When delegates arrive at the annual banking transactions conference, Sibos, which is held this year in Dubai, what will they discuss?âFunds Global asked senior executives at top firms to share their views.
J DAVID CRUIKSHANK, EXECUTIVE VICE-PRESIDENT AND CHIEF EXECUTIVE, TREASURY SERVICES, BNY MELLON
What will be the main themes under discussion at this year’s Sibos conference?
The fact that Sibos is holding its first Middle East-based conference reflects the emergence of local and regional transactional banking in respect to trade and payment flows – and dialogue will likely explore the means by which to ensure global standards permeate local banking provision. There will be lots of discussion about how financial institutions and investors are adapting to new regulations such as the Dodd-Frank Act in the US and the European Market Infrastructure Regulation in Europe. The new regulatory environment has dominated the agenda since the financial crisis.
Much has been said about “big data”. How can businesses make the most of their data to improve their offering and raise revenues?
Thanks to the emergence of the cloud and related breakthroughs in storage and retrieval, much is being said about big data. Too often, that discussion overlooks an important truism – by itself, data has no inherent value. Trending huge amounts of historical data can generate compelling charts and graphs. But beyond the visual appeal of elaborate graphics lies the inevitable question: where’s the value? Value requires analysis strong enough, insightful enough, and experienced enough to identify previously undetected correlations that improve our ability to estimate future activity, that serve as reliable leading indicators, and have value. That’s how it can improve product and service offerings and generate revenues.
Which initiatives or changes to the securities market could provide the biggest improvement to the Middle East and North Africa?
We’ve seen significant changes to Middle East markets this year, especially in the Gulf following the MSCI review which promoted the UAE and Qatar from frontier to emerging market status. The reclassification will not be implemented until May 31, 2014 (giving funds time to rebalance their portfolios) but it has given a boost to sentiment across the region. It is an important step in attracting international investors, who generally have a longer-term investment horizon. Such investors can boost liquidity and reduce volatility in emerging securities markets, which is important in a region where the retail investor is prevalent. The upgrade is likely to shine a light on the wider region, bringing other GCC countries under the microscope of foreign investors.
Companies in the region are also adopting increasingly global standards of corporate governance, and the playbook of foreign issuers in their engagement of investors, use of non-deal road shows, attendance of investor conferences and heightened investor relations practices. The need for transparency is fundamental to bring long-term investors to any region, and the Gulf was burned previously through the rapid entry and exit of hot money.
Likewise, strong issuance in the debt market has driven a change in behaviour. There has been a positive evolution in the region from traditional bank financing to debt capital markets. This has allowed an extension of maturities, which means borrowers can better match assets and liabilities. The shift from dealing with banks to dealing with debt capital market investors has also required better corporate governance, better discipline and an ongoing investor relations strategy that has aligned the region closer to international standards. The new ongoing dialogue with investors has also fostered wider knowledge and awareness of the region.
MIKE COWLEY, HEAD OF DIRECT SECURITIES SERVICES, MIDDLE EAST AND NORTH AFRICA, DEUTSCHE BANK
What will be the main themes under discussion at this year’s Sibos conference?
The impact of regulation and other industry initiatives continues to be at the forefront of many client conversations. The likes of the Foreign Account Tax Compliance Act (FATCA), Basel III and Dodd-Frank will all have a global impact. In Europe, the Alternative Investment Fund Managers Directive (AIFMD) came into force this year and we have the likes of the European Market Infrastructure Regulation (EMIR), Central Securities Depository Regulation (CSDR) and Target2-Securities on the horizon, too. A recurring theme is the need for global co-ordination to avoid regulatory arbitrage and unintended consequences.
Given the pressure to meet both evolving regulatory and end-client requirements, banks and other financial institutions need to find as many cost-savings as possible without compromising infrastructure stability and service levels. This often involves greater collaboration and that’s always a big theme at Sibos.
Much has been said about “big data”. How can businesses make the most of their data to improve their offering and raise revenues?
The big data challenge is complex and its scale means it’s often difficult to categorise into neatly-packaged solutions. Dealing with legacy platforms often demands multiple but aligned paths to realise the value locked within an organisation’s data. Bottom up, the focus should be on alignment with standards, frameworks and golden sources of data across an enterprise – to reduce complexity and increase agility.
Top down, businesses should look to leverage emerging technologies, analysing and transforming their largely unstructured data in an intelligent fashion – to make this data an indicator of how the organisation can enhance its services and product offerings and, potentially, a retrievable, usable asset for its clients.
Which initiatives or changes to the securities market could provide the biggest improvement to the Middle East and North Africa?
The impact of the MSCI upgrades of the UAE and Qatar to emerging market status is something we will be monitoring closely. We’re hoping for increased inflows and more stable flows overall. That can only help the market to develop at all levels and that’s what our clients need and expect. It should push the region as a whole to the next level in terms of post-trade services. The impact of the upgrades coupled with the development we expect to see in Saudi Arabia is – given that country’s size – likely
to be positive for the region as a whole.
JONATHAN TITONE, HEAD OF PRODUCT INNOVATION AND EXPANSION, CUSTODY DEPARTMENT, NATIONAL BANK OF ABU DHABI
What will be the main themes under discussion at this year’s Sibos conference?
The most dominant themes are likely to continue to be drawn from the global proliferation of new regulatory and compliance requirements. The post-crisis efforts to reduce systemic risk, improve harmonisation and investor protection have had unintended consequences which are disruptive forces to the industry.
Heavy administrative burdens, and new capital and margining requirements necessitate new strategies, co-operation and consolidation, but also provide the basis for exciting new product offerings and opportunities.
Cross-border collateral management and liquidity provision products are likely to take centre stage. The new competitive landscape as banks move to become central securities depositaries (CSDs), and CSDs add ancillary services and increasingly resemble custodian banks, will also be a hot topic.
Past themes such as Target2-Securities strategies, risk delegation in the Alternative Investment Funds Managers Directive (AIFMD), and extra-jurisdictional regulatory enforcement are also likely to be revisited with new intensity.
We hope that the UAE’s and Qatar’s markets’ progress and ascension to the ranks of emerging markets classification are part of the story this year.
Which initiatives or changes to the securities market could provide the biggest improvement to the Middle East and North Africa?
It is difficult to generalise about the markets in the Mena region as they are vastly different in terms of development and practices. Some Gulf Cooperation Council markets, like the UAE and Qatar, have made great progress toward meeting international standards, and we welcome their well-deserved ascension to the ranks of emerging markets classification. To generalise, the whole of the Mena region will be more attractive to investors with increased market depth, liquidity and transparency, delivery-versus-payment settlement standards, lower investment and safekeeping costs, and ease and efficiency of access.
Greater available free floats of companies’ securities, reductions of foreign ownership limits, liquidity provisions through securities lending and borrowing and market makers, and the development of secondary debt markets will be critical to further development. The long-rumoured opening of Saudi Arabia’s onshore equity markets to non-GCC investors would raise the investment profile of the entire region.
Historically, with lower investment levels here, and little competition, it was easier to buy the services of a custody bank regionally, even if they were very expensive. Today, there are credible alternatives in most Mena markets.
As the markets attract new investment flows, starting with the UAE and Qatar, it will be more important for intermediaries to select their custody banks market-by-market, rather than regionally.
Some of the newcomers to the custody business have superior credit ratings, business interests allowing for bilateral flows and closer partnerships, more in-depth market knowledge, and closer relationships within the market to advocate on behalf of investors.
Investors and intermediaries can diversify their exposure, an important consideration under the AIFMD, reduce investment costs, and find new business partners to make investment here more attractive.
What are the challenges in providing a common language for the securities industry?
Last year, the new data standards and identifiers for securities and legal entities were discussed at Sibos.
While most see the necessity and value, the costs will be staggering to update all of the necessary systems and this will likely be the biggest challenge in achieving a common language in the securities industry.
Common identifiers may not even exist within the same organisation. In large institutions, siloed business lines and internal Chinese walls have led to disparate naming conventions and codes used for the same and related entities, and systems may have limited interoperability.
Reconciliation, remediation and recoding will be massive undertakings.
Still, a common language will be critical in identifying and reporting overall exposures and risks.
STEWART ADAMS, REGIONAL HEAD OF INVESTORS AND INTERMEDIARIES FOR MIDDLE EAST, NORTH AFRICA AND PAKISTAN, STANDARD CHARTERED BANK
What do you think will be the main themes under discussion at this year’s Sibos conference?
Some of the themes will include: the impact of the global regulatory compliance requirements and changes in the banking industry; the role of China as a catalyst of world trade and the continuing rise of the renminbi as a mainstream international currency; the rise of Islamic finance, mobile banking and the evolution of the regional custody models. In addition, since this exhibition will be held in the Middle East for the first time, it is fair to assume the region’s potential, challenges and opportunities will be one of the key topics of discussion, too.
Which initiatives or changes to the securities market could provide the biggest improvement to the Middle East and North Africa?
A testimony to the efforts made by markets in the region is the recent reclassification of the UAE and Qatar from frontier markets to emerging markets by MSCI. There are other areas that need further development and both the regulators and the market entities are working together to bring these developments to light.
One major change would be the enhancement of liquidity in equities markets and the development of domestic debt markets. Although Middle Eastern markets are attractive with some attractive companies listed, the overall level of free floating stocks available to investors is relatively low. We have also seen that, owing to the global economic environment, there have not been many major IPOs [initial public offerings] in the region. One catalyst to enhance liquidity could be listing of some small and medium-sized, government-linked entities.
Domestic debt markets also need to be developed and again the lead will have to be taken by the flagship companies and the government-linked entities. These could list tranches of their debt issues on the domestic exchanges or platforms, thus contributing towards developing viable domestic debt markets that bring liquidity to the capital markets.
Defragmentation of platforms is another area being looked at. If the multiple trading and post-trading platforms could be consolidated, it would enhance the outlook of these markets both in terms of enhanced liquidity and the depth of investment opportunities available to investors. A logical first step could be the utilisation of uniform account opening standards across all GCC markets and the use of a regionally acceptable passport (single identification) methodology for investors for the GCC markets. Consolidation of depositaries and trading platforms could follow suit, where relevant.
What are the challenges in providing a common language for the securities industry?
The challenge is that most of the GCC markets are domestically driven and dominated by local investors who prefer the Arabic language. Companies, regulators and, to a lesser extent, exchanges use Arabic as the principle language of communication and announcements. However, most of the major and international market players use platforms that have English as the base language. Therefore, most of the announcements have to be translated before disseminated to international clientele.
Having said that, we have seen a trend for bilingual announcements, especially by regulators and exchanges that facilitate timely transmission of information. In my opinion the use of Arabic as the mode of communication is not a real issue at this stage, but developments need to be incorporated to ensure that Arabic and English both are used in the securities industry to ensure efficient and timely dissemination of relevant communications and ensure a level playing field.
WISSAM KHOURY, MANAGING DIRECTOR, SUNGARD FINANCIAL SYSTEMS, MIDDLE EAST
Which initiatives or changes to the securities market could provide the biggest improvement to the Middle East and North Africa?
MSCI’s decision to upgrade the UAE and Qatar to emerging market status should provide an impetus to stakeholders in the Mena region to simplify and facilitate access to the region’s financial markets. An example of this working in practice is the proposed merger between the Abu Dhabi and Dubai bourses, which could be the first move in joining the dots between disparate financial infrastructures in the region. This in turn could provide companies with access to a wider pool of investors, reduce reliance on bank funding and stabilise local stock exchanges, which are too often considered to suffer from a lack of liquidity, said to be a reason that regional companies have sought global listings elsewhere.
In addition to easier access, the Mena market is seeing changes to regulatory codes. Governments across the region are making efforts to make them match the world’s best to encourage inward investment. Adopting a common framework across the Mena region could be an important catalyst towards further evolution of local markets. These markets must also focus on capitalising on worldwide regulatory change to improve decision-making, maximise back-office operations and improve customer service.
What are the challenges facing the Islamic finance world and is there a need for more standardisation, for instance, by creating a more uniform set of rules and practices?
The spectrum of Islamic financial products has matured over the past decade, with offerings covering retail financing, private equity, project finance, wealth management, capital markets and insurance. Investors have increasingly turned to Islamic banking as they look for new, less risky opportunities in the wake of the financial crisis.
Two forces are now incentivising central banks to support Islamic banking. The first is popular politics: customers, who are generally citizens of the country, want Islamic banking. The second is the momentum and network effect: as more countries and more banks turn to Islamic finance, it will be easier and cheaper for new entrants to join the market.
However, the lack of standardisation for sharia compliance is a top business challenge for Islamic banks. Without standardised documents, the operational overhead for each Islamic transaction becomes a complex and time-consuming process that requires significant manual intervention.
On the risk front, many banks are in the process of setting up an enterprise risk management framework, but lack of expertise, limitations on instruments allowed for hedging, and poor data due to disparate systems have hindered progress so far.
Banks also need to determine how to define and segment their clients and how to create segment-specific risk models.
Retail banking is the foundation for the growth of Islamic banking. However, initial growth was based on customers who wished to bank solely on religious grounds. In order to expand market share, banks must convince conventional banking users to switch. This means competing with conventional banks on customer service, product offering and price.
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