes or extensions in counterparty credit risk models in order to promote a day-to-day supervisory dialogue with banks.

In parallel, during the last ten years technology was able to manage more data close to real-time with a more pragmatic and efficient level of risk management, on a worldwide basis. One of the key focuses of the industry was to ease changes and extensions to internal models used to calculate counterparty credit and credit valuation adjustment risks of internal representatives of the banks and business partners.

The aim is to reinforce the capability of the systems supporting counterparty risk for any type of institution: Banks, Government Entities, Financial Institutions, Insurers, Securities Firms, Fund Managers. In this area, technology will be key to providing more flexibility and more predictive information.

SLIB has been a recognised software provider in the risk management space for more than fifteen years with a strong focus on counterparty risk.

SLIB is now launching its new risk management solution - a multi-layer framework to aggregate information from multiple sources in different ways to support a high capacity of analysis.

Basically, SLIB system provides extensive and easy connectivity to European and Asian markets, enabling multi-activity risk steering, either by running SLIB’s cross-market algorithm based on VaR, replicating external risk algorithms, or even connecting to a client’s private ones.

Running continuous exposure re-assessment on consolidated portfolios against a flexible scale of alerts, this new risk management platform provides centralized and reactive monitoring ability.

The software embeds datalake technology to support multi-axis data analytics, drill-down research to detect anomalies, long-term trends to adjust credit limits and margin requirements.

Closer to business. Clear and sharp.

You already trust BBVA, as service leaders in Spain and Latin America, for transactional banking. What about your longer term requirements? BBVA provides a wide range of custody and securities servicing solutions to clients around the world. It’s in-depth market knowledge, highly quali ed teams and ability to match client needs with customised solutions, make BBVA the perfect partner for securities services in Spain.

If you think our securities services could be of help, let’s talk.

Creating Opportunities

People First, Technology Second

Business transformation is often solely focused on fixing operational and technological issues. However, forgetting the human element can be detrimental to the future of a business. After all, in an industry that is getting more and more standardised and commoditised, people increasingly become a critical factor in what makes the difference. In this article, we are looking at the six elements that firms need to look at when planning for the future of their business. For each item, we explore the tech and people angles, as one cannot exist without the other.

Let’s play!

Do these quotes sound familiar?

Mark John Head of product and business development.

Pershing and BrokerDealer Services, EMEA

BNY Mellon

6.

1. The Why Factor

Technology is not unique. It’s not a USP. It is not a strategy. It is an enabler of it. It powers a proposition. The proposition is why firms are unique.

Personally invested people deliver credible propositions. Together, it creates a firm’s USP.

2. Problem identification

Outdated systems impede the ability to deliver a firm’s proposition. Lack of scalability and resiliency are growing risks.

Legacy technology skills are a scarce resource. Operational resources diverted on filling gaps left by noncompatible systems will increase manual processes and risks.

Innovative Proposition

Replacing legacy systems is priority #1. Building an ecosystem that allows integration with FinTechs, AI, DLT etc. will solve for current business problems and create options for the future.

Ecosystems aren’t just technology. They are part of a successful environment that fosters free thinking, smart failure and eventually success.

5.

“It ain’t about how hard you hit. It's about how hard you can get hit and keep moving forward’’

Come to booth 10 and enter our competition.

5.

Resilient Growth

Growth challenges resiliency in three core areas: capacity, complexity and compliance. Extra demands on existing technology require heavy lifting solutions: either technology, business processes or full outsource, leading to a swap of control for oversight.

People make the difference. System knowledge, experience and business acumen protect against the things that can, and occasionally will, go wrong.

“I can do a 1,000 now”

3. Feasible versus practical

It is feasible to keep the status quo and integrate add-ons to an existing platform. Adding layers and complexity lowers the efficiency. It is practical to change the model: new technology, new platform driving new and efficient processes.

It is feasible to continue to scale down people for short-term gain. It is practical to upskill people and leverage their domain knowledge in writing the new target operating models, for the longer term.

4. Efficiency AND client exerience

New innovative tools improve client experience and when fully integrated create a greater front-to-back efficiency.

Upskilled and refocused resources on high value activities enhance client experience and reduce risk.

1.

“No one ever made a difference by being like everyone else”

“Houston we have a problem”

2.

3.

“You’re gonna need a bigger boat”

6.

“You must first believe there will be some advantage in finding it”

“The key to this business is personal relationships”

4.

The Digital Opportunity For Custodians

The difference between digital assets and dematerialised securities is immaterial - except for custodians

Custodians are unlikely companions of the vanguard of history. But they now have the opportunity, as the philosopher of history G.W.F. Hegel might put it, to actualise the Digital Age, or be destroyed by it.

The power of digital computing stems from its ability to make perfect copies, at zero marginal cost. Which is why digitisation has inflicted such enormous damage on the music, film and publishing industries.

Their resistance of those industries to the loss of control of their assets was based on analogue technologies such as licensing, access and intellectual property rights. It proved largely futile.

Custodians now face a similar existential challenge. What has transformed digitisation from an ally of cost reduction – notably through the dematerialisation of physical securities - into a potential nemesis is the blockchain.

Digital assets are a potential replacement for securities

Whatever else Satoshi Nakamoto accomplished, his solution to the double-spending problem in cryptocurrencies has made possible the development of a rival digital financial instrument to dematerialised securities.

By making it close-to-impossible to replicate a digital asset (at least up to the point of a 51 per cent attack), Nakamoto inadvertently inflated the Initial Coin Offering (ICO) bubble of 2016-17.

That bubble was of course driven by investors attracted by the prospect of astronomical returns. But greed for gain is not the only aspect of digital assets which feels worryingly familiar.

Any asset can be placed on a blockchain, so digital assets can represent anything of value – but so can securities. In fact, most ICOs meet the famous Howey test for being a security: investors put money into common enterprises run by third parties in the expectation of making a profit.

Even the supposedly new features of a digital asset look less novel on closer inspection. Securities can also break real-world assets into smaller pieces for investors to own.

Likewise, the fact that investors who are also customers can increase the value of their investment by using its products is not unique to digital assets. It is true also of shareholders in old-fashioned public corporations.

No wonder lawyers and regulators are wondering if digital assets are just securities by another name.

The value of digital assets lies in their power to cut costs

It follows that the real value of digital assets must lie elsewhere. The obvious place to look is in the commercial economics. The promise of blockchain is the elimination of unnecessary costs, chiefly through the elimination of intermediaries.

When McLagan measured the impact of blockchain on intermediation in the global custody industry, for example, it predicted savings of $8.3 billion a year. (1).

This prospect helps to explain the lack of enthusiasm among custodian banks for developing digital asset custody services: those inefficiencies are their revenues. Yet it is a curious lack of enthusiasm, because their buyside clients - the institutional investors – would like to invest in digital assets.

A Fidelity survey of 400 institutional investors in the United States found seven out of ten enthusiastic about digital assets as an investment, a fifth invested already and half planning to do so. Yet they rarely invest directly. Most rely on proxies, like venture capital funds. (2).

It is not surprising. The investment infrastructure bequeathed by the ICO bubble is riddled with conflicts of interest so grave they make private banking look respectable. It is not unusual for the issuer, the broker, the exchange, and the custodian to be merely different parts of the same organisation.

Institutional investors want classic custody of digital assets

This is the opportunity waiting for custodians to seize it. Three out of four respondents told Fidelity the safety and security of their digital assets is their most important consideration. So it is puzzling that custodians seem content to let the exchanges take the lead in digital asset custody.

ICE owns digital assets platform Bakkt, to which it has just added the Digital Asset Custody Company (DACC). Nasdaq is extending its existing trading, clearing, settlement and custody technologies into digital assets. SIX is building the SIX Digital Exchange (SDX), through which digital assets can be cleared, settled and custodied.

True, BNY Mellon might provide custody services to Bakkt. Northern Trust says it is exploring a digital asset custody service for hedge fund clients. State Street has said much the same, adding that it is waiting for client interest to turn into activity.

Of course, there is a technical problem to address. Digital asset custody means keeping safe the private keys investor use to unlock ownership of the assets. To look after these alphanumeric strings, stored on silicon chips, custodians must revert to their roots as the guardians of physical vaults.

Reversion to analogue forms is not the only irony occasioned by digital asset custody. Institutional investors clearly want custodian banks to hold their private keys. In other words, they want a trusted intermediary to invest in assets issued on a technology whose original raisons d’etre were trustlessness and disintermediation.

The costs of digital custody must be lower than the cost of securities custody

It is worth asking whether there is any point in institutions investing in digital assets if they insist on reproducing the costs of investing in securities. There is only one sensible answer to this question. It is that the costs have to come down or switching from securities to digital assets makes no sense.

A purely digital infrastructure, without the multiple reconciliations and manual processing associated with legacy systems, will lower costs. So will direct connections between investors and issuers, which central securities depositaries (CSDs) which offer end-investor accounts are now exploring.

Costs will fall further as the volume of digital assets issued and traded increases. The question for custodians is whether they want to lead that revolution in costs or be undone by it.

Dominic Hobson Hobson Cardew

The Shareholder Rights Directive –It’s Time To Act

The updated Directive will have an enduring impact on global proxy voting and related services. Now is the time to plan for this mandatory change.

Custodians and other market intermediaries should by now have a growing sense of urgency in respect of their regulatory obligations for enhanced shareholder communication throughout the proxy processing lifecycle under the updated Shareholder Rights Directive (SRD II).

Widely regarded as the most comprehensive change to European corporate governance standards for many years, SRD II was introduced to drive greater transparency in corporate governance and improved shareholder engagement. SRD II, and the associated Implementing Regulation, are currently being transposed into national law by European nations, and market intermediaries are faced with a September 2020 compliance deadline.

SRDII impacts firms in Europe and beyond – many will be required to offer a proxy service for the first time.

SRD II’s impact on the shareholder communication process will be felt in many quarters, and especially by intermediaries – providers of securities services –who must respond to significant new requirements on how data and information is passed along the investor communications chain. Some firms, such as the leading global custodians and CSDs, already have a strong track-record for service provision throughout the proxy lifecycle, but some nonetheless will face a requirement to enhance and extend their existing operating model to achieve SRD II compliance

However for many other intermediaries – amongst them institutional sell-side brokers, agent banks, and an array of firms providing retail securities services including commercial banks, retail stockbrokers and other wealth service providers – SRD II mandates the first-time provision of proxy voting and related services.

And while SRD II is an EC directive, its mandate extends to intermediaries domiciled outside of the region if they hold shares in EU-based issuers listed on regulated markets.

Core focus areas for intermediaries.

Under SRD II all intermediaries, irrespective of their role in the chain, must facilitate shareholder rights. For some, the fundamental requirement to introduce an electronic proxy voting service will be an increasingly urgent consideration. However, whether introducing a service for the first time or looking to extend and enhance an existing capability, SRD II brings three themes into sharp relief:

• Agenda distribution and voting: Intermediaries must support the distribution of meeting agendas within stricter timeframes, reconcile votes on a daily basis, and process votes “without delay”.

• Vote confirmation: While the core responsibility for vote confirmation lies with the issuer, intermediaries will need to support all aspects of vote confirmation throughout the chain, including timely electronic confirmation of receipt and dissemination of post-meeting recording and counting of votes.

• Shareholder identification: EU-based issuers will be entitled to obtain the identity of their shareholders, requiring intermediaries holding shares in them to provide shareholder disclosure within 24 hours of receiving a disclosure request.

It’s time to act.

Now is the time for impacted intermediaries to focus on SRD II. New requirements, including significantly more stringent processing deadlines and new processes such as shareholder disclosure, must be factored into securities servicing product development plans, either through in-house investments or through their specialist outsourced investor communications partner.

Broadridge invites discussion with all intermediaries impacted by SRD II. Adding to our leading global proxy technology and infrastructure, we have recently announced our new blockchain-based shareholder disclosure platform enabling intermediaries to fulfil their disclosure obligations for EU issuers.

Demi Derem GM Investor Communication Solutions International Broadridge Financial Solutions

Crypto-Assets And DLT: Securities Services Providers Are Needed More Than Ever

In the last few years, Distributed Ledger Technology (DLT), cryptoassets and tokenisation have attracted a lot of attention, touted for their potential to transform capital markets. These technologies and solutions not only have the potential to provide faster, cheaper and more efficient liquidity and investment flows, they also lower the barriers for investors to access new and expanded asset classes.

(CSDs). Through a dedicated DLT Working Group comprised of representatives from market infrastructures (CSDs, ICSDs and exchanges), global and sub-custodians, SWIFT and other solutions providers, ISSA now aims to broaden that perspective and provide an expanded industry thought leadership report in the context of the overall securities chain.

The Working Group’s key objective is to help ISSA members, regulators, central banks and institutional investors to form an educated view on DLT and crypto-assets, by highlighting not just the benefits and potential models, but also raising challenges and addressing unanswered questions. To help bridge between the “old” and “new” worlds, the Working Group will also attempt to draw parallels with traditional securities flows, to highlight specific areas of importance and prevent a symptom of “reinventing the wheel”.

At the same time, one cannot ignore the negative headlines in the media on crypto-exchanges being hacked, fraudulent Initial Coins Offerings (ICOs) or investors losing their assets as a result of their cryptographic private keys being lost, compromised or stolen.

The International Securities Services Association (ISSA) firmly believes that rather than being disrupted, securities services providers are more relevant than ever and can leverage their expertise and eco-systems to protect and service investors’ digital assets with appropriate standards.

ISSA’s report “Infrastructure for Crypto-Assets: A Review by Infrastructure Providers” https://www.issanet.org/e/ pdf/2018-10_ISSA_report_Infrastructure_for_CryptoAssets.pdf published in October 2018 provided the perspective of the Central Securities Depositories

As a starting point, the DLT working group has identified the following key areas of focus:

1. Definitions and Taxonomy

Our industry has yet to reach a consensus on the definition of what constitutes a crypto or digital asset, and which would be deemed as securities (for example, asset backed tokens, digitally native securities tokens, utility tokens and payments / exchange tokens). This partly explains why regulations are currently disparate, creating further challenges for service providers to come up with solutions and harmonised best practices on a technology that is borderless by nature. AML / KYC impacts must also not be underestimated.

2. Wallet and Keys Management

Especially in the context of public / permissionless blockchains, the notion of protection of private cryptographic keys (which sometimes are an actual physical USB key) is often marketed as “crypto custody”. But what constitutes crypto custody and how does it compare to traditional assets custody? For instance, is a private key considered as an asset itself or is it just a technical means to access the underlying asset that resides on the DLT?

3. Issuance / Tokenisation Standards

This is another area of focus to ensure liquidity and transparency for investors. Digital exchanges and marketplaces should follow similar standards in terms of listing rules transparency as well as ensure independence of roles (exchange versus CSDs / custodians). The inclusion of issuers in a DLT model also needs to be looked at and evaluated.

4. Settlement Models

Key notions of settlement finality and true DVP models must be reviewed and addressed. In addition, new models of DVT (deliver vs tokens) or DVC (deliver vs crypto currencies, stable coins or tokenised fiat currencies) would require significant additional research and industry discussion, as it may well preclude many of the needed features of the current liquidity markets. Similarly, the notion of T+0 instantaneous settlement must also be reviewed, as some models require private keys to be retrieved from “cold storages” (or, in other words, physical vaults) which brings back memories - and challenges – around physical instruments settlement.

5. Asset Servicing

This introduces topical thoughts around the concepts of “forks” and “smart contracts”. While some would associate DLT forks (which in layman’s terms could be compared to the technical “branching out” of a particular DLT) to a traditional corporate action, the reality is that forks carry much greater risks of asset loss, as no providers can reasonably guarantee the support of all future forks. Smart contracts offer the ability to embed and automate, through coding, terms and conditions (for example, the likes of rights issues and auto-interest accruals) within the digital asset itself. However, this poses the question as to how an investor would be able to audit and review the accuracy of such codes in order to ensure their assets behave as expected.

up of crypto and digital assets’ accessibility and liquidity. Reusing existing standards, such as the ISO 20022 taxonomy, in the context of DLT and APIs would also avoid returning to the costly and painful era of bespoke / bilateral proprietary interfaces and connectivity.

ISSA expects to issue a follow up report on DLT addressing the issues raised above by September 2019

Jyi-chen Chueh

Vice

Chairman

of the ISSA Operating Committee

Executive

Director,

Head Custody Services Standard Chartered Bank

ISSA International Securities Services Association

For 40 years, ISSA has made significant contributions to the development of the worldwide securities services industry by facilitating the interaction among market participants.

By means of its famous symposia and highly professional working groups, ISSA provides leadership in the formulation and promotion of best practices in the post trade securities arena.

With its member institutions servicing a significant portion of the world’s total securities transactions and custody volume, ISSA represents a substantial combined market weight. www.issanet.org

Reflecting on the above, we can reach a preliminary conclusion that standardisation and interoperability will be key to the sustainability and scaling

There are many areas that remain to be addressed and ISSA is calling for greater cooperation, standardisation and harmonisation across the securities industry to address them.

Beyond The Acropolis. Experiencing Athens As A Local.

Athens has always been an exciting place to visit. A contrast of ancient and modern, Greece’s capital is never boring despite the inevitable effects of the painful economic crisis in recent years. To some extent, Greeks tend to believe that we are in a process of a sustainable revival which in fact has brought about new ideas in art, food, culture and entrepreneurship. Athens today is a mix of captivating culture and vigorous social life with lots of energetic vibes.

See / Explore

Visit The Acropolis Museum. While you have the opportunity to enjoy a glorious view of the Acropolis from its terrace you are right in the perfect showcase of outstanding sculptures. An excellent overview of Athenian Ancient History.

Take a walk around Stavros Niarchos Foundation Cultural Centre. A buzzing new place, an oasis of culture and green near the center of Athens.

Take a hike up to Mount Lycabettus. You get a breathtaking view of the whole Athens area and if weather permits view extends up to the sea. The ideal time to go is on sunset for amazing photos.

Watch an event at the Herod Atticus Odeon, the ancient theater just below the Acropolis (check the events list of the Athens Festival 2019). The light breeze, the beautiful view, the acoustics, the whole feeling inside your heart, is a memory to keep forever!

Coffee / Drinks

Coffee is a part of everyday life in Greece, a cool addiction. You will spot many big and crowded cafeterias in any square. Choose the small and cozy cafes and bars hidden in small alleys or the ones with the splendid views in the areas of Plaka, Monastiraki, Thissio or the Historical Centre.

The nightlife scene in Athens consists of a collection of sophisticated hot spots, some of them with great views. Try the Rooftop ones around Monastiraki Sq or the Beach Bars along the ‘Athens Riviera’, the Saronic Gulf characterful seaside suburbs.

Eat.

With so many dining options in the city and around, the question becomes how to avoid the tourist traps. What’s one of the (several) reasons Greece is wellrenowned for?

Gyro and Souvlaki probably. If you are a meat lover, then, try a pita Gyro (pork, fries, tzatziki, tomato wrapped in a pitta bread) on the go or take a seat in a taverna for Souvlaki (grilled meat skewers) with Horiatiki Salata (Greek salad).

For a seafood meal next to the sea, the best place for a bite to eat is Mikrolimano in Piraeus. With a feeling of nostalgia for the tradition, but at the same time in full sync with the modern, picturesque tavernas and restaurants are right there waiting for you.

There are undoubtedly few cities in the world with more to see and do.

National Bank of Greece is a proud Event Partner of The Network Forum Annual Meeting.

Enjoy your stay in Athens!

Demitri Paschaleris Institutional Relationship Management & Business Development National Bank of

Greece

Fixing The Leak: How Automation Is Set To Transform Billing Accuracy, Transparency

Billing is the beating heart of every financial firm. Yet for many organisations, billing and revenue management is constrained by spreadsheets and manual processes. Globalisation, growing numbers of high-volume accounts and ever-more demanding clients with complex fee structures, are further compounding the pressure on stretched billing processes. Digital solutions and automation can help.

Latest Industry Research: Revenue Leakage Is Real.

Today, billing teams are dealing with more complex global operations, as well as greater numbers of increasingly demanding clients. This pressure is exerting itself on aging legacy systems and exposing firms to the serious risk of revenue leakage.

In the billing function, revenue leakage is the unnoticed or unintentional loss of money due to poor billing procedures. This might be underbilling, overbilling or even not billing at all. In an ideal world, revenue leakage would be zero, but new research suggests that there is still a ways to go for zero to be realistic.

In fact, more than two-thirds of firms claim to suffer revenue leakage, according to findings from a recent survey conducted by Fiserv along with Worldwide Business Research (WBR) with heads of billing at major Investor Services firms and institutional investors across Europe. With margins tightening across the industry, firms cannot afford to leave room for error, waste, or process inefficiency.

What Else Is At Stake?

The ultimate beneficiaries – or victims – of your billing processes are your clients. Inefficient billing operations not only exert a direct, negative effect on the business’s bottom line in the form of revenue leakage, but can also negatively impact its customer service and reputation as well.

The reissuing of invoices is one area that can certainly affect customer service. Fiserv market research reveals that 80 percent of firms do have to reissue invoices, and half claimed that doing so had a negative impact on their customer service overall.

Technology Can Help.

All is not lost for forward-thinking firms who aspire to a truly accurate and efficient billing function. Technology like AI and robotics will be central to the ability of financial firms to efficiently analyse revenue data across their organisation and relay it to the relevant stakeholders.

At Fiserv, our single flexible billing platform is designed to streamline processes and mitigate the risk presented by revenue leakage. We do this by focusing on automation, while also balancing the need to maintain a high level of accuracy in billing and data consolidation across the organisation to enable full transparency.

Using technology and automation in such a way has a number of clear advantages for financial services firms. Automated processes can help to free time from an abundance of clerical tasks, and instead shift the focus toward activities that generate revenue. Increases in efficiency offered by automation can also reduce the entire information management and fee processing cycle. This has a direct impact on margins and cash flow and frees full-time staff to focus on more strategic tasks.

As a fully integrated solution, we provide firms with one source of billing data to assist with internal reporting. This allows for significantly more advanced proactive analytics capabilities and increases transparency.

The Path Forward.

The future goal of billing is 100 percent efficiency. To get closer though, firms are making efforts to improve operational control of their billing processes and systematically delivering greater transparency through increased efficiency, accuracy, and reduced risk. For most, this is not a distant goal, with 88 percent planning to make significant improvement in the next 18 months. In an increasingly complex, diversified and highvolume global marketplace, the accuracy, reliability and scalability of your billing processes will set your organisation apart from the competition.

Learn more at fiserv.com/AdvantageFee.

David Mote Head of Investment Services International Fiserv

Furthermore, 61 percent of firms only have a partially consolidated view of their revenue streams, and 17 percent do not have any kind of consolidated view. This can be a real issue for both internal and external reporting. For instance, an audit can become far more cumbersome if relevant data must be extracted from a wide variety of different sources and legacy systems.

The Next Generation Network Manager

In 2013 I wrote an article for the “Daily News at Sibos”, on the resurgence of the Network Manager. At the time regulation, including the Alternative Investment Manager Directive (AIFMD) and others, was the biggest change affecting the industry. As a direct result of this regulatory tsunami, the Network Management function was significantly reinforced across all institutions. I also held the view that the industry had realigned the three traditional key criteria for selecting a sub-custodian; in order of priority to - Risk, Service and Price.

Consumer behaviour, expectations and demands, as well as the need to foster innovation and competition, have, as a direct response of new technology, evolved and driven the broader financial regulatory landscape. These developments combined with increasing risks have led to a more complex operating environment, which banks have had to adapt to in a limited timeframe. As commercial relationships have become more complex across the entire value chain, digital transformation has addressed the need for new tools to monitor and enhance the client experience. At SGSS we have embarked on several initiatives, including Artificial Intelligence (AI) with natural language generation and new models and platforms to drive consistency across a full spectrum of activities from RPA to a fully integrated front-to-back solution. It can now be argued that the “Next Generation Network Manager” will include a fourth key criterion when considering its sub-custodian selection, in the form of Digitalisation.

and the introduction of new trading venues has made previously untradeable assets tradeable. The Australian Stock Exchange intends to use blockchain technology to replace its existing core infrastructure. The Swiss Stock Exchange will implement a fully integrated trading, settlement and custody infrastructure for digital assets and in October 2018 ID2S obtained initial authorisation to create an EU Central Securities Depository powered by blockchain technology. These are just a few examples of how market infrastructures are changing the landscape in which Network Managers operate. As part of their evolving role, Network Managers will need to adapt to new ways of working such as settlement via smart contracts and changes to the management of lifecycle events, such as corporate actions and income.

Service Level Agreements (SLAs) will move away from analysis of historical data into real time management tools. There will be a shift as the data supplied by the agent bank network evolves from a monitoring matrix to truly focus upon business performance and outcomes. It will provide the ability to quickly and easily update and adapt what are today largely fixed SLAs and KPIs based upon the continuously changing needs of the business. Negotiating and then filing an SLA until there is an issue or annual service review will become a thing of the past.

Custodian banks have provided online tools for clients to access data pertaining to their accounts for a number of years. This has usually been limited to basic areas such as settlement updates, corporate events and portfolio data.

manual, intensive process with a far greater reliability and accuracy of the underlying documents. The use of digitalisation in the KYC and documentation process is another component and differentiator in the agent bank selection process.

One of the most immediate and obvious areas where digital technology can provide efficiency is in terms of contract management. AI provides the ability to extract insight from large volumes of data, enabling Network Managers to quickly identify and locate key terms from contracts across its entire agent bank network. In this example, it could facilitate the ability to react and assess the impact of a specific disturbance or market event, which may have already affected the network or assess the risk of a potential or anticipated event. Alternatively, it could simply provide the ability to compare negotiated terms, with an existing standard template, to provide a view of the differing legal position with agent banks on a specific subject. Gaining such insight has historically been a timeconsuming, resource intense task.

Technological advancement is now enabling custodians to use data as a service and standalone product. At Societe Generale Securities Services (SGSS) we store and aggregate information and data from transfer agents to provide intelligent, consolidated reporting and an analytics solution for asset managers to optimise their distribution strategy. This is packaged and promoted as a standalone offering called D-View.

We are in an environment where market infrastructures and major financial institutions continue to dedicate large budgets and resources to new and emerging technologies. Some technologies are still maturing and the policy framework is not yet complete, so we have to promote a “test and learn” approach and engage with new partners in the form of fintechs, to build new business and operating models. The “Next Generation Network Manager”, working in collaboration with the agent bank community, will be given the opportunity to leverage advancing technology to work smarter and to more efficiently manage the agent bank network, enhancing the overall client experience. Digitalisation as a fourth pillar is unquestionable and is part of the new world order. Consequently, the evolving role and next generation of Network Management will continue to be heavily shaped and influenced by it.

Andrew Duffin, Managing Director Head of Sales and Relationship Management, UK Societe Generale Securities Services

The role digitalisation will play for Network Managers is multifaceted. Market infrastructures have started to adopt blockchain and distributed ledger-based technology

As digital technology continues to develop it will positively affect the way Network Managers monitor service levels. Key Performance Indictors (KPIs) and

An AI powered KYC and documentation engine with the automated uploading of records such as tax documentation, account opening forms, proof of identity and power of attorneys, has the potential to provide a fast, accurate and seamless customer experience. Where regulation permits, it could facilitate data feeds from multiple sources and centralize the documentation process into a single utility within a multimarket agent bank. Ultimately, this provides an automated, less

Another area is the digitalisation of securities issuance; which 30 years ago consisted of physical certificates, then immobilisation and dematerialisation. Digital issuance in a blockchain or distributed ledger environment is a clear next stage of development.

Game Of Nordics

We were even involved in training nearly 1/5 of staff at the bank we then worked for, although we are not sure we would be picked as trainers today (even if we still know most of the four-letter action codes used!). In the era of Blockchain and the like, we would be more than happy to share memories from the old days.

To define a future model for CSDs that supports efficient post trade activities for banks and other participants is of course very important in all the Nordic countries. The Nordic countries have to consider sustainable models in a harmonizing European landscape.

In many ways the situation in the Nordics during the last couple of years has been comparable to a drama series. In this article we will try to explain a bit of what has happened. The perception of a region with stability, predictability, a by no means negligible degree of boredom and complete transparency is now under siege - and we recognize the responsibility resting on the shoulders of agent banks and infrastructures alike to restore - and with some urgency. The discussion on Danish withholding tax will be addressed in a different forum.

The CCP area is also quite busy, with EuroCCP, SIX and LCH competing in the cash equity space. The most recent development was the acceptance of EuroCCP by Oslo Børs after years of discussion. A fortress of bilateral settlement fell as Sweden will start to CCPclear also Small Cap in June. Competition in the CCP area is healthy but the question is if three might be too many; this Game, too, will continue

All countries have CSDs with fairly old IT systems and models with segregated account structures, and the CSDs also have advanced services both for Investors and Issuers. Furthermore, all CSDs have clear ambitions to grow in various areas and also to compete crossborder in the Nordic markets (and possibly even beyond).

The decision by Euroclear to not use the same system in both Sweden and Finland did not result in many tears amongst the market participants. The market participants in Finland have been struggling with the developments in Euroclear for many years and as many of you know we have seen numerous delays in launching the new platform. Most readers have also been affected by a number of efficiency incidents. We can now see an end to the work of implementing the new platform, but a lot of work still remains. CSDR has had a substantial impact on plans in all markets, and it is now likely that Finland will not be able to join T2S before 2022. The authors are sceptical about T2S in non-euro markets but strongly support the need for universal connectivity for all euro-denominated markets. The delay is slightly unfortunate, but has not, as we have witnessed, had any negative implications for the Finnish capital market. Incidentally, if any reader has a good business case or any ideas at all for the non-Euro markets we are all ears.

There is also an ongoing discussion in Norway on the future model; VPS in Norway have gone down the same route as Sweden in maintaining the platform that was originally launched in the 1980s. All credit to VPS for having the backbone to choose that route.

Nasdaq is the dominant exchange with presence in all countries except Norway: we are currently waiting for the outcome of the bidding war between Euronext and Nasdaq for Oslo Børs. Nasdaq is the preferred choice of the Board and Management of Oslo Børs and the two largest shareholders, while Euronext has pre-acceptances exceeding 50%. Is this a done deal? Not quite. The FSA has approved both and the final recommendation is with the Ministry of Finance. We will face a situation where Nasdaq might become the Exchange for all Nordic Markets, all Baltic countries and Iceland, or Norway sticking out as a continental Europe owned market. The process will be lengthy, we think, and what is sure for now is that the Game will continue.

During recent years the CSDs in the Nordics have been driving various initiatives. There has been very limited harmonization on the CSD side, and the four Nordic CSDs are very much driven by their own individual strategies (with varying degrees of success one might add.)

Sweden spent many years on evaluating a new platform, the TCS Banc system that is being implemented in Finland. The Swedish project ran under the name of Euroclear Safe, while the brother nation of Finland called their version Infinity. Eventually it was decided to continue to maintain and develop functionality on the platform that was launched for the first time in 1989. The authors of this piece are of course very happy that a system that they were involved in developing in the end of the eighties will still be used.

VP and the larger participants are now reviewing and looking to address challenges in the present set up. ALL involved (Central Bank, CSD and Agent Banks) have a huge responsibility to contribute constructively to successfully restoring international confidence and to do so in an unbiased fashion.

Ulf Noren, Custody Sales, SEB

Goran Fors, Deputy Head of Investor Services, SEB

Denmark joined T2S during the autumn of 2018 and it is actually very difficult to perceive any positive effects. Leaving aside all the critical issues and huge embarrassment during the migration, it is today very hard to identify any advantages for Denmark as a non-euro market to be part of T2S.

The four Nordic CSDs all have extensive plans on future development of the business models and it is likely that we will see competition rather than consolidation. Today both VP and Euroclear Sweden offer Danish and Swedish kroner for issuing and settlement. The Game of Nordics continues...

Four countries, four currencies, four infrastructures but at the same time many similarities.

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