Volume 23 | Issue 01 | March 2016
Riding the Glorious Revolution Time for UK pension schemes to look for specialists
Sikko van Katwijk,
chairman Managing Board
“We truly want to be a network bank for our clients”
Pensions-Akademie
New initiative to strengthen
occupational pension schemes in Germany
Content
3
Learning and collaborating
in order to move forward
Chairman’s Foreword
4 Sikko van
Katwijk on
the vision and
mission of
KAS BANK
A modern custodian must be
more than a keeper of
securities alone, says Sikko
van Katwijk. “Together with
all of its stakeholders, it
must think about the
question of how securities
can best be protected and
developed. A network of
knowledge specialists is
essential for that.”
7
10PensionsAkademie
New initiative
to strengthen
occupational
pension schemes
in Germany
KAS BANK Germany
supports a new initiative in
Germany, the “PensionsAkademie”, that aims at
putting important themes as
administration and
transparency on the agenda
of small and medium-sized
institutions.
12
Does TARGET2-Securities live
up to its expectations?
We asked Frederic
Hannequart, Chief Business
Development Officer,
Euroclear for the opinion
of Euroclear on TARGET2Securities.
8 Riding the
Glorious
Revolution
When it comes to pensions
we often see comparison
drawn between the systems
of the Netherlands and the
UK. However, in order to
benefit from each other we
have to first understand the
fundamental differences
between the two countries.
Comments on this issue, suggestions for future
articles and mailing list requests should be
addressed to [email protected]
UK Branch
Managing Director:
[email protected]
German Branch
Managing Director: [email protected]
Knowledge Sessions leads
to in-depth dialogues
KAS BANK Amsterdam
decided to take a new
approach to their traditional
New Year’s Reception this
year. How? By having
specialists from various
disciplines discuss subjects
currently relevant in the
financial sector. The result:
four very well-attended
Knowledge Sessions on
Thursday 21st January.
15
Cost Transparency in UK
Pension Funds – Mission:
Possible
Stewart Bevan, KAS BANK
UK Branch
16
Xander den Uyl, chairman of
the Asset Owner Advisory
Committee PRI
"Encouraging voluntary
cooperation is, ultimately,
far more effective than
compulsion".
18
EMIR is here to stay
One of the key points of
EMIR, central clearing of OTC
derivative transactions, has
now become a fact of life. In
its wake, liquidity
management and
management of liquidity
risks are receiving
increasingly close attention,
writes Geert Jan Kremer,
Managing Director Treasury
at KAS BANK.
20
Three advantages of
securities lending
Securities lending has
traditionally acted as a
lubricant for the financial
markets. It is also an
excellent aid to generating
liquidity for collateral
requirements under EMIR.
22
Brink’s View - How a chore
can also be a joy
Seeing everything we face in
terms of laws and regulations
as an opportunity rather than
a heavy burden would do
wonders for our job
satisfaction.
Translations
Wilkens c.s.
Print
KAS BANK, Document & System Services
Editors
Emma Craig, KAS BANK UK;
Robbert Veltman, KAS BANK
KAS Selections is a quarterly newsletter from
KAS BANK N.V. Although the information in this
issue is drawn up with the utmost precision, no
rights can be derived from it.
Graphic Design
Koeweiden Postma
March 2016
Learning and collaborating
in order to move forward
Welcome to the latest UK edition of KAS Selections. This March marked the 210th
anniversary of the foundation of KAS BANK which has given me the opportunity to
reflect on our history and our vision for the future. I hope in our first article this issue
I can provide our readers with a clear understanding of who we are now and what we
see our role as in the coming years.
We also touch on some key developments we are seeing unfold in the areas of
pension fund governance such as upcoming regulation, including EMIR, ESG and Cost
Transparency. The last few months have seen increasing debate and discussion on
these issues across Europe and we bring perspectives on these conversations from the
UK, Germany and the Netherlands. Pat Sharman and her team in the UK are working
hard to further increase education on topics close to the heart of the pensions
industry in the UK. In this issue they share their views on how we can work together
to improve outcomes for pension funds and their members.
We hope that you continue to participate in the debate with us over coming months,
much as our clients, friends and partners have done over the last 210 years. We find
ourselves constantly learning and collaborating in order to move forward in the best
way possible for our clients and I look forward to the discussion in months to come.
Sikko van Katwijk
Chairman of the Managing Board
3
SIKKO VAN KATWIJK ON THE VISION AND MISSION OF KAS BANK
“Working together with
specialised partners is
always in the interest
of the client"
4 | KAS SELECTIONS | Maart 2016
On 10 March 2016, KAS BANK celebrated 210 years since
our foundation in 1806, a respectable age indeed. But the
saying that you’re as old as you feel applies here too.
“I actually see KAS BANK as a continual “start-up”.
Throughout our 210 years we have continually been
adapting to developments within the financial markets.
We were formed in 1806 as a bank, at a time when
financial service providers had little trust in each other.
Many businesses failed because they issued credit for
many times more than their own cash funds. The business
model of the Associate Cassa was different - it ran no risks
with the clients’ securities. In that sense, nothing has
really changed in 210 years. We still work with a low risk
profile; we issue credit only on the basis of collateral that
our clients surrender; and we do not trade for our own
account. In that respect, therefore, we are conservative.
The rating agency Fitch recognises that policy with an
A- rating.
The development of our Custodian Principles is a continual process. We also associate the principles with the three
core values of KAS BANK: Commitment, Connectivity and
Professionalism. Clients, supervisory authorities, shareholders and other stakeholders can always call us to
account for these. In a certain sense that makes us
vulnerable - you continually have to live up to what you
say - but it also shows that we take matters such as
transparency and responsibility to our clients and the
market very seriously.”
How is this then translated in the strategy, vision and
mission of KAS BANK?
However, for 210 years, we have shown all the features
of a “start-up”. We follow developments in the market
and among our clients, but also take the lead. That is
only possible if you identify trends and possibilities and
translate these in new services and products. In this way,
we have already continually been realising an up-to-date
interpretation of the term “custodian” for more than 200
years.
“Our strategy is aimed at organic growth and continuity in
the long term. Our clients enter into long-term relationships with us; this means that we have to be able to trust
each other completely. It also means that we have to
invest in relationships with potential new clients.
No over-hasty decisions are taken in our business.
We see this clearly in the UK and Germany, where we
focus entirely on growing new business in the pensions
sector. Our name recognition has grown spectacularly in
the past year, but that has not yet translated directly into
winning new clients because we focus on the long term.
I am convinced that good things are in the pipeline in
both countries.
In connection with this, we launched our “Custodian
Principles” last year. This is a set of moral and cultural
values that are leading in our actions and in our relationships with our clients and with the environment in which
we all operate. What is a custodian? Who do you keep
securities for, and why? In short, what is the social
relevance of a custodian?
In the Netherlands, we do have strong name recognition,
but other factors play a role here. Take the shrinkage in
the pensions sector: Pension funds are disappearing or
merging. The pensions market is therefore gradually
shrinking in terms of independent funds, but is growing in
terms of assets held per client. We are well-positioned to
serve that changing market with the right products. >>>
What is the added value and the social
importance of a custodian in a continually
changing environment? And how is that
translated in the vision and mission of KAS
BANK? As Chairman of the Managing Board,
Sikko van Katwijk thinks about that a great
deal. “A modern custodian must be more
than a keeper of securities alone. Together
with all of its stakeholders, it must think
about the question of how securities can
best be protected and developed. A
network of knowledge specialists is
essential for that.”
5
In the coming five years,
the market will increasingly
move towards reporting and
accounting
Cooperation takes priority here. We want to share our
knowledge of the market - whether that concerns pensions, Solvency II, EMIR or the Validation System - as far
as possible, in order to realise the most effective solutions
for our clients. That strategy is catching on, for the Assets
under Administration at the bank are gradually rising.
This indicates confidence in the market.
Our vision of modern ‘custodianship’ is that we want to
be a network bank for our clients. One of the features of a
start-up is that it works as much as possible with partners
that are outstanding in their professional fields. Doing
everything yourself is no longer the way things are done.
Our clients also opt for KAS BANK because they count on
our machine working under all circumstances. For that, the
various parts must meet high quality standards. For this,
we work with providers that are the best in their professional fields. For our EMIR clearing proposition, we can use
the balance sheet of ING for example, while we provide all
collateral management for the client. Together with
Rabobank, we have launched overlay management on an
agency basis. Our partner for registration and deregistration of non-listed shares with Global Fund Services is All
Funds. Finally, the investment administration of all clients
is conducted with the highly advanced package of SimCorp
Dimension.
Working with specialised partners is always in the interests
of the client. Our task is to connect all the incoming data to
the technical infrastructure. That is the basis for error-free
processing and high quality reports. These range from
regulatory reports to De Nederlandsche Bank (Dutch
Central Bank) to ESG screening of the responsible investment policy of investment funds and charitable institutions. As a result of increasing regulation, liquidity and
collateral management are becoming more and more
important for all trading parties. By delivering high quality
solutions, we can provide optimal support for all client
groups.
Our mission is to create a win-win situation for our clients.
By outsourcing part of their work to us, they can design
their own organisations as efficiently as possible in order to
realise their corporate goals. They are supported in this by
experts in their professional field. On the operational level,
for example, we enter into long-term partnerships with
organisations that take over part of the operational risk.
Our clients notice nothing of this, but do benefit optimally
from the advantages.”
6 | KAS SELECTIONS | March 2016
The capital markets are changing fast. How do you
foresee developments in the coming five years?
“We see that the balance of power in the market is
changing. Power is shifting from intermediaries back to
owners of securities; this is partly the result of increasing
transparency in the entire investment chain. All parties
involved must make how, and with what, they earn their
money increasingly clear. We welcome this, although it is
not, by definition, in our favour. For the more that transaction costs fall, the more we shall have to earn our money
still more effectively by providing specialised services.
In that regard, market developments are in progress that
are of major importance for us and for our clients. There is
a growing need for up-to-date insight into the performance
of investment portfolios. As a custodian, we possess a great
deal of information that we can make accessible to our
clients. Good and reliable valuation of investment portfolios therefore holds an increasingly important place in
relation to ‘simple safekeeping’. Our clients actively request
services and products that can assist and support them
with this. Taking over administrative tasks and reporting
obligations for our clients as far as possible allows them to
focus on realising their investment performance.
Another trend we see developing is socially responsible
investment. The social pressure to invest responsibly is
growing all the time. Returns do remain crucial, but no
longer at any expense. Investors and participants in
pension funds want to know what their money is invested
in. An independent ‘look through’ of the investment
portfolio is essential for this. We can provide that to the
line level and report on this.
In the coming five years, the market will therefore increasingly move towards reporting and accounting. That offers
ample opportunities for KAS BANK. A good partnership
with our clients and suppliers is essential here. We learn
from our clients and our clients learn from us. Together,
you then realise the best results. Sharing knowledge
therefore helps us all.
At the same time, we cherish our independent position in
the market. We feel a strong social responsibility to keep,
protect and develop the securities entrusted to us as well
as possible. Only in that way can you honour 210 years of
trust, every day again.”
Does TARGET2Securities live up
to its expectations?
Since 22nd June 2015 TARGET2-Securities has been a fact. With this new unified
platform for processing settlement instructions the European Central Bank strives to
make the European capital markets more efficient and cheaper and thus more
competitive. Whether this goal has indeed been achieved is, according to many
market participants, still questionable. We asked Frederic Hannequart, Chief Business
Development Officer, Euroclear for the opinion of Euroclear on TARGET2-Securities.
The first experiences with the platform and the impact
on the settlement process show that the member CSDs
still apply different instruction standards. As a result the
intended harmonisation results are not met yet. How
does Euroclear see the initiatives of the ECB and the
CSDs to achieve greater standardisation? How will T2S
change the market? ?
Europe’s capital markets are likely to become even more
attractive, post-T2S implementation. T2S will reduce
European fragmentation, creating a single integrated
settlement model. It will also make securities settlement
safer and more efficient resulting in Europe attracting
more issuers and investors. For investors, Europe will
become easier to access and invest in and at the same
time, issuers will benefit from having a broader pool of
investors. T2S will undoubtedly make Europe’s capital
markets more efficient for domestic and international
investors. We already see that some of our clients are
focused on managing liability in light of evolving regulations that encourage firms to have accounts in a securities settlement system, such as a CSD or ICSD, bringing
them closer to the settlement infrastructure.
From the start of the T2S project in 2006, many ambitious estimates have been made of the possible decrease in settlement fees and other tariffs. To date, KAS
BANK does not see a clear tariff reduction. When do you
expect that the market will see this effect?
There will be cost savings when T2S is implemented,
resulting from the inherent efficiencies and scale savings.
Following T2S implementation, a client that centralises
activity in a scale provider will create cash pooling and
netting opportunities across all T2S countries, resulting in
reduced credit consumption for settlement.
In the long run, the total settlement costs may be
expected to partially reduce, as it will ease cross border
settlement and enable further competition between the
European CSDs. This may lead some CSDs to revise their
settlement tariff. As the running costs for the CSDs
connected to T2S will not change substantially and T2S
adds an extra cost layer, fee reductions may be implemented gradually once there is a clearer picture of
impacts on volumes and harmonisation. On the custody/
safekeeping side,T2S does not have a material impact on
CSDs costs; any changes to safekeeping fees are therefore
likely to be for other reasons.
ESES will now migrate in September 2016 under the
revised migration plan. This will provide us with the
necessary time to safely conduct our T2S adaptation
programme and to support our ESES markets in this
transition. We continue to invest and provide the
necessary expertise to complete this project with a
minimum of delay. As Europe’s leading post-trade
infrastructure, we remain committed to the safety,
stability and resiliency of the marketplace.
7
Riding the
Glorious
Revolution
On 9th August 2012, Charlotte Dujardin, the young
British dressage rider, buoyed by success of the
team gold days earlier, rode her Dutch horse Valegro
to victory and the individual Gold Medal at the
London Olympics with a score of 90.089%.
This Anglo-Dutch partnership has been recognised
as one of the greatest of all times remaining
unbeaten together since 2012. Since well before
the Glorious Revolution of 1688, where the English
Mary Stuart and the Dutch William of Orange
ascended the British throne, the history of both
the UK and the Netherlands has run side-by-side,
often competing, sometimes collaborating but
always learning from each other.
When it comes to pensions we often see comparison drawn between the systems of the two
countries. However, in order to benefit from each
other we have to first understand the fundamental differences between the two countries. In
headline numbers alone there is a clear difference
of scale between the UK and the Netherlands.
Workplace Pension Provision UK vs Netherlands
In the DB market the UK is clearly undeveloped in
comparison to the Netherlands. Regulatory led
consolidation of Dutch schemes in the wake of
the financial crisis of 2008 has resulted in
schemes merging together to achieve greater
efficiencies. Scheme governance has been
increasingly professionalised in order to maintain
the long term sustainability of these open DB
schemes.
In contrast, outside of the Local Government
Pension Schemes, the majority of UK DB schemes
are closed or closing to further accruals and new
members. Consolidation is much debated but
only 5% of schemes are now in a fiduciary
8 | KAS SELECTIONS | March 2016
Pat Sharmann, Managing Director
KAS BANK UK Branch
management type of structure. This leaves a
significant proportion of DB schemes in the “small
to medium” category, where services levels by
providers can vary dramatically unless they are
serviced by specialists who focus on their needs
rather than those of the very largest schemes.
In the DC pensions market, the UK is clearly
forging ahead of the Netherlands. Since AutoEnrolment was introduced compulsory provision
of workplaces pensions has focussed on providing
DC coverage to employees. As a result the market
is growing rapidly and while active membership of
DC schemes has already taken over that of DB in
last year, it is predicted that assets held in DC
schemes will exceed those of DB by 2020 at the
latest. On the continent debate still rages about
the future of pensions provision and it is clear the
UK has much to share on the topic of DC provision. All of this is even before discussing the
outcomes of “Freedom and Choice” in the UK and
the ever-changing nature of retirement.
UK
Occupational Pensions
AUM
£2,140bn
NL
£942bn
71/299
95/5
38%
92%
Number of DB schemes
6057
≈230
Average Funding Level
82.3%
105%
Trust-based
& contract-based
Collective Defined
Contribution
DB/DC split (%)
Wage Replacement Rate
Types of DC scheme
Matching service to client needs
If we look specifically at the small to medium sized DB
schemes in the UK, as a custodian we can see that the
provision of custody and associated services is different to
that of the Netherlands. In the UK leading providers of
custody services tend to be universal banks, whose focus is
on a global business across their diverse business structure. These banks want to grow their business in sectors
that buy globally across all business streams. UK pension
funds, aside from the very largest, don’t tend to fit this
profile. What then does this mean for these pension
funds?
•Pension funds are not the key target group for these
banks
•Innovation is not focussed on tools for pension funds
•Client service is not centred on specialist knowledge of
pension funds
•There is a lack of local knowledge and a personal
approach
In a consolidated and developed market such as the
Netherlands, with complex regulatory reporting to the
DNB for pension funds, custodians have had to become
specialists. It is interesting to note that as a specialist,
local, pure-player in the custody space KAS BANK now
works for over 35% of Dutch pension schemes.
Until now, UK pension funds have not had access to a
proper partner that can work with them and their advisers
with a knowledgeable view to their long term goals.
So what next?
It is clear that for the UK, the Netherlands can offer
opportunities for collaboration and knowledge sharing in
order to bring over best practice examples that will benefit
DB pension funds here. In reverse, the UK can share our
experiences of a maturing DC market.
Innovation prompted by regulatory reporting is a good
starting point for the UK, in particular Cost Transparency.
However, we can only benefit from this if we apply this
Dutch knowledge with an understanding of the UK
pensions market and our differences. A key area of
difference that we must acknowledge if we are to utilise
Dutch developments is the role of the consultant here in
the UK. Advisers to pension schemes play a central role in
our industry. We must ensure that we work in partnership
across the industry in order to affect change where
necessary and tailor Dutch knowledge to UK needs.
We can also learn from the specialisation of the Netherlands; here in the UK we have a dedicated pension’s team,
separate to those that specialise in working with our other
clients, whose task it is to understand pension funds here
and provide them with the level of service and understanding that a Dutch pension fund should expect.
Much like Dujardin and Valegro building up to 2012, our
hope is that our Anglo-Dutch partnership brings UK
Pension Funds their gold medal.
9
KAS BANK SUPPORTS THINK TANK FOR ADMINISTRATION AND TRANSPARENCY OF
OCCUPATIONAL PENSION SCHEMES IN GERMANY.
Pensions-Akademie New initiative launched to
strengthen occupational
pension schemes in Germany
F.l.t.r.: Jürgen Scharfenorth, Frank Vogel (Board
Members of the Pensions-Akademie), Dr. Thomas
Schäfer (Hessian Minister of Finance) and Michael
Reul (Member of the Advisory Board).
In the German pensions landscape
several associations exist which mainly
focus on topics about asset
management, investment, HR, legal or
tax. Despite increasing importance,
especially for small and medium-sized
institutions, administration and
transparency around pension fund
investments are somehow rarely on the
agenda. It is precisely this field that a
new initiative in Germany - “PensionsAkademie” - is aiming at.
As a founding member KAS BANK is taking a lead in
supporting this new association which unites representatives from the pension industry, science and politics who
are committed to jointly strengthen occupational
pensions in Germany. From the launch in November
2015 the “Pensions-Akademie” already has a prestigious
advisory board consisting of Karl-Peter Bertzel, Board
Member of the Berolina pension fund, subsidiary of
Unilever Germany Holding GmbH; Andreas Fritz, board
member of PKDW Pensionsfonds der Deutschen
Wirtschaft; Professor Thomas Keil, Provadis School of
International Management and Technology AG; and
Michael Reul, Member of Hessian State Parliament.
10 | KAS SELECTIONS | March 2016
Frank Vogel, Managing Director of KAS BANK German
Branch has been appointed as Chairman of the board
and Jürgen Scharfenorth, Managing Director of JS
Financial Services & Consulting has been named as his
deputy.
Administration of occupational pension schemes is
becoming increasingly important
In times of demographic change, continued low interest
rates and a simultaneously growing supply gap, strengthening and broadening occupational pensions is an
absolute necessity for the Pensions-Akademie and its
members. The requirements for pension schemes are
high and rising steadily. Especially as small and mediumsized pension schemes and corporate investors reach
their limits. In such a challenging market environment it
is imperative that we focus on transparency and administration around investments of occupational pensions,
which offers potential for optimisation and so called
“Administration Alpha”.
Pensions-Akademie offers the opportunity for collaboration and knowledge transfer
The common purpose of all members of this new
community of interests is to build and transfer knowledge, to strengthen its members and support the growth
of the occupational pension schemes in Germany. With
an intensive and specialized array of topics the PensionAkademie gives its members an added value in the
German pensions landscape. Besides pure knowledge
building and the exchange of information and expertise,
the Akademie offers representatives of occupational
pensions the opportunity to network, interact and learn
by best practice through a variety of events. Thus members gain a decisive advantage over the market and
competitors as well as within their own organisation.
The Pensions-Akademie strives to find solutions to issues,
addressing challenges faced by its members and supports
them in local and international matters, with the goal to
reduce complexity and strengthen occupational pensions
in Germany.
A series of Round Tables of high interest for the pension
industry
The Pensions-Akademie provides a neutral platform for
opinion leaders and the participants to discuss and
interact with peers. Dedicated senior round tables and
regular events focus on current issues in the pension
industry. This helps build up and transfer knowledge in
various fields, with a special focus on administration and
transparency. Discussion and interaction is triggered by
keynote speeches from representatives of the industry,
politics or science.
The first Senior Round Table took place last year on 18th
November in Frankfurt am Main; around 20 participants
participated in a lively discussion about the current status
of the Reform of Fund Taxation and the challenges
pension funds are facing.
On 17th March the second Senior Round Table took place
at the Rocco Forte Villa Kennedy in Frankfurt am Main.
This time the Hessian Minister of Finance, Dr. Thomas
Schäfer, discussed the new pensions model “DeutschlandRente”, an initiative of the Hessian government and their
retirement benefit schemes (see below). His keynote
loosened a lively discussion amongst the participants.
Thus, the Pensions-Akademie became the facilitating
platform bringing the arguing parties closer to each other
and sharing ideas how to avoid possible pitfalls going
forward. And that is exactly what the Pensions-Akademie
stands for – a think tank for the pension industry.
The “Deutschland-Rente”
The “Deutschland-Rente” is an intensively discussed
initiative of three Hessian ministers with the aim to
avoid poverty in old age by establishing a supplementary pension in Germany which is attractive,
simple and affordable for everybody. The idea is to
create a central pension fund that is organised by
the government and administrates the contributions
of the German citizens. The contributions are
directly collected by the employer. The investments
of the deposited contributions are carried out on a
costumer paid basis by the central pension fund.
Due to an opting-out the employees gain automatically access to this additional pension scheme.
Investment risks will be minimized by a long term
investment horizon and the opportunity of a massive
scattering because of the funds size.
11
Knowledge Sessions
inspire participants
to have in-depth
dialogues
KAS BANK Amsterdam decided to take a new approach to their traditional New Year’s
Reception this year. How? By having specialists from various disciplines discuss subjects
currently relevant in the financial sector. The result: four very well-attended Knowledge
Sessions preceding our Dutch New Year reception in Amsterdam on Thursday 21st January.
The menu included four ‘courses’: the new Dutch General Pension Fund (‘Algemeen
Pensioenfonds’), Liquidity Management, Unbundling/Order execution; and ESG factors and
a responsible investment policy. Here are some highlights from three of those discussions.
Liquidity management under EMIR
The education session on Liquidity Management
focussed on the additional liquidity requirements
ensuing from derivatives clearing. Participants
discussed issues based on quiz questions relating
to the challenges regarding clearing, collateral
management and liquidity. Monique Jager-Smeets
from KAS BANK provided an explanation of the
answers to the quiz questions.
The scale of the cash margining problem for
pension funds was demonstrated in a calculation
example, where participants reached different
outcomes. In a long-term swap with a nominal
value of 100 million euros and a 0.25% interest
rate increase, the required variation margin can
quickly run up to 5% of the nominal value, i.e.
5 million euros. This is a considerable amount
that must be paid in cash.
Discussion quickly showed that more than one
solution to these challenges was possible in many
cases, depending on the specific interpretation or
situation. For example, according to current EMIR
regulations, pension funds have to start clearing
from August 2017. However, the European
Commission may grant another year of exemption
until 2018. Some participants even considered it
conceivable for regulations to be amended to fully
exempt pension funds from clearing requirements, as politicians increasingly admit that cash
margining for pension funds often leads to major
challenges.
During the explanation, it became apparent that
some participants wrongly assumed that the
variation margin amount depends on the counterparty risk. Equally, margin requirements do not
distinguish between bilateral and cleared swaps.
The question if cleared swaps incur a higher or
lower cost than bilateral swaps was therefore not
an easy one to answer.
12 | KAS SELECTIONS | March 2016
Clearing, on a voluntary or mandatory basis,
requires collateral and liquidity management on
a daily basis. in relation to bilateral transactions
we also see a trend towards cash-based collateral
management. In both cases, adequate govern-
ance and efficient operational processes are key. Questions
discussed in this context were: Is it useful to delegate
liquidity management to the various asset managers?
Or is it better to arrange this in a central structure to
prevent unnecessary cash drag? Which liquidity sources
are available? Does the pension fund want to apply
repurchases and securities lending as sources of generating liquidity?* And how much cash should be held?
Half an hour proved too short to discuss all statements.
Many participants therefore took on afterwards. They
were mainly curious about each other’s experiences
regarding the question of how parties clearing derivatives
can ensure optimal benefits, such as mitigating counterparty risk. The general consensus was that it starts with an
optimal structure of collateral and liquidity management.
Unbundling and Order Execution
MiFID II is coming - virtually certainly in 2018. Irrespective
of the eventual implementation date, it is already safe to
conclude that MiFID II will enhance transparency for
investors. One of the key points is separating (unbundling)
research and administration costs. Although the practical
implementation of unbundling is as yet not fully clear,
some countries have already started the process in
anticipation of further legislation and regulation. Investors
need to understand which costs they pay for what. This
also has consequences for the transparency of stock
market transactions. Therefore, both themes were
discussed in the Unbundling and Order Execution Knowledge Session.
Werner Schreiter (Optiver) and Mark van Weezenbeek
(KAS BANK) kicked off by outlining the meaning of unbundling and the current status quo.
13 | KAS SELECTIONS | Maart 2015
To start up the discussions, they asked the participants for
their opinion on current transparency in the entire
investment chain. The responses quickly made it clear that
everyone knows their own costs and often, also the direct
costs of the party before or after them in the chain, but
that after that, the transparency fades. One explanation is
that it is assumed that the chosen provider will give its
client the best care and will therefore be clear about the
costs for them. However, is every provider really transparent with regard to its execution costs? Hidden research
costs, for example, are still an everyday issue. It was found
that far from all participants knew exactly what they
should ask about. ‘I’ll ask my asset manager for a specification of its research and execution costs right away’, one
participant commented.
Various participants were able to explain the impact of
unbundling on their business model. Brokers and investment banks will have to deliver more added value in the
execution of transactions. Their ‘direct market access’
models - directly forwarding orders to a stock exchange
- will increasingly become a commodity or must-have, but
at very low prices. This will create a push-out market
where only the biggest players survive. New market parties
take the place of investment banks, the remaining brokers
will have to select a niche and clearly communicate their
added value.
Both sessions showed that the closer people are to the
execution of the transaction, the more transparent the
costs become. However, the final investor is far removed
from the transaction. Who has the obligation to shine a
light in the darkness? Should the investor more actively
ask for the cost structure? Or should those close to the
actual transaction disclose more? In general, most agreed
that both sides should play a bigger role. >>>
13
Photography: Jordi Wallenburg
MiFID II will in any event give investors many leads for
obtaining transparency, particularly with regard to the
execution costs of service providers in the chain.
ESG factors and responsible investment policy
Tal Ullmann (Sustainalytics) and Chris Sondervan (KAS
BANK) presented the Knowledge Session about Responsible Investment and ESG policy. From the lively discussions,
it was clear that this subject is very relevant to all parties in
the investment chain. For example, participants wondered
about the actual meaning of sustainability in asset management. Is it realistic to expect an asset manager to focus
on sustainability while being expected to achieve a certain
return on investments pursuant to the mandate? In the
discussion it became apparent that negative screening is
commonplace for most market parties. However, the shift
towards ‘Positive thematic and impact investing’ is gaining
visibility. Asset managers are not selected and remunerated based on their return rates only; ESG policy and
impact are also factors. Tal Ullmann pointed out that
sustainable investment is by definition long-term investment. This is associated with a different perspective on
return rates than ‘short-term wins’.
Another point of discussion was the question of where the
investor’s responsibility actually starts and ends. For
example, should investors get actively involved, ensuring
that the union rights of employees are respected? Or is the
investors’ role limited to selling their shares upon detecting abuses?
14 | KAS SELECTIONS | March 2016
A key point of attention was the question of how socially
responsible investment is best assured within an organisation. There are many guidelines, such as the Principles for
Responsible Investment, but these are often not mandatory in nature, serving more as recommendations than
explicit requirements. In this respect, Chris Sondervan
pointed out the possibilities of ESG screening and ‘look
through’ of the investment portfolio. This way, institutional
investors can have an independent party monitor their ESG
policy. The reports subsequently form a good basis for
communicating with all stakeholders on a pension fund’s
or investment fund’s responsible investment policy.
The scale and investment structure of a pension fund or
investment fund have a significant influence on the
practical possibilities with respect to socially responsible
investments. However, small and mid-size funds also show
a clear need of being more active in the area of responsible investment. Some participants were wondering what
can be reasonably expected of such funds. In general, the
conclusion was that the fund's continuity should remain
the highest priority, in order to guarantee future pay-outs.
At the end of both knowledge sessions, the presenters had
a surprise up their sleeve. The ‘Most Active Participant’
was presented a copy of the book ‘Profit of Sustainability’.
in this book, 25 experts present their view on the role that
businesses and professional investors can play in ensuring
a sustainable future, supported by practical tips and
examples.
*Page 16 features an interview with Xander den Uyl, the
Chairman of the Asset Owner Advisory Committee of
Principles for Responsible Investment.
Cost Transparency
in UK Pension Funds
Mission: Possible
Following on from my previous article, (‘Let’s Go Dutch’)
where I urged the UK pensions industry to learn from
the Dutch model, it has been encouraging to see that
recently, the Financial Services Consumer Panel (FSCP)
released a paper, entitled “The Drive Towards Cost
Transparency in UK Pension Funds”, which highlighted
the very same message.
The paper compares several leading pension jurisdictions
across the globe, and concludes that pension scheme
costs are best understood in The Netherlands. It recommends that in order to successfully implement cost
transparency in the UK we should learn from those who
already understand it best and use their example as the
basis for any standard here.
The paper goes on to propose that the UK should start
with a simple voluntary standard set by the industry as
quickly as possible, before the regulator feels required to
step in and enforces a mandatory reporting standard,
which is likely to be burdensome for many.
So, is this the most impossible mission yet?
Well, it shouldn’t be, but it depends on how difficult we
choose to make it. If we aim for the box office blockbuster, delivering the perfect outcome whilst zip-wiring
across high-octane explosions we are likely to incur
difficulties. But the solution doesn’t need to be that
complex in order to be deemed successful. A first step in
the right direction is much more beneficial, and sets up a
better scenario for the sequel(s).
Hopefully the FSCP paper will act as a further catalyst in
the drive to implement an effective cost transparency
standard in the UK. The industry would clearly benefit by
introducing a flexible and progressive standard, as soon
as possible, built upon the tried and tested model
provided by the Dutch. The main reason the Dutch are
considered by many to have one of the most robust and
sustainable pension markets in the world is that they
have very detailed and quite structured reporting systems
Stewart Bevan
KAS BANK UK Branch
as part of their governance framework. Capturing a wide
array of items has led to better governance of schemes,
but it started simple. The process has evolved over a
number of years, with a gradual increase in reporting
detail as/when it is required. This has led to better
insights of schemes’ progress, which consequently
enables better decision-making and this is why the Dutch
are considered as one of the best out there.
Of course there will be challenges and obstacles to
overcome and issues to defuse. But surely there must be
enough skilled operatives in the UK industry to be able to
draw on the Dutch experience to quickly provide a simple
or fairly advanced standard template tailored for UK
pension funds? Obviously, I’m keen to be involved myself.
We must appreciate, though, that any standard introduced here will need to evolve over time as we learn from
our experience of what constitutes effective reporting in
the UK, which may well be different from that of the
Dutch. Even though Holland is seen as miles ahead on
this topic, there is still no perfect solution. The key is
developing something simple and fit-for-purpose quickly,
and then refining it over time. Finally, we are at a point
where we could implement a solution to address the
problem of undisclosed pension fund costs. As the paper
says, it is about the “art-of-the-possible rather than the
art-of-the-desirable.”
The fuse is lit and the clock is ticking –
do you accept the mission?
(This message will not self-destruct in 5 seconds...)
15
XANDER DEN UYL, CHAIRMAN OF THE
ASSET OWNER ADVISORY COMMITTEE PRI
Encouraging
voluntary
cooperation is,
ultimately,
far more
effective than
compulsion
Photography: Beeldbank ABP
Socially responsible investment is increasingly infiltrating
the DNA of institutional investors. In this context, they are
frequently guided by the United Nation’s six Principles for
Responsible Investment (PRI). On 1 January, Xander den
Uyl was elected a Board Member of the PRI and chairman
of the Asset Owner Advisory Committee. In particular, he
wants to work on the specific details of the responsible
investment discussions which, all too often, remain fairly
abstract. “Engagement should increasingly be translated
into policy and investment decisions which suit the target
group.”
The organisation Principles for Responsible Investment
(PRI) was established in 2006 by the United Nations and a
large number of institutional investors, including ABP and
PGGM. Currently, the PRI has 1,400 members, including
900 asset managers, 300 asset owners and 200 consultants. Thirty-eight of the members classified as ‘asset
owners’ come from the Netherlands. In 2006, KAS BANK,
as the first custodian, signed the (at that time) UN-PRI.
The PRI is governed by a Board consisting of two UN
officials, ten elected members, including Xander den Uyl
(in his day job a member of, amongst other things, the
board of ABP Pension Fund), and an independent chairperson. Primarily, the PRI focuses on trying to ensure socially
responsible investment becomes more mainstream. To this
end, the PRI facilitates academic research and an ‘Engagement Bank (the PRI clearing house)’, under the flag of
16 | KAS SELECTIONS | March 2016
which members can collectively unite to get certain
initiatives off the ground; in addition, there are a number
of committees, including the Asset Owner Advisory
Committee (AOAC).
Primacy
“An important discussion point within the PRI is who has
primary authority in the discussion about responsible
investment,” commented Den Uyl. “Is that the asset
managers or the asset owners? In fact, it should be the
asset owners as they are the asset managers’ clients.
Consequently, the AOAC wants to strengthen the owners’
position. As a Dutchman, I am, in this context, a proponent
of seeking consensus. Far from asset managers and asset
owners being one another’s natural enemies, they should
work together to achieve the objectives of the PRI. We
should never forget that the asset managers have considerable investment knowledge. While this varies in the case
of asset owners, which means they can’t all exert the same
degree of influence on the managers. And it will take time
to eliminate this disparity.”
In the area of responsible investment, there is a question
of different speeds. In both Scandinavia and the Netherlands, the policy is reasonably well organised. For example,
the Dutch Pension Act makes it compulsory for pension
funds to submit a report accounting for their responsible
investment policy. The Dutch Central Bank [DNB] has also
made this a focal point in its 2016 Supervisory Themes
Doesn’t fiduciary responsibility
actually force you to invest
responsibly?
[Toezichtthema’s]. However, the rest of Europe is lagging
somewhat behind. “Personally, I am all in favour of a full
disclosure obligation for institutional investors without this
being legislated for per se. The moral obligation should
come from the bottom up; that is from the participants to
their pension funds and from pension funds to the asset
managers. The government would be better guiding on the
basis of transparency rather than all sorts of ‘tick the box’
obligations. In my view, encouraging voluntary cooperation
is, ultimately, far more effective than compulsion, whereby
the ten points of the UN Global Compact are an extremely
important benchmark.”
Ethics versus risk management
One argument frequently put forward against responsible
investment is that it could endanger the fiduciary responsibility of pension funds and other pension providers to
ensure a good return. However, Den Uyl does not agree
with this view. “Empirical research has shown that responsible investment reaps rewards in the long term. Not
illogical, because an organisation which is managed in a
sustainable way will have a long life. You could even turn
the question round. Doesn’t fiduciary responsibility
actually force you to invest responsibly? Whatever the
case, the two responsibilities must always be well aligned.
In the Netherlands, that has been translated into the
pension fund’s obligation to invest prudently. Amongst
other things, the ABP is, to a significant degree, guided by
this alignment.”
Personally, Den Uyl finds the discussion about ethics versus
risk management extremely interesting. Why do you
decide to invest responsibly? “Larger organisations will
always look at the management of the risks of responsible
investment, in particular the risks associated with reputation and trust, but also the return risk. I don’t think you
should allow the policy to be too governed by exclusions.
But I’m firmly convinced that institutional investors can
make a difference. For example, important initiatives have
come from the International Investors Group on Climate
Change, the IIGCC. And every year the PRI organises a
congress with workshops about contemporary developments. A year and a half ago in Montreal, Ms Figueras gave
an impressive speech about the role of institutional
investors that resulted in the ‘Montreal pledge’. The
signatories of this pledge committed themselves to making
the carbon footprint in their investment portfolios transparent. The next step is to act decisively, for example by
disposing of certain shares or actively entering into
dialogues with companies. Consequently, as an organisation, the PRI and its members play an important role and
are at the centre of the discussions. With the caveat, that
investing sensibly in the interests of the participants is
always the first priority.”
Obligation of transparency
Compiling a responsible investment policy is number one,
actually implementing it, or having it implemented, is
number two. How can institutional investors best monitor
their policy? “Within the PRI, there is a whole discussion
on that topic. Is a duty of disclosure sufficient or should
you, as an investor, actively have to report on the consequences of the implementation of your policy? Custodians,
such as KAS BANK, can help regarding the obligation of
transparency. An external auditor can carry out an audit of
the policy. But this will not tell you the extent to which
certain ESG factors have been taken account of in your
policy nor what criteria are to be used to assess the
success of the policy. Personally, I’m very much in favour of
as objective as possible an assessment; one which is laid
down in international legislation and regulations and by
organisations such as the PRI and OESO. But the substantive consideration of the effectiveness of the policy must
be undertaken by the clients/participants themselves. As
far as that’s concerned, pension funds have an organisational advantage in the form of their Accountability
Bodies.”
Den Uyl is a strong advocate of participants being able to
influence responsible investment policies. Within his own
ABP, he can see that the participants’ engagement is
growing. “But engagement has to result in investment
decisions. You could possibly link the investment decisions
to your pension fund target group, for example by investing in sustainable organisations which genuinely tailor
their policy in respect of people with an occupational
impairment. In this way, a fairly abstract discussion can
acquire real substance.”
“Empirical research has shown that responsible
investment reaps rewards in the long term,”
says Den Uyl.
17
EMIR is here to stay
The awareness that derivatives trading has materially changed has now truly penetrated to the market. One of the
key points of new regulations, central clearing of OTC derivative transactions, has now become a fact of life. In its
wake, liquidity management and management of liquidity risks are receiving increasingly close attention.
In the run-up to the introduction of the European Markets
Infrastructure Regulation (EMIR), many market parties
complained that the implementation would cost too much
time and money and would create too many operational
problems. However, as with all regulation, its introduction
is inevitable. That was clearly in evidence, for example, at
the Collateral Management Event on 10th and 11th
December in Amsterdam, where I had the honour of
serving as a Day Chairman. The different presentations
showed that the various parties concerned are genuinely
starting to embed EMIR in their day-to-day practice.
Attitudes to EMIR are clearly shifting towards a more
pragmatic approach. In that regard, it is primarily the issue
of risk mitigation that is interesting.
Risk mitigation
EMIR was created in order to further reduce and manage
the risks relating to derivatives. One of the measures is
mandatory clearing of OTC derivative transactions via a
central counter-party (CCP). Many parties use a General
Clearing Member (GCM) for this; but how do you assess
the counter-party risk on the GCM you have chosen?
What happens if the GCM defaults or even fails? Might it
be better to do the clearing yourself by affiliating yourself
to the CCP? And in that case, how should you do that?
These are important questions in the set-up of the risk
management process, as is the question of ‘Which risks
will we lose and which will we acquire in return?’
Liquidity risk is currently identified as the main risk. Ideas
on that vary to some extent, but less than I had expected.
The market appears to be hoping that the Dutch regulator
De Nederlandsche Bank (DNB) will suddenly magically
whisk a white liquidity rabbit out of the supervisory hat.
I personally think that until we come up with a workable
proposal for managing liquidity risk, the DNB will not move
either. This means that pension funds, insurers, banks,
CCPs and all other participants must put their heads
together to find a workable solution within the existing
laws and regulations.
What are you prepared to pay for it?
Another interesting question is what risk mitigation is
going to cost. Clearing makes a difference in the price of
swaps, for example, because it saves operational costs.
At the same time, you incur costs in generating the right
collateral that must be deposited with the CCP (if, of
course, you do not have the right collateral). For the
supervisory authorities the situation is very interesting.
The presentation by the DNB shows that it is entirely
18 | KAS SELECTIONS | March 2016
inflexible about the ‘Yes/No’ question relating to compliance with the EMIR requirements. But once you have said
‘Yes’ to the concept of clearing derivatives, the DNB can be
very accommodating in the discussions. However, whether
that will also be the case in practice still remains to be
seen.
Supervisory authorities know what has to happen, they
know the problems and they monitor the market; but they
have also become a little nervous, due to the initial
problems with EMIR. For some parties, for example,
mandatory reporting of derivative transactions to trade
repositories has turned into a real drama. Some reports
have disappeared, while others are incorrect. A number
of parties have said that they cannot make reports.
In the meantime, the supervisory authority has become
convinced that this must now simply be properly
regulated, with the effect that the role of the custodian
is becoming increasingly important in the EMIR process.
Role of the custodian
Market parties regularly complain about the GCMs.
Collateral management and liquidity management do not
always proceed as expected. Increasingly, the custodian is
the party who comes to assist when matters threaten to go
completely wrong. Custodians are increasingly developing
into ‘trusted partners’ for the party that is to perform
clearing. This is also seen in ‘quad models’, in which a
pension fund, a clearing member, the CCP and the
custodian jointly secure the initial margin for the pension
fund. Of the four parties, the custodian is trusted most.
This makes generating liquidity via a custodian an
interesting option.
A major bank can help to generate collateral/liquidity on
the basis of its client’s bond portfolio. But it can take a
while before the securities are where the client wants
them, with the CCP. A custodian has an insight into all the
places where securities are kept and the availability of
securities in the client’s bond portfolio. As a result, the
custodian can quickly transfer the securities and thus make
them available as the right collateral in the right place.
In that way, the custodian plays an important, if not
essential role in the collateral management process and
management of the liquidity risk. Institutional investors,
in particular, can benefit from this.
Geert-Jan Kremer, Managing Director Treasury at
KAS BANK
“Secure.
Protect.
Develop.”
“Protecting assets
means developing
for the future.”
Dr. Alexander Sturgis
director of the Ashmolean Museum
KAS BANK has looked towards the future for more than two
centuries. For more than 200 years we have focused on securing,
protecting and developing value. The way we do this and the
knowledge we have accumulated on the way have a major impact
on our Custodian Principles. These are the principles that underlie
how we think and how we act, a daily process that is based on
transparency and in which we partner with Wealth Managers and
Private Banks to give you the management tools you require to
independently monitor all of your assets in one place. We keep our
Custodian Principles alive by testing them against the visions and
beliefs of people from all cultural, artistic and scientific walks of life.
KAS BANK offers you a look into our soul and via a number of
mini-documentaries introduces you to these people and their ideas.
Let yourself be inspired, and visit us at
www.thecustodianprinciples.com
AMSTERDAM • LONDON • FRANKFURT • WWW.KASBANK.COM
T: +44 207 153 3600
19
Three
advantages
of securities
lending
20 | KAS SELECTIONS | Maart 2016
Securities lending has
traditionally acted as a
lubricant for the financial
markets. This involves a worldwide market of $15 trillion and
more than 3 million intra-day
transactions per day; which
makes securities lending an
excellent aid to generating
liquidity for collateral
requirements under EMIR.
For institutional investors, securities lending is
a good instrument, with a low risk profile, for
generating extra returns on securities that will
remain in a portfolio for a longer period. By
lending these to carefully selected parties,
pension funds receive extra income, while the
securities can be called at any time.
Generating extra returns on
securities, Low risk profile,
Fully collateralised
However, securities lending also helps market
parties with their risk management. After all,
lending securities creates greater liquidity, since
the fees are paid in cash. Furthermore, liquidity
is exchanged between market parties in a fully
collateralised manner. This offers market parties
the opportunity to comply with regulation-driven
margin obligations, such as those under EMIR, or
with a delivery obligation to a counter-party or CSA.
Liquidity and risk mitigation
This also expresses the value of liquidity and
consequently, the risk mitigating effect too. On
the one hand, the traditional return on lending
securities is generated in a responsible manner
and at the same time, investment strategies can
remain unchanged despite, for instance, laws and
regulations. This makes access to the securities
lending markets of major importance for institutional investors.
Before you decide to make use of this possibility,
it would be wise to ask yourself a number of
questions. What does liquidity mean for your
organisation? Which sources of liquidity are
available to you and which requirements must
these meet? Is it attractive to you to generate
extra returns with a limited risk, taking account
of conditions that are important to you?
Questions
In answering these questions, you can take the
following into consideration. Securities lending
can be designed entirely in accordance with your
specific requirements and needs. For example,
there is the possibility of retaining or exercising
the voting rights attached to the securities lent.
The programme also takes account of your ESG
policy and is consequently fully ‘ESG proof’.
Finally, securities lending offers a healthy risk/
return ratio in combination with a conservative
collateral policy as a risk-mitigating instrument.
In summary, the following five points are
important in decision-making on whether to
participate in securities lending:
•A ‘customised’ programme (set up in
accordance with the needs of your
organisation)
•Possibility of continuing to exercise voting
rights yourself
• ‘ESG proof’
• Fully collateralised programme
•Generating both liquidity and extra returns
Our securities lending specialists will be happy to
discuss with you the possibilities for setting up a
fully customised programme.
Beta Steiner, Head of Securities Lending at
KAS BANK
21
Brink’s View
How a chore
can also be
a joy
‘Give me a job that suits me and I will never have to work
again’, Confucius apparently said. Six months ago,
I was given an opportunity, together with a number of
colleagues, to focus fully on monitoring Future trends and
regulations. In my career of more than 30 years at this
bank, I have already concerned myself with these matters
in the past, in addition to my other work. All the same,
I have the feeling that responding to trends and to laws
and regulations is more important now than ever before.
In short, this is a job that suits me. Without harbouring
the illusion that I will now never have to work again.
Why am I telling you this? In the past 30 years, I have seen a great many
future predictions pass by, for better and for worse. For instance, we have
heard little more of the Global Straight Through Processing Association
(GSPTA), which was in favour of automated trade matching and insight into
the status of a transaction for all parties concerned. Honesty does demand an
admission that parts of this vision have been realised by the OMGEO OASYS
system (now owned by the DTCC), but the global ambition has been scaled
back considerably.
It is therefore very valuable to look back at the past from time to time. It puts
things in perspective and teaches you not to panic about everything that our
sector comes up against. At the same time, where the real opportunities and
threats lie becomes clear(er). So for our team, what some of you probably
22 | KAS SELECTIONS | March 2016
see as a chore can be a very stimulating job. The American Secretary of Health,
Education and Welfare, John W. Gardner, put it as follows: ‘We are continually faced
with a series of great opportunities brilliantly disguised as insoluble problems.’
Seeing everything we face in terms of laws and regulations as an opportunity rather
than a heavy burden …. that would do wonders for our job satisfaction.
It is clear that the wave of laws and regulations presents you and us with challenges.
For KAS BANK, what is important here is to find the right balance between matters
that are relevant for our banking licence and suitable opportunities to expand our
service provision. For in that way, we can also offer you optimal support in realising
your goals.
One such challenge, for instance, is the Securities Finance Transactions Regulation
(SFTR). A growing field of non-banking credit activities, better known as shadow
banking, has so far remained outside the scope of the attention of prudential
regulation and prudential supervision. Shadow banking plays important roles in the
financial system. For example, it provides for extra sources of funding and offers
investors alternatives for bank deposits. However, it can also involve threats to
financial stability in the long term. What happens if such a system collapses? For
those who still recall the aftermath of Lehman, the severity, urgency and growth of
this issue is clear enough….
The Financial Stability Board (FSB) defines shadow banking as the system of credit
mediation in which entities and activities from outside the regular banking system
are involved. That definition implies that the shadow banking system is based on two
related pillars.
The path to
impeccable
reporting
with clear
(technical)
definitions will
once again be
strewn with
pitfalls and
snags
Firstly on entities that operate outside the regular banking system and perform one
of the following activities:
• the acceptance of financing with deposit-like features;
• conducting maturity and/or liquidity transformations;
• transferring credit risk; and
• using direct or indirect financial leverage.
The second pillar consists of activities that could act as important sources of financing for non-banking activities. The activities include securitisation, securities lending
and repo agreements (repos).
Although estimates vary, the scale of shadow banking has been calculated as around
$60 billion. That would mean that shadow banking is about half the size of the
regular banking system.
As part of the SFTR, specifications will be drawn up in the near future for the types of
transactions and the way in which these must be reported. This could then involve
the aforementioned repos and securities borrowing and lending transactions, but
also the ‘margin lending transactions’: credit on collateral of securities or on the
basis of upcoming settlements (on flow). As with EMIR, reporting will take place to a
‘Trade Repository’ - an entity approved by the supervisory authority, which gathers
reports and keeps these in a transaction register.
The experiences with EMIR will be useful to us here, for the path to impeccable
reporting with clear (technical) definitions will once again be strewn with pitfalls and
snags here. We are already working all out on the SFTR and estimate that this project
will last until the end of 2018.
The above shows that it is extremely important to identify and record trends and
(amended) laws and regulations in good time. By proactively identifying and recording signals, the follow-up actions can be performed correctly, fully and in a timely
manner. That leads to a complex set of deadlines and subjects on which dialogue
with our clients is very important. Naturally, this does not mean that we can assume
we know everything. So start talking to other parties who know the market, challenge us and seek a dialogue. You will then find that a chore can also be a joy.
23
210
Anniversary
th
10 March 1806 – 10 March 2016