Global regulatory and market changes continue to reshape many aspects of the financial services industry, as well as presenting both challenges and opportunities for investors and their agents. Global requirements can have international, cross-border and unique local impacts in each market, in turn driving complexity for players across the spectrum. In a global world, local insights are a critical asset.
Global regulatory and market changes continue to reshape many aspects of the financial services industry, as well as presenting both challenges and opportunities for investors and their agents. Global requirements can have international, cross-border and unique local impacts in each market, in turn driving complexity for players across the spectrum. In a global world, local insights are a critical asset.
The Organization for Economic Cooperation and Development (OECD) is introducing a new Common Reporting Standard (CRS), with early adopters beginning to implement from January 2016. Just as with the Foreign Account Tax Compliance Act (FATCA), all market participants may be required to spend significant time and resources on identification, compliance and reporting requirements.
Canada offers an instructive example of local implementation: the Government of Canada has proposed adaptation of the OECD’s CRS from 1 July 2017, with the first exchange of information beginning in 2018. While anticipating guidance from the Canada Revenue Agency (CRA) on the CRS, Canadian asset servicers are involved in local working groups with leading industry associations and major stakeholders. Participants are considering the expected similarities and differences from the FATCA regime with respect to the due diligence procedures of identifying residents with accounts in implementing jurisdictions. Even with a global standard, local responses must be assessed against the guidance and expectations of local regulators, participants and industry bodies.
A notable recent CRS development was the Canadian Government’s signing of the Multilateral Competent Authority Agreement, a coordinated arrangement under which Canada will exchange financial account information efficiently and securely with other tax jurisdictions. This agreement is aimed at supporting the CRA in detecting and assessing cases of tax evasion and protecting the integrity of Canada’s tax system. Similar to FATCA-related efforts, local regulators must work to reconcile global reporting requirements with domestic laws governing information disclosure within and outside Canada.
Given cross-border investment activities, sometimes local or regional regulations drive considerations in other markets. For example, certain requirements under Europe’s Alternative Investment Fund Managers Directive (AIFMD) have prompted growing attention from global clients regarding the workings of the Canadian market. Those clients seek better understanding and reassurance regarding how their business and regulatory requirements may be met. Canadian market participants in turn point to Canada’s Clearing and Depository Services, highlighting Canada’s central securities depository as a secure and controlled environment with effective controls in place for safeguarding participants’ assets—measures are in place with respect to financial, risk, operational, data processing and business continuity control systems, designed to protect assets held on deposit there—all of which are undertaken within Canadian regulations, standards and rules. Managers subject to AIFMD are of course looking to receive this information in a manner that helps position them to satisfy their own regulatory requirements.
Regulatory changes are not the only global moves with an impact on local markets; the adoption of shorter settlement cycles in various jurisdictions likewise plays out simultaneously on both international and local stages. Following the implementation of T+2 in European markets, US market authorities announced their intention to move from T+3 to T+2 by Q3 2017. Given that the Canadian and US markets are closely aligned, with inter-listed securities and cross-border activities, Canadian market authorities indicated their intention to meet the same targets. The industry-wide effort to shorten Canada’s securities settlement cycle is to be led by the Canadian Capital Markets Association.
Investors into Canada should carefully consider implications of the shorter settlement cycle. In Canada, National Instrument (NI) 24-101 Institutional Trade Matching and Settlements currently has a matching requirement of noon on T+1 for clients in the western hemisphere and noon on T+2 for non-western hemisphere clients, under a T+3 settlement environment for receive-versus-payment and delivery-versus-payment trades. As these changes take effect, clients should look to their providers and advisors for news on how NI 24-101 will be affected by the move to T+2 settlement. They should look for details about any revised timelines for trade match deadlines and the notification of trade instructions, and assess their ability to provide trade matching reports for the new deadlines, as well as providing confirmation of the system readiness to adapt to the changes in a seamless manner, through straight-through processing.
The global and local impact of various regulatory and market changes underscore the need for a knowledgeable local player who can help clients navigate the intersection of global and local requirements and keep up with regulatory and market structure change. Clients should expect their local provider to play an active role in industry associations, working to help shape and strengthen industry practices within the domestic environment. A strong local provider should also keep well apprised of global changes as they relate to the local market.
All in all, by working with an effective local sub-custodian and local advisors, clients can be better positioned to be promptly alerted to key changes, receive clarification on documentation requirements, and in turn better understand the potential impact at home and abroad from global regulatory changes and their local execution.
