Canada is acknowledged as one of the best sovereign nations in which to do business, whether that is for investors or stock brokers, Canada’s banking system is one of the soundest and strongest in the world.
The individual governments of Canadian provinces: British Columbia, Ontario, Saskatchewan, New Brunswick and Prince Edward Island who once operated as mostly separate entities, have more recently undertaken initiatives with the Canadian government to enforce capital markets rules and regulations nationally, rather than provincially and territorially.
In addition, this April, the newly created Cooperative Capital Markets Regulatory System, a single securities regulator, announced the inclusion of Nova Scotia as a regulatory market participant.
This means Nova Scotia will join the provinces of British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan and Yukon as well as Canada’s federal government as a participant in the system. Although these kind of efforts are being made to bring entities together, different provinces still bring their individual challenges to the table.
Arti Sharma, head of Canada at Northern Trust, states: “While largely harmonised, the absence of a national securities regulatory system can provide challenges [to Canadian securities businesses]; including the ability to provide a simpler process for asset management business, resulting in lower costs for investors and faster policy responses to new and emerging market trends.”
Pensions and payments
What Canada might lag in central regulation and standardisation, it certainly makes up for in its pension plans.
As David Linds, managing director, head of Canadian asset servicing at RBC Investor & Treasury Services (RBC I&TS), says: “Canadian pension plans continue to be amongst the best run and innovative plans in the world. As we look to the future, we expect they will continue to allocate more alternative investments in their portfolios.”
Eric Bernstein, president of asset management solutions at Broadridge, indicates: “The Canadian pensions are very strong and strengthening versus other jurisdictions in their ability to fund their constituents long into the future. This is the result of strong planning, governance and discipline to adhere to plans.”
Shane Kuros, chief business development and product officer at CIBC Mellon, mirrors: “Canadian pension plans have driven success with a clear and long-horizon focus on portfolio growth, with large investments in real assets, infrastructure, private debt and other alternatives, supported by highly sophisticated, experienced and dedicated internal teams.”
But it’s not just pension plans that remain strong. Payments Canada recently selected SIA as the application provider for Canada’s new payments system, Lynx, subject to negotiation of the final agreement and final regulatory approval.
Introducing Lynx is a part of Payments Canada’s multi-year payments modernisation initiative aimed at transforming the country’s payments system.
The new system will replace Canada’s current large-value payments system and will be based on the global ISO 20022 messaging standard.
Priorities
In a recent survey, conducted by SimCorp, some 80 percent of North American buy-side heads of operations cited increasing accessibility and accuracy of data to support the front, middle and back office as their approach and priority for this year. More than 60 percent of North American heads of operations said they aim to pursue system consolidation through a front-to-back office solution offered as a platform or a service, rather than a similar front to back offering from a custodian (29 percent).
Kuros’s predictions mirror the findings in this survey, as he surmises that in the future “we will see an interesting blend of strong focus on cost containment, plus the demand for additional spend on technology and technology integration as well as cybersecurity”.
In addition, he adds the importance of optimisation and internal operations as well as data aggregation within Canadian financial services.
He says: “Clients will continue to focus on data and identifying opportunities to more easily and rapidly leverage it to drive and support decision-making. The ongoing march of optimisation will continue to push market participants to carefully consider their internal operations and how to enhance them, as well as whether they might be suitable targets for outsourcing.”
“Arguably one of the biggest challenges is that asset managers, data providers and service providers have no common language. This will become increasingly prevalent as data sources emerge and become more complex. Our clients will find that they depend even more on the quality of their data aggregation and integration.”
Regulation
The international financial world has had its fair share of regulation to deal with in the last couple of years, but what has affected Canada, specifically?
Sharma highlights the critical focus of the General Data Protection Regulation (GDPR) and enhanced protection of personal information, particularly in connection with cross-border transfers.
She says: “While GDPR is European Union legislation, the privacy principles of GDPR are being adopted by local privacy regulators and global firms in Canada and elsewhere.”
Kuros stipulates: “For many asset managers, asset owners and asset servicing providers, the two most challenging aspects of Canadian regulation are the intersection between global and local regulations, and the complexity of the regulatory regime itself.”
“In terms of global-local translation, we see a crucial role for asset servicing providers in seeking opportunities to help global participants navigate the Canadian market and resolve occasionally competing global and domestic regulatory expectations.”
A technology hub
While the Canadian market competes globally and complies with regulation, its mostly valuable tool is arguably technology and its global developments and advancement in recent years.
Bernstein says: “There is a tremendous amount of talent on both the services and technology front, which has yielded a superior operating model between asset managers and servicers.”
And as Kuros highlights asset servicing, specifically, is about driving efficiency and has been for many years.
He says: “Automation, machine learning, artificial intelligence (AI)–these are the next frontiers as we work to streamline processes, reduce risks related to manual processing, and enable scale and growth for our stakeholders.”
As Sharma explains: “Canadian asset servicing providers are increasingly adopting the model where local staff is predominantly client-facing while technology and operations leverage global operating centres of excellence to optimise the cost for their clients.”
She adds: “We expect to see growing use of AI in financial services, but it’s encouraging to see Canada taking a measured approach to AI implementation, focusing attention on the ethical questions behind the technological possibilities.”
“We believe blockchain has the potential to settle trades faster, in turn reducing capital and liquidity requirements, while increasing transparency and security in the settlement process.”
Predictions
Kuros surmises that the future of Canadian asset servicing holds “an interesting blend of strong focus on cost containment, plus the demand for additional spend on technology and technology integration as well as cybersecurity. Clients will continue to focus on data and identifying opportunities to more easily and rapidly leverage it to drive and support decision-making.”
Sharma suggests technology will remain at the top of the list [as priorities], playing an ever more important role on how global custodians deliver their solutions to clients.
She notes: “Investors will continue to demand greater transparency, not only on their investments but also in the process a global custodian would take to reduce operational risk and minimise errors.At the same time, the human capital landscape will continue to change. It will be increasingly important for asset servicing firms to embrace diversity in hiring.”
Linds adds: “The explosion of data is driving much of the change and highlights how we must strive to remain trusted advisors to our clients. With more asset managers seeking access to data, and help make sense of it.”
