Funds Europe looks ahead to the annual Sibos conference and its themes of digital acceleration and transformative technology.
October sees the second virtual Sibos, the annual congress of the banking cooperative Swift. For more than 30 years, it has been one of the leading events for the financial services industry with its emphasis on back-office processes, messaging standards and automation.
While primarily a banking organisation, Swift has branched out to other user groups including asset managers and other buy-side participants in an effort to widen the adoption of its messaging standards and improve the level of straight-through processing and automation across the industry.
These efforts have not always been successful. For the large banks, the investment in messaging infrastructure and implementing the latest International Standards Organisation (ISO) rules makes much more financial sense. It is the large transaction banks that suffer the most from a lack of automation, after all.
But as trading volumes have increased and technology has become more accessible, the buy-side adoption of messaging standards has risen. Manual processes still exist but are far less prevalent than they were.
While Swift’s status as an international standards body for financial messaging remains its core focus, it has sought to expand its remit and has often used Sibos as the means to do so. In recent years the conference has addressed general issues such as the rise of emerging markets, sustainable investing, the global financial crisis and financial regulation.
It has also looked to refocus itself as a fintech facilitator with its Innotribe initiative, an innovation initiative that brings a variety of financial services players and investors together. But there are still core Swiftian topics such as the legal entity identifier (LEI) initiative, launched in the wake of the financial crisis with the objective of granting a unique identity for all entities trading securities.
This year’s event will focus on digital acceleration, including the development of digital currencies and the digitisation of trade.
Funds Europe asked a number of asset servicers, standards bodies and Swift itself for their views on some of the themes to be discussed at Sibos, such as crypto custody, regulation, digital data standards and how Swift can remain relevant to the asset management community.
ALAIN ROCHER, HEAD OF KNOWLEDGE MANAGEMENT, STRATEGY AND MARKET INFRASTRUCTURE, SOCIETE GENERALE SECURITIES SERVICES
Will it become obligatory for custodians to have a crypto custody service?
Yes and no, because it all depends firstly on the nature of the cryptoassets concerned and secondly on the meaning given to the term ‘custody’. With regards to cryptoassets, it seems essential to distinguish cryptoassets with an issuer such as security tokens, utility tokens or even stablecoins and cryptoassets without an identifiable issuer such as cryptocurrencies like bitcoin and ethereum. Custody in the classic sense of the term is only possible for tokens with an issuer. For tokens without an issuer, it would be more relevant to speak of ‘position-keeping’ within the meaning of the Ucits and AIF directives. Concerning cryptoassets, when classic custody is not possible, record-keeping is the best option.
What is the most important regulatory development facing asset servicers?
It’s not an easy question because the notion of importance is a bit subjective, as it can depend on the asset services offered but also on regulatory news. However, many consider MiFID/MiFIR, (Market in Financial Instruments regulation) to be the ‘flagship’ of the different regulations governing our businesses. That said, all regulations are of course important. Regarding more particularly our asset services for management companies, it is the Ucits and AIFM directives that structure these activities the most. Currently, our regulatory concerns focus on ‘sustainable finance’ given the very ambitious objectives of Europe and on ‘digital finance’ given the possible impact of new technologies on our intermediation services.
RYAN CUTHBERTSON, GLOBAL HEAD OF PRODUCT, FINANCING AND SECURITIES SERVICES, STANDARD CHARTERED
What is the most important regulatory issue facing asset servicers?
It’s hard to narrow down to a single regulatory challenge. Depending on your footprint and focus, everyone will have different regulatory considerations and impacts. Regulatory change in general continues to be a major focus and spending point for asset servicing providers and our clients. The Uncleared Margin Rules are moving into their phase 5 and 6 rollout, which will impact a large number of previously unaffected asset managers. The Central Securities Depositary Regulation (CSDR) will finally come into force next year. As the ESG agenda picks up momentum, Sustainable Finance Disclosure Regulation (SFDR) and the EU taxonomy are in their initial stages of rollout, but more will come. At a local market level as well, we continue to see regulators introduce new measures to drive greater risk management and asset safety at a local level.
What is the biggest challenge when developing regulatory-related products and services?
The most important issue is how to get the data that the regulation is looking for. Where does that data sit, how does it need to be reported and what is the solution for building that bridge between the data that is required and where it needs to go? Technology innovation is offering more ways to solve these problems, but the information we need often sits on several systems and with different parties. Finding, analysing and translating that data into the format in which it is needed is the most important challenge we face.
EMMA KALLIOMAKI, MANAGING DIRECTOR, DERIVATIVES SERVICE BUREAU
What is the Unique Product Identifier (UPI) designed to do?
The UPI is designed to facilitate effective aggregation of over-the-counter (OTC) derivative transactions reported to trade repositories on a global basis. The UPI will assist authorities assess systemic risk and has been developed as an international standard (ISO 4914).
What are the reporting requirements?
The Financial Stability Board recommended that jurisdictions make the necessary changes to their supervisory frameworks to cater for UPI implementation by no later than Q3 2022. The Derivatives Service Bureau will be launching the UPI service in July 2022. The specific reporting requirements and timelines will depend on each jurisdiction. There are some examples of UPI regulatory adoption progress – CFTC 2.0 with respect to swap data reporting and Esma [European Securities and Markets Authority] draft technical standards for EMIR Refit as well as consultations in Australia, Singapore and the UK.
Is this something that affects asset managers, asset owners and other institutional investors?
All firms with an obligation to report OTC derivative transactions to trade repositories will need to implement the UPI to meet regulatory reporting requirements. Firms will need to determine whether they need to create or only consume UPI data.
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