One of the most attention-getting discussions was entitled "Reforming the financial markets: diversifying the CSD business and entering new segments«.The modern central securities depositories (CSDs) are looking for opportunities to diversify their services and trying to understand how to communicate with regulators, retain key staff, and keep up with the technology trends.
The panelists reached a consensus that CSDs are required to find opportunities to grow and to have an effective impact on the market, start providing services beyond their conventional area of business, and seek to understand expectations of their clients and regulators. It has become apparent that diversification is in high gear, directly affecting financial metrics and service levels.
«Cost management, market needs, and the regulator’s mission to ensure evolution of the domestic market are among the crucial drivers of diversification. We need to understand whether there are tasks at hand to ensure global integration, attract foreign investors, or provide more opportunities to local investors. Regulators and the infrastructure should maintain their competitiveness, including in front of FinTech businesses that are capable to put into question the existence of infrastructure in its current shape, and many CSDs, including NSD, have demonstrated their flexibility by expanding the range of their key services and offering new service types. Today, we are facing such challenges as an ESG agenda and emergence of new service segments, such as the pension industry», said Maria Krasnova, First Deputy Chairperson of NSD’s Executive Board.
The distributed ledger technology also remains a challenge to CSDs. This has been confirmed by Professor Monica Singer, ConsenSys South Africa lead, Board member of SAICA and Accounting Blockchain Coalition, in her presentation «Blockchain technology: How is the world of capital markets changing?».
«The world of finance is evolving drastically, including thanks to smart contracts. People want fast payments, without unnecessary intermediaries, and the new technology makes this possible. Thanks to it, it is possible to automate corporate actions, program an AML system, increase liquidity in the market, ensure flexibility in terms of dividend payment, and much more. Now, all of this is becoming possible. And that impresses! I do believe that distributed ledgers are a source of great opportunities for CSD, not a threat. It is only needed to start studying new processes, training staff, and experimenting. Try and you will see that the new world order will give you an opportunity to transform business», said Professor Singer.
Importantly, the trends towards digital transformation of the securities market are supported by SWIFT. That is perfectly in tune with the strategy pursued by the Society for Worldwide Interbank Financial Telecommunication.
Matthieu de Heering, Director, Capital Markets Strategy, SWIFT: «SWIFT’s current strategy for the securities market is aimed at supporting CSDs during the period of coexistence of traditional and tokenized assets. The move to a new asset type is a fact, but this will happen gradually, for all types of securities. We have to ensure a move, as seamless as possible, to the new approach for our clients. The entire securities industry is imbued with an idea of innovations and has a strategic focus on innovative projects, including on a new class of securities. That has long moved beyond labs: the future is happening here and now!»
The AECSD was launched 20 years ago, and it is time to assess what has been done during that period and what prospects await in the future. As part of the kick-off discussion of Day 2, the AECSD members and representatives of other regional CSD associations discussed ideas of how it is better to arrange the work of such an organization in the modern world.
Moderated by Boris Cherkasskiy, Advisor to the Director General of INFINITUM Asset Services, the speakers discussed how the AECSD should improve the ways it interacts, whether the AECSD structure needs to be reformed, and whether there is a need for a common securities depository and settlement space for the AECSD member countries and how such space should be shaped.
«The entire global securities depository and settlement system is ineffective. ICSDs and global custodians somewhat solve issues of cross-border settlement, but this comes at a price for investors. All our depositories have eventually learned to service their domestic markets, but once we face issues arising in cross-border transactions, the effectiveness drops sharply. The challenge is not unique to us; developed markets also face and seek to address it in different ways. The T2S system that helps CSDs to make cross-border transactions attracts great interest, but that move has not so far been supported elsewhere in the world. Shall we consider creating similar systems within the AECSD or in cooperation with the ACG? Will this make our markets more appealing? Do we need that?», asked the moderator.
Another interesting topic discussed during Day 2 was harmonization of reforming the banking and securities markets in order to ensure financial stability. The topic was addressed by Alexey Krasinsky, Deputy Director, Department of Financial Policy, Eurasian Economic Commission (EEC). He talked about the integration processes taking place in the Eurasian Economic Union (EAEU).
«During the time that have passed since the signing of the EEC Treaty, and we have managed to put in place a well-established regulatory framework to achieve our objectives. Today, our main focus is on the financial market. Here, we have four tasks: harmonization of requirements to operations and supervision in the common financial market from the perspective of the regulatory policy with respect to market participants; recognition of licenses in the insurance market, securities market, and banking sector; unimpeded provision of services in the financial market without establishing an additional corporate intermediary; and ensuring effective administrative interaction between regulators», said Mr. Krasinsky. «These are the principles that would help unlock the potential of the Union member countries, ensure investor protection, and maintain financial stability of the Union and its member countries.»
Naturally, the AECSD Conference could not overlook the hot topic of ESG (Environmental, Social and Corporate Governance) principles. A presentation on the topic was made by Konstantin Saroyan, Secretary General, Federation of Euro-Asian Stock Exchanges (FEAS).
According to him, «with each passing year, funds have been investing more in companies that pursue an ESG strategy. Such an approach brings attention to the company and builds a brand -new reputation for it. With respect to stock exchanges and CSDs, this would be safe to say that they could play a double role in that policy. The first one is the internal function wherein they stick to that philosophy themselves. The second one is the external function wherein they play the role of regulator for their corporate clients. It is also important to realize that costs to implement ESG are really high and that work requires collective efforts. It does not make sense if only a single player is into it, but it makes sense if the entire world is involved.»
By tradition, the conference involved the Annual General Meeting of AECSD members attended by representatives of the AECSD members and observers. Mr. Vahan Stepanyan, CEO of Central Depository of Armenia, was re-elected as AECSD Chairman. In 2022, the International Conference of the Association of Eurasian Central Securities Depositories will take place in the Republic of Armenia, in a hybrid format.