Regulatory change, sustainable finance and access to data will be high on the list of priorities for COOs this year, according to Philippe Tassin of BNP Paribas Securities Services.
Change is a constant in the world of investing and 2021 is already gearing up to be a year of significant transformation. Speaking at the recent Investment Operations Conference in Sydney, Philippe Tassin, Head of Asset Owners and Managers Client Lines at BNP Paribas Securities Services (BNP Paribas), pinpointed the three main challenges for buy-side clients this year.
Regulatory change on a global scale
Firstly, global asset owners and managers are currently adapting to new European Regulations. The European Commission on 24 September 2020 adopted a new Capital Market Union (CMU) action plan. The plan sets out 16 legislative and non-legislative measures to deliver on three main objectives (i) support a green, inclusive and resilient economic recovery (ii) make the EU an even safer place to save and invest long term (iii) and integrate national capital markets into a genuine single market.
The aim of CMU is to get money – investment and savings – flowing across the EU so that it can benefit consumers, investors and companies regardless of where they are located.
“These changes will not only allow for stronger integration of financial markets but will also help to facilitate access for all investors to wider sources of financing,” Mr Tassin noted.
BNP Paribas is also working closely with clients to help them adapt to another EU initiative, the Central Securities Depositaries Regulation (CSDR), which aims to harmonise securities settlement industry in Europe. This regulation will address settlement fails, with cash penalties for failed transactions along with mandatory buying requirements.
“CSDR is a positive step forward for settlements but it is a change that will impact all asset managers and asset owners who settle in the EU region. Therefore, we have created a set of guidelines to help clients adapt and adjust to these changes,” Mr Tassin said.
Greater transparency around sustainability
Sustainable finance is another area that continues to gather pace, with Sustainable Finance Disclosure Regulation (SFDR) in Europe now in place and other nations around the globe ramping up a similar focus on ESG disclosure.
“SFDR is a significant step forward on the path to sustainable transparency, by requiring all financial market participants – not just ESG focused firms – to disclosure how they manage sustainability risks,” Mr Tassin said.
The legislation requires market participants to describe how they are delivering transparent and quantifiable investment objectives, such as disclosing how they measure and track ESG progress at both the business and investment level, as well as comparing the overall sustainability-related impact of their financial products.
“In practical terms, SFDR will affect all asset management and advisory firms globally, including those in Asia Pacific who have UCITs products, provide asset management advisory services to EU asset managers or owners or market and sell funds to firms in the EU,” according to Mr Tassin.
“We are also seeing similar trends in Singapore and Australia, with governments increasingly steering asset owners and managers to a stronger sustainability focus.”
Mr Tassin said asset owners and managers who are not investing sustainably will increasingly have to justify their investment decisions and publish the relevant information on their websites.
“Those industry participants who are claiming to be ESG managers or owners will need to demonstrate that they are walking the talk. BNP Paribas can work with these clients to help them to define what is appropriate,” he said.
The digital finance explosion
Another challenge includes how the buy-side grapples with the need to consolidate, analyse and report on significant amounts of data, while also adapting to changes such as the rapid rise of digital finance, such as cryptocurrencies.
The EU recently proposed a new regulatory framework on crypto-assets, which is designed to boost innovation in the sector while also protecting investors from risk. The ‘Regulation on Markets in Crypto Assets (MiCA) will provide legal clarity and certainty for crypto-asset issuers and providers.
Closer to home, the Australian Securities and Investments Commission (ASIC) is taking part in the Global Financial Innovation Network (GFIN), a program to improve the cross-border testing process for a range of new firms, including fintechs and cryptocurrency providers.
According to Mr Tassin, one of the biggest challenges for asset owners and managers is the time and cost involved in engaging and working with an ever-expanding group of fintech companies.
“The need for investment in data and technology may suggest only the bigger players will survive, but we are working with an increasing number of family offices and smaller funds who are taking a partnership approach to connect with third parties and ensure they obtain the relevant information and data they need.”
“For example, to comply with EU carbon footprint benchmarks BNP Paribas Securities Services contracted with seven different data providers. Our strategy is working with an open architecture model, so if a client wants specific data points, we can bring value to the end-to-end process,” Mr Tassin concluded.