Volume 13, 2020-2021

Each volume of Journal of Securities Operations & Custody consists of four quarterly 100-page issues. Articles scheduled for Volume 13 are available to view on the 'Forthcoming content' page. The articles published in Volume 13 include:

Volume 13 Number 1

  • Editorial
    Simon Beckett, Publisher
  • Practice papers
    Why the experience of COVID-19 will accelerate progress towards digitalisation and automation
    Mariano Giralt, Managing Director, Global Head of Tax and Regulatory and EMEA Digital Lead, BNY Mellon Asset Servicing

    This paper explores the weaknesses within securities operations highlighted by the coronavirus disease-2019 (COVID-19) pandemic and considers the extent to which COVID-19 will serve to accelerate progress towards a more digitised and automated industry. It is illustrated with a review of the practical challenges that the COVID-19 lockdown caused for obtaining tax relief on overseas investments. These challenges arose primarily from the difficulties involved with moving the paper documentation — including physical documents with wet ink signatures — needed to obtain withholding tax relief. An often cumbersome, costly and time-consuming administrative process in normal times, COVID-19 exposed its vulnerabilities, leading to a backlog of claims.
    Keywords: digitisation, automation, standardisation, withholding tax, COVID-19

  • Transitioning into the next normal: Capital markets redefined
    Lisa O’Connor, Head of Capital Markets Strategy, SWIFT

    Challenged with the unprecedented impact of COVID-19 and a challenging geo-political landscape, the financial industry has positioned itself in survival mode for 2020. There is, however, a silver lining, and there has been much discussion recently about how the pandemic has accelerated digitisation, among other trends. On the back of this industry momentum, this paper highlights some digitisation trends improving areas, such as social capital, operational flows, business prospects and industry collaboration. The paper also shares what the industry can look forwards to in its next normal and fundamental considerations when working with evolving technology advancements to maximise its potential.
    Keywords: agile work environment, digital connections, evolving market structures and platforms, market utilities, cloud infrastructure, industry consortiums for innovation, interoperable digitisation strategies, streamline shared resources, regulatory reprioritisation, APIs, standardisation

  • Common challenges of data governance
    Rajib Chakravorty, Director, Vinayak Data Management

    This paper focuses on the challenges that an organisation faces in the implementation of data governance. The inclusions in the paper range from the definition of ‘data governance’ to leadership participation, data strategy, roles and responsibilities, related budgets and ownership, training and communication plan, organisational cultural aspects (with respect to data) and business value for sustainability of data governance. The paper elaborates some of the challenges and highlights the lacunae in the process like business value of data governance. Before creating any governance structure, it is required to spend more time contemplating the ‘prime directive’ for data management. And the prime directive is straightforward and simple. It means to deliver to the end user, data that they have trust and confidence in, and that is precisely what they expect it to be, without the need for manual reconciliation and multiple transformations. This is the goal of data governance. The paper also provides in-depth information about data governance and why it is critical for organisations. In this paper, one will get an overview of the challenges involved and how data governance can help the organisation; a clear idea of the benefits and risks; a look at practical, real-world examples and the details of the components of an effective data governance programme. In addition, it will also articulate the characteristics of a data-driven culture and the 8-Point Data Governance Model that can be utilised to design and develop a scalable, fit-for-purpose data governance programme for any organisation.
    Keywords: data governance, data quality, data silos, data strategy, sustainability, data ownership, data culture, principle, metrics, data stewards

  • Principles for effective automation in post-trade processing: Part 2 — thought experiments for friction-free trade processing
    Martin C.W. Walker, Director of Banking and Finance, Center for Evidence-Based Management

    This is the second of a two-part series. Part 1 published in issue 12.4 of this journal described a model for gathering the data needed to understand how well automation was working in trade processing and where to focus investment on. Collecting the right type of data in a cost-effective way is essential to understanding which problems to focus on and also measuring the success of solutions put in place. Is it possible, however, to start with a clean slate where most sources of friction and complexity in trade processing simply cannot exist? This paper defines two models for trade processing that seek to eliminate the core sources of problems in three areas: trade capture, including trade enrichment; creating and maintaining consensus on the details of a trade; and correctly and consistently generating the trade events that come after execution, including those related to settlement. The first model, ‘T-Instant’, is based on creating a completely centralised and vertically integrated utility for trading, trade processing and issuance of securities. The second is a more distributed model called the ‘Continuous Consensus Model’ where parties to a trade can agree on a data model and data processing model that are combined with the ‘pairing’ rather than the matching of trades. This model allows for the continuous real-time identification of differences and also the sharing of data to help with a consistent view of a trade between all parties involved.
    Keywords: exchanges, trading, post-trade, capital markets, STP, T-Instant

  • Challenges and regulatory prospects in EU cross-border UCITS/AIF registration
    Josef El Semari, Vice President and Head of Global Fund Registration Department, ACOLIN Europe

    The European investment fund market remains strongly nationally fragmented. Most of the asset managers in Europe distribute their funds only within their own country. They abstain from cross-border funds distribution due to very varying and complex regulation within European countries. Entering new European markets to distribute funds still proves to be time- and resource-intensive, despite European Union’s (EU) efforts to harmonise the relevant legislation across Europe and allow free exchange and flow of capital. The investor shall therefore come into the benefit of more choice, better value and greater protection. This paper takes a closer look at the current situation of the fund’s distribution in Europe in light of the recent legislation updates, pointing out potential challenges and possible outlook on the future of cross-border fund distribution. It outlines the findings from the practical experience of the Global Fund Registration Team of ACOLIN Group, based on its daily practice of assisting clients in entering new markets and maintaining funds under multiple jurisdictions. Some examples illustrate concrete hurdles asset managers face on a regular basis when distributing funds cross-border in EU.
    Keywords: funds distribution, European fund market, Capital Market Union, cross-border distribution, UCITS directive, AIFMD, third country passport, Brexit

  • The sustainable investment assessment: Data and methodologies
    Maryse Gordon, Business Development Manager, Data and Analytics, Information Services, London Stock Exchange Group

    Sustainability has been making an impact across many industries, and within Financial Services, it has changed the methods and motives in which investors grow their wealth. The data and analytics surrounding sustainable development goals have been key to providing the right information to determine the effects, whether they be risks or opportunities, of an investment, and whether it aligns to an investor’s sustainability objective. As the scope of information available and the methodologies for assessing, qualifying and using this data continues to evolve, the pre- and post-trade world is working towards integrating this notion into their business strategies and aligning to new adviser and investor values. Using examples in Fixed Income from Beyond Ratings delivered via The Yield Book, London Stock Exchange Group, this paper will discuss some of the sustainable data available within financial services, how effective qualitative and quantitative data elements are in this analysis, and how the pre- and post-trade communities have been adopting these data elements into their processes.
    Keywords: sustainability, data, analytics, ESG, regulation, investment

  • Outsourcing and collaboration: What to expect now?
    Clive Triance, Founder, Cognitive Tiger

    The world is changing faster than has ever been seen before, technology is accelerating everything, artificial intelligence is here, robotic engineering is happening, natural voice and language technologies are beginning to become real-voice technologies, the lines are blurring, and the way customers, clients and consumers demand interaction has changed forever. The pressure from fintech development is brutal. It is fast and it is disruptive, and in the midst of all this, many large organisations are affected by falling profits due to the COVID-19 crisis. This paper discusses how these firms need to be able to articulate their values clearly to their buyers of services and they need to remain relevant in the ‘new normal’. It analyses how, to survive and thrive, large financial services firms need to uncouple expensive costs for non-differentiating processing and the associated support and redirect their investments to things that add value and form their unique selling proposition. Across the board in financial services, large global and regional firms are reconsidering their operating models and accelerating to find global trusted partners that offer complete outsourcing solutions. The options are to change now or to become meaningless, potentially obsolete. For those that move quickly, uncouple people and information technology costs and deliver the changes that matter, then the picking will be rich, but the window is small for everyone and closing fast. The next generation has a different view of what they want and how they want it. It is time to plug in to change or be left behind. How will you change to meet this challenge?
    Keywords: outsourcing, cognitive change, trusted technology partnerships

  • Tax policies and developments affecting foreign portfolio investment in sub-Saharan Africa
    Celia Becker, Africa Regulatory and Business Intelligence Executive, ENSafrica

    Despite the increase in nonofficial cross-border capital flows to sub-Saharan Africa following the 2007/2008 global financial crisis, the region is still receiving a limited amount of foreign portfolio investment (FPI) compared to other developing markets. This paper seeks to explore the factors explaining sub-Saharan Africa’s lack of FPI and what measures could be implemented to encourage FPI in the region. The key takeaways of this paper are: Tax structures have been identified as one of the key impediments to FPI in Southern Africa. Although various sub-Saharan jurisdictions exempt capital gains on the disposal of listed shares from tax, significant withholding taxes are generally levied on dividend and interest payments to foreign investors. Mauritius, a popular hub for African investment, has recently been under the spotlight with a number of sub-Saharan African jurisdictions terminating or amending their tax treaties with the country or introducing domestic antiavoidance measures to combat perceived treaty shopping. This is expected to have a negative impact on investment flows through Mauritius. In addition, coronavirus disease-19 relief measures introduced by sub-Saharan authorities focus on safeguarding local businesses and foreign direct investment rather than FPI. The quality of governance is also a significant factor in attracting net portfolio inflows, and there is a clear need in sub-Saharan Africa for simple, efficient tax systems and appropriate tax incentives to support investor-friendly policies and encourage and stimulate FPI.
    Keywords: COVID-19, domestic antiavoidance, foreign portfolio investment (FPI), governance, investment hub, sub-Saharan Africa, withholding tax