Funds Europe asked custody professionals about asset levels in recent months and about regulatory challenges. Regulation relating to ESG and to securities settlement feature strongly.

HSBC Securities Services

Paul Ellis
Global product head, ESG, regulation, tax, trustee and fiduciary

SFDR elevation
The one regulation we would highlight as a challenge for our asset manager client base is Europe’s Sustainable Finance Disclosure Regulation (SFDR). The SFDR represents an enterprise-wide challenge and opportunity for asset managers. Managers are expected to fully embed environmental, social and governance (ESG) considerations into almost all aspects of their pre- and post-trade operations. Investor demand for ESG products is motivating managers to manufacture a so-called Article 8/9-compliant product, being one that makes ESG commitments to investors.

However, such products further elevate the operating model implications for firms, as regulators expect them to confidently stand over the integrity of the process to make such claims. Of course, ESG investing is far from an exact science and firms will be mindful that such processes need to reliably accommodate inconsistent or absent standardised disclosure rules amongst their invested assets. Managers will leverage their SFDR-compliant operating models as other regulators – for example, in Hong Kong, Singapore and the UK – implement regulations designed to achieve similar outcomes.