Last year the Netherlands were seen by the European Securities and Markets Authority (ESMA) to have significant weaknesses in supervisory approaches towards the second Markets in Financial Instruments Directive (MiFID II), but despite the concern, the Nordics, including the Netherlands, still saw positive securities finance revenues.
The Finanstilsynet, the Norwegian supervisory authority, also expressed some concern last November that some European Economic Area members “remained in the dark” over the EU’s authority to impose MiFID II. However, the Nordics were not bogged down by its January implementation.
With the Alternative Investment Fund Managers Directive (AIFMD) looming, the Scandinavian states still saw monetary growth and technological advancements in the Nordics throughout last year.
Moving further into 2018, the evolution of technology, especially with the introduction of blockchain, cannot be denied.
With firms such as NEX moving their European Market Infrastructure Regulation (EMIR) platform from London to Stockholm for its trade operations post-Brexit, for one, could we see any other firms migrate all or a portion of their financial services to the Scandinavian financial capital, or elsewhere in the Nordics?
Technology: Oslo process?
According to a panelist at this year’s 2018 Association of the Luxembourg Fund Industry’s (ALFI) European Asset Management Conference in Luxembourg, the European financial services industry is still in the “foothills of trade technology”, with big changes coming in a few years time. But what does this mean for the Nordics?
Last year, one of the world’s largest Nordic banks, SEB, joined forces with Nasdaq to test and further develop a prototype mutual fund trading platform based on blockchain technology, and that’s just one example.
Elsewhere, the Copenhagen-based SimCorp introduced new modules and enhancements to its investment management tool, know as SimCorp Dimension.
The new feature, enables portfolio managers to block positions from the collateral pledging process.
Another example in Copenhagen, was Saxo Bank’s launch of a new trading platform called SaxoTraderPRO.
SaxoTrader is a programme that gives clients access to exchange-traded funds, stocks, bonds, contract for difference, forex, futures and options that are cross margined from a single account with no monthly fees.
And in the Finnish financial market, Municipality Finance implemented Acumen, a treasury solution platform created by Login SA, to manage and automate its operations.
The Helsinki-based MuniFin utilised Acumen to manage deal capture, pricing, middle office, reporting, collateral management, back office and risk management processes. Also in 2017, SIX x-clear, the clearing arm of SIX Securities Services, extended its services to the Nasdaq Nordic cash markets, and offered an interoperable clearing solution for Denmark, Finland and Sweden.
The new clearing services now applies to trades executed in Nasdaq Nordic trading markets: Copenhagen, Helsinki, Stockholm and First North Sweden, which is operated by Nasdaq Stockholm.
Skip forward a year, and London-based Torstone Technology followed a similar suit after announcing it was to enter into the Norwegian market by connecting its Inferno platform to Verdipapirsentralen ASA, Norway’s central securities depository.
Commenting on the move, Jonny Speers, global head of sales at Torstone Technology, said: “We are excited about the opportunities in the Norwegian market as we look to strengthen our presence there.”
But of course, you cannot talk about technology without mentioning what Target2-Securities (T2S) has done, or is expected to do, for the Nordic countries.
Bo Thulin, head of the Nordics for Northern Trust, says: “The use of the T2S platform improves liquidity, reduces the costs of cross-border securities settlement and increases competition and choice among providers of post-trading services in Europe.”
A minimum of three months notice is required for a market to join T2S. Thulin confirmed that so far, only Denmark has joined T2S.
Finland had planned to join T2S, though this date was deferred and no new dates have currently been announced.
Norway, Sweden and Iceland have retained their own currencies and currently have no plans to join T2S.
Denmark is scheduled to join T2S with DKK in October this year. This date, however, is yet to be confirmed.
Afjording regulation
The Nordics, like the rest of its European neighbours, lie in a mist of regulatory cloud. There have been regulatory sensitive periods concerning Alternative Investment Fund Managers Directive (AIFMD) and the second Markets in Financial Instruments Directive (MiFID II), in particular.
Roel Van De Wiel, commercial director for the Netherlands and the Nordic Region at Societe Generale Securities Services, says: “AIFMD, UCITS V and MiFID II all refer to the role of a global custodian and therefore have been challenging regulations”, but he also stated that the regulations have also “provided opportunities for growth in the Nordics.”
He says: “European regulations should be perceived as stimuli to the industry that try to influence in a positive manner how we offer services for investor protection [...] with most of the regulations now implemented, it is up to the industry to optimise investor protection under these new regulations.”
“AIFMD brings new liabilities to banks with regards to the sub-custodians it appoints across the globe. For SGSS, AIFMD presents growth opportunities as investor protection moves to the forefront of the industry.”
Scandin the future
As we look towards a brand new decade, what does asset servicing in the Nordics face in the future?
Infinity Release 2, an update of Euroclear’s Infinity solution, launched on 12 February this year, after an initial delay in its implementation.
In a statement, MAC and Euroclear Finland said this confirmation of the launch date brought “clarity and encourages the whole Finnish financial community to get prepared for the transition”.
But what about the rest of Scandinavia? Thulin says: “In the current low interest rate environment, with three of the four currencies in the Nordic region being negative, we will find investors will continue to increase allocations to alternative investments. The regulatory agenda continues to put investors and managers in a situation with increased demand for managing data to support regulatory requirements.”
Van De Wiel says: “Global custody is ‘sticky business’, which is also the case in the Nordic region, but the industry has been confronted with significant and fundamental changes.” He added: “With those changes comes the responsibility to review whether investor protection and prevention against material events is still maximised or open for improvement. It is a global custodian’s responsibility to educate its client base on the interconnectedness of dynamics that have impacted the industry.”
Brexit: Parting in Swede sorrow?
An ESMA representative at this year’s European Asset Management Conference in Luxembourg stated that they are “prepared for the UK to become a third party”.
Although Norway is not a member state of the EU, it is closely associated with the union through its membership in the European Economic Area, this could be one reason why a panelist at this year’s Irish Funds’ London Alternative Investment Seminar joked that the UK could become a ‘fake Norway’.
Van De Wiel explains: “Societe Generale has had a presence in the Nordic region for many years across multiple lines of business with corporate and investment banking offices in Oslo and Stockholm. [If our clients] request structural changes in our Nordic setup, we will evaluate them to support our growth ambitions in the region as it is an important market for us.”
Talking about Brexit, Thulin comments: “The extent to which entities are choosing to domicile part of all their business in the Nordics is unclear; but we could begin to see broader shifts in terms of mutual fund locations, talent relocation and differing member states becoming more able to influence the content of financial regulation, all of which are potential disruptors.”
