Magazine Issues » October 2021

Sponsored feature: Delivering sustainable governance with purpose

Pat_Sharman“We cannot be mere consumers of good governance, we must be participants; we must be co-creators” – Rohini Nilekani.

At CACEIS, delivering client-first securities administration and sustainable governance is core to everything we do.

In the UK, we have a highly experienced team that puts governance and a client-first focus at the heart of everything we do. CACEIS works with asset managers and authorised corporate directors (ACDs) in providing depositary, fund accounting and custody services – delivering governance through safekeeping, oversight and robust data infrastructure.

With the pace of regulatory change and growing complexity in areas such as climate change risks, we’re also developing valued-added governance solutions that can help asset managers and ACDs manage this complexity.

The UK funds landscape is changing as a result of Brexit, the pandemic and regulation – in addition to areas such as assessment of value and climate risks, the FCA is considering new rules for ACDs. It gives us a unique opportunity to do things differently.

Guardians of governance
For some time, the FCA has been pursuing stronger standards of governance across the asset management industry. As custodians, governance is at the heart of everything we do. We’ve always been focused on the importance of robust systems and controls to protect client assets, which has necessitated investment in technology, together with a focus on operational resilience and data infrastructure.

What does good governance mean and how will we deliver it?

Good governance is about providing timely, accurate data that’s flexible enough to adapt to an asset manager or ACDs changing needs and providing the tools to help in decision-making. This involves bringing new, often difficult to create, solutions to the market.

Client-first governance culture
It starts by developing a client-first and governance-focused culture across all functional areas of the business. We all work towards a common goal, placing our clients at the centre of everything we do. We become long-term governance partners helping to meet their current and evolving needs. We also recognise that client needs differ market by market and this is why we focus on developing local capabilities so we can be close to our clients. Our team of specialists in the UK help drive our client-first approach.

Flexible, operational resilience
In our recent survey of fund professionals, in conjunction with Funds Europe, building greater operational resilience was a primary goal cited by respondents.

Building resilience is one of the FCA’s central pillars, which has published final guidance on the new operational resilience framework in March this year, which applies in March 2022. Although the overall regulatory approach to operational resilience remains largely unchanged, the new rules look at factors such as the soundness and stability of operational services during disruptive events.

Operational resilience has always remained a key priority for us.

The pandemic, for example, amplified the differences in our onshoring model in securities administration. It means we can remain responsive and demonstrate across all client touchpoints that we maintain control of every aspect of the securities administration value chain.

Operational resilience also means thinking flexibly about how we meet the unique needs of our custody, depositary, and fund accounting clients.

Governance is a central theme for custodians like ourselves, because we supply independent rigour, consistency, and oversight to the safekeeping of assets across the trade lifecycle.

We also bring over 30 years of market knowledge and experience in the development of a flexible depositary model, which forms the foundation of our UK depositary capability today. We have a team of subject matter experts based in the UK that collectively bring over 70 years’ experience in the depositary funds business. We also help guide and shape industry best practice through active representation at the depositary industry association (DATA).

We then complement the deep expertise we have in Fund Accounting with a separate Fund Accounting oversight function in the UK, that’s close to UK-based clients, to perform additional controls – another example of how CACEIS thinks about operational resilience.

Sustainable governance
Product governance has been an area of focus by regulators for many years. Today, product development requires a more structured approach, with a deeper forensic analysis on suitability and decision-making. This includes governance around the monitoring of products through their lifecycle and the ability to mindfully demonstrate factors around decision-making.

‘Assessment of Value’ (AOV) is also placing additional governance responsibility on asset managers and ACDs. The FCA recently highlighted challenges with several value assessments. I’m not surprised by this, because AOV is in its infancy. We’ve learnt from direct experience in the pensions industry, with cost transparency, that it takes at least three years of hard work before a reporting standard becomes more consistent.

To help asset managers and ACDs with product governance, we’re set to launch a new solution that provides a robust framework for product governance to meet the FCA’s requirements, which also includes an integrated process around assessment of value.

Preparing for climate governance
We believe that governance around climate risks will become more prominent, led by factors such as regulation and client expectations. We believe that asset managers have an important role to play in engaging with and influencing the companies or issuers in which they invest. It’s a topic that’s high on the regulatory agenda and likely to be more so as the UK hosts COP26 this year. In October this year, pension schemes over £5 billion in size, and all master trusts, must report on their climate risks in line with the Task Force on Climate-Related Financial Disclosures (TCFD). However, this has created a misalignment between pension schemes and asset managers, which we believe will change as additional regulation gets introduced.

Given the pace of regulatory change, 51% of respondents in our survey of UK fund professionals believe that ESG standards will become a mandatory component of investment fund governance and 79% expect tighter regulation on ESG and Climate Change over the next three years.

As asset managers and ACDs prepare for climate risk reporting, we can provide our insight into areas such as TCFD from the expertise we have gained in the pensions space, where schemes are beginning to seek more independent rigour on understanding factors such as the carbon footprint from the investments that they make

Governance with intent
High-quality governance and the resultant decision-making from it are critical to success. Grant Thornton’s survey in 2019 linking governance and value creation reinforced that “companies with strong governance are 29% more efficient at generating profits with the financial resources allocated to them”1.

In the UK, CACEIS’s goal is to partner with asset managers and ACDs in supporting their growth ambitions by developing effective governance solutions to help them manage complexity. Creating a client-first and governance-orientated culture in the UK, with on-the-ground subject-matter experts across the funds administration value chain, is key to delivering on our purpose of becoming the independent sustainable governance partner of choice in the UK funds industry.

1 – Grant Thornton, 2019, Corporate Governance and Company Performance

By Pat Sharman, country managing director, UK, Caceis (pictured above)

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