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Consolo


Sarah Nicholson


13 April 2021

Consolo’s Sarah Nicholson runs through what worked and didn’t work during lockdown and how the firm is helping clients navigate SFTR

Image: Olivier Le Moal/stock.adobe.com
How would Consolo describe 2020? And how did the restrictions and all the legislation impact you and your organisation?

2020 was obviously a challenging year for everybody. And because we’re so used to face-to-face interactions, it’s been quite a challenge to adapt to the ‘new normal’. From our perspective, we’ve always worked on a remote basis, unless we’re actually on a client site. So, I think that the transition to remote working has been probably easier for us than for most, and really, it’s been business as usual. Certainly from the consultancy side.

All we really needed is that connectivity into the client sites. And, of course, most of the clients have been developing and establishing that in the early part of 2020. So, from a consultancy side, there’s been very little impact and businesses have continued as normal. But from the training side, face-to-face courses, which were building momentum throughout 2019, they’ve had to be postponed. We reassessed the situation and where we were doing one and two-day courses, face-to-face with groups of 10 or 15, we decided to break them up into shorter sessions online. This was done on the basis that people can spend two or three hours on training courses but it can be quite difficult to concentrate online, if it’s a whole day.

We took some of our securities finance courses, and we broke them up into three hour sessions for people to attend. And then we timed it so the sessions are early in the morning, and late in the afternoon, UK time, in order to try and help people fit them around what they were doing. These online courses have been well received; we’ve done a number of them through 2020. And I think the timing of them has meant that we’ve introduced a whole new raft of clients from both Asia and the US. So, they’ve been working really well.

What have you got planned for 2021?

For 2021, we were very much looking forward to — hopefully at the end of the year — arranging face to-face-meetings and getting back to some level of normality. And we’re going to continue to provide the online courses, using three-hour sessions. And we will continue to develop our in-house bespoke courses. So, the training side will continue in much the same vein. And hopefully, by the end of the year, we’ll be able to organise some in-person meetings. From the consultancy perspective, we’re continuing to support our clients through the Securities Financing Transactions Regulation (SFTR), continuing to help them improve efficiencies and the accuracy of their data. And we’ve also been discussing with a number of clients, the European Market Infrastructure Regulation (EMIR) Refit and Markets in Financial Instruments Regulation data requirements and reporting and trying to aid the provision of that reporting for clients with the kind of extensive knowledge of systems and data management that we have, and have built up through the SFTR projects. It’s a natural next step to expand that working knowledge into other reporting regimes, and so very much kind of looking forward to working with clients to develop that.

As SFTR implementation experts, how do you think that’s been going? And where are we now?

Firstly, the good news is that it seems that everyone is reporting. And obviously, that’s been challenging in itself, given that all of the implementation deadlines have essentially occurred during the lockdown while people are working remotely — so that’s the good news.

A couple of trends that we are seeing, when we’ve been talking to smaller players or smaller clients, is them having to restrict the counterparties that they trade with, on the basis of SFTR reporting. So, a number of the smaller players are not in a position to report directly themselves yet and so we’re relying on delegated reporting. We’re seeing them having to restrict who they trade with to those counterparties, but can and are able to provide that delegated reporting. That’s not great when the reporting regime starts to impact who you trade with. Obviously, that will have an impact on the cost effectiveness of the trading.

In terms of data, we’re seeing some issues around data quality; more so in the modifications than in the new transaction reporting. And it seems that the pairing of the transactions with the handful of core data fields that need to pair prior to the matching process. There seems to be issues within that. We’re not clear what’s driving that, given that it’s on the modifications rather than on the new transactions. It’s a definite trend that we’re seeing around those kinds of subsequent reporting requirements, rather than the new transactions.

More broadly, with reporting, we’re seeing very clearly specific data fields that are impacting transactions’ ability to match which causes breaks in the reporting. So, data fields like the trading venue, and interestingly, the execution timestamp, are causing some trades to mismatch and therefore, without the matching the unique transaction identifier cannot be shared by the issuer with the reciever. Within the regulation, you’re given an hour’s allowance around the time, which is much greater than any other regulatory reporting. As long as the two trades are booked within an hour of each other, it should match but we’re seeing that consistently causing problems. About 5 per cent of the transactions are failing because of these core data fields and mismatches within them. Some of that looks like it’s booking issues. Some of it is static data issues where defaults that have been agreed in the market and not been applied properly. But at this stage, these are our best guesses; we’re just looking at the data and identifying the trends at the moment.

I can say that we’ve been helping clients to focus on that data quality, and also focus on the efficiencies of the process. We are ensuring that the data is managed in the most efficient and time effective way as possible, and that the accuracy is there. And we have a number of clients that we’re working with on that basis. I think that’s the focus in the market. Now we see everybody is reporting, it’s really all about focusing on the quality of data, the accuracy of the data, and then the timing of the delivery of that data.

Tell me more about the training you provide, and what plans you have post-COVID?

Depending on where you fit within the market, there’s something for you. For instance, we have our securities lending fundamentals course, which is essentially a three-hour session that talks about why people are involved, the roles and responsibilities and the processes within the securities lending industry. That course is really designed for new entrants to the market, or for people providing satellite services, who just need that overview or that understanding of how everything fits together. And that’s been a very popular course. We’ve seen significant uptake, particularly from Asia and the US markets.

Alongside that, we’ve produced a number of sessions, which are focused on a specific element of the market. For instance, we have a session that looks at non-cash collateral and how you measure and manage collateral in the non-cash space and how you manage that in a default situation. We have another session that focuses on cash collateral. These sessions are really much more of a deep-dive into the specific aspects, and probably better designed for the sort of individuals that have an element of that already within their job.

Again, as an example, our corporate events session, looks at how corporate events are managed in the industry, what the best practices are, and some of the ways that they can go wrong and how that might be managed and mitigated.

As well as the online courses, we have the bespoke in-house ones at the moment. And these are the courses where we work with a specific client and develop a course that suits them, particularly, if going forward, we’d like to get back to the face-to-face. I think there’s nothing quite like the interaction of a group of people coming together. And the debates that you can have around specific aspects of the training makes it a much richer learning experience. And also allowing that time and the focus for a full day on a specific topic is really helpful. So, going forward in 2021, we want to open up those public courses. We want to continue with the online courses. I think they’re useful. We’ve certainly seen people taking quite significant value from those. And then to continue to develop the bespoke in-house courses, as and when we can get back to spending time with clients directly.

How does the in-house training work? In terms of clients coming to you with a particular area they want you to help them learn more about or because they’ve got new members of staff like me; is there a general case?

The bespoke courses are really about providing whole teams, whole departments or whole companies with the same training that’s focused around their particular business or business needs. For instance, the process would be to identify the need to work with the human resource teams and the businesses to formulate an agenda that’s very specific to the core of the company. For example, we have run courses on a number of different topics outside of securities lending and we have a number of different trainers with different experiences within our group and they can provide the expertise around a broad range of topics.

We’ve recently run training for a company, in fact online because of the lockdown, but bespoke, where we have implemented internal processes across the business. That meant spending some time with the business unit, in this case it was the risk team, understanding how they want the new process and the new risk management approach to be applied across the business. And then we’ve rolled that out to all of the businesses and by doing that we have ensured that everyone has consistent training and a consistent message. And we have then been able to link it back to people’s specific roles and specific jobs.

The nice thing about the bespoke sessions is we have a broad range of trainers and we cover a much broader topic range than just securities lending. We have run courses on fund administration, teaching a new fund administrator all about the kind of subscription and redemption processes and the roles and responsibilities of the fund administrator. We have looked at derivative operations and quite recently we’ve done a significant amount of work in the capital space. So, with all of the collateral requirements in securities lending and in the derivatives space through EMIR and the Uncleared Margin Rules requirements really hitting home now we have been focusing on enterprise-wide collateral management.

Taking the benefits of those processes we have spent a lot of time looking at specific systems so that we are able to come in and talk to you about collateral management but also relate that back to the specific systems and processes that you have internally. Really the bespoke sessions are about working with the business to ensure that the content within the training is very specific and bespoke to the business itself.
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