Examining the Themes Emerging from TNF Middle East 2023

Written by

Fraser Wikner

Published on

Insights

Following on from our Sibos retrospective, we briefly reflect on The Network Forum ME, which featured ESG (environmental, social, governance), the introduction of T+1 settlement cycles and the growing international clout of Gulf investors among the main discussion points.

MYRIAD Group Technologies Ltd CEO Fraser Wikner looks at how these issues are impacting the Securities Services Industry, and we hope this overview will resonate with your outlook and experience.

This year’s Network Forum (TNF) Middle East (ME) Meeting took place in a blisteringly hot and humid Muscat, where it coincided with the EU-GCC Joint Council and Ministerial Meeting. Along with experts drawn from the world of post-trade, the Al Bustan Palace Hotel – this year’s venue – was also awash with foreign dignitaries and their sizeable security entourages.

The G in ESG

ESG featured extensively at TNF ME, as investors increasingly look to complement positive performance with sustainable returns. 

While the E and S elements of ESG are of vital importance,  we believe our industry is most concerned about the G component, with a special emphasis on third-party risk management (TPRM). There are several reasons for this:

New risks (i.e., Cyber-crime) and recent black swan events (i.e., Covid, geopolitical tensions, the collapse of several start-up Banks and the merger of Credit Suisse) have forced Banks to think more carefully about how they deal with supply chain risk. 

At the same time,  a number of regulators, including the Federal Reserve and UK Prudential Regulatory Authority have published comprehensive guidance on TPRM and what Banks should be doing in areas such as service provider selection and ongoing monitoring. We expect this focus on TPRM will only intensify moving forward.

T+1 – short-term costs, long-term benefits

In six months or so, the U.S., Canada and Mexico will transition to a T+1 settlement cycle for equities.

We believe the rollout of T+1 will mirror that of a J-curve, insofar as there will be extensive short-term costs (e.g., penalties resulting from the spike in trade fails), followed by longer-term benefits and opportunities (i.e., liquidity and capital optimisation, reduced settlement duration risk etc.).

Everybody knows that for T+1 to be successful, Financial Institutions need to automate their systems. This is because Firms will have around 80% less time to complete their post-trade operational processes, meaning manual intervention will no longer be sufficient. The challenge of T+1 will be especially acute in markets operating on different time-zones to the Americas, especially within the Middle East and Asia.

The problem facing our Industry is that too many institution’s core systems are not digitised, calling into question their ability to automate properly ahead of T+1.

Gulf Investors show their mettle

The sheer amount of investable assets in the Gulf should not be underestimated. This abundance of wealth means there are a lot of major institutional asset allocators (i.e., large Sovereign Wealth Funds) in the GCC looking for investment opportunities overseas, as they attempt to diversify returns beyond just local markets. 

We think this will usher in significant changes for the Custody Industry as a whole. While many of these GCC Institutions will leverage Global Custodians and rely on their sub-Custody Networks, others may attempt to build complimentary internal Network Management capabilities, just as some of the largest Asset Management houses already do.

Irrespective of whether the Gulf Investors internalise their Network Management or use Global Custodians,  they will need to ensure that they have robust Vendor Management capabilities in place.