Empowering clients during adversity

New asset classes edge ever closer

Today’s investment landscape is exceptionally complicated, as low interest rates coupled with overvalued equities prompt institutions to explore the viability of new asset classes, including DLT (distributed ledger technology)-supported digital assets. These include CBDCs (Central Bank Digital Currencies), namely digital money issued by Central Banks, which many anticipate will be used to facilitate payments and settlements.  In addition to CBDCs, experts believe that tokenisation – or fractionalisation – of publicly traded assets (e.g. equities, bonds, derivatives), private markets (i.e. private equity) and real assets (real estate) – will gather momentum too. This will involve tokenised versions of these assets being issued on a DLT. Their fractionalised nature means that the tokens will be much cheaper to buy in what could lead to both increased retail investment and market liquidity. 

Just as the Internet took 25 years to become what it is today, David Durouchoux, Deputy CEO, SG FORGE, Societe Generale, said DLT and digital assets will undergo a similar transition.  As more investors express an interest in digital assets, banks such as Societe Generale are launching solutions to support them. By leveraging the expertise of its parent company, SG Forge can provide digital asset structuring; digital asset servicing; and various ancillary banking solutions. Durouchoux said SG Forge is supporting many digital assets: settlement tokens (CBDCs or stable coins), utility tokens and tokenised versions of bonds, structured products and derivatives. He added SG Forge has already participated in a successful experiment involving the European Investment Bank (EIB) and the Banque de France – whereby CBDCs were used to settle digital bonds issued by the EIB in a DvP operation. If digital assets do flourish, then it could yield some major investment opportunities and efficiency gains which will benefit to clients. However, it is critical that investors engage with experienced providers when trading in digital assets.

Strengthening local markets

As investors move into new asset classes, many are also increasingly building up exposures to promising CEE (Central and Eastern European) markets including the Czech Republic. Tomáš Lněnička, Deputy CEO Central Securities Depository Prague, said a number of positive reforms had been implemented in the Czech market over the last 18 months. Most significantly, Lněnička said the pandemic had forced local market participants to make steps in the way of supporting virtual AGMs (annual general meetings) and e-voting, developments which are now likely to remain in place permanently. On the CSD side, Lněnička continued that the new infrastructure was being introduced and tested, while a new interface had been released to enable compliance with the CSDR (Central Securities Depositories Regulation). 

In terms of compliance with the CSDR and SRD 2 (Shareholder Rights Directive 2), Lněnička said the CSD was in close contact with the participants aiming smooth implementation without any negative consequences. Nonetheless, market participants are still awaiting further clarification on whether or not the European Commission will make the mandatory buy-in requirements for settlement fails discretionary under the CSDR’s Settlement Discipline Regime (SDR). Moving forward, Lněnička noted a number of other major initiatives are underway in the domestic market, including encouragement of its securities lending and borrowing system reaching eligibility of assets primary registered in CSD Prague for ECB collateral operations. Moving forward, Lněnička told TNF attendees that it will eventually be possible to use CSD Prague’s settlement system for T-bills - allowing for settlement in currencies other than the Czech Koruna. These improvements will be integral in helping to attract foreign investment into the domestic market.

Delivering efficiencies for clients

At a time when clients – including those in the asset management industry are facing difficult headwinds and mounting cost pressures – custodians have a role to play in helping customers contain their spiralling overheads. Alexandra Chauvel, client transformation leader at SGSS, highlighted that the bank is working on a digitalised and simplified onboarding system for funds.  This will help streamline the onboarding process for fund manager clients and SGSS itself. Onboarding can be quite onerous for all parties involved as it is often labour-intensive and requires a lot of documentation, particularly in areas such as KYC (know-your-client).  

“We are currently finalising the design of the solution with clients. We hope the tool will simplify the onboarding process for newly launched funds, in what will help enhance the user experience. We hope to release the system later in 2021” added Chauvel.

Once the solution is up and running for fund manager clients, Yvan Mirochnikoff, Head of Digital Solutions, SGSS, suggested the tool could possibly be extended to the bank’s custodian clients. By making the onboarding process easier, SGSS will be able to help clients net significant cost savings.

Supporting clients in a difficult trading environment

Institutions are facing a number of challenges. It is critical to engage with providers who understand local markets; have their fingers on the digital pulse and are constantly striving to deliver innovative solutions. By working with leading banks, institutions will be able to flourish during this difficult period.