Chris Dobson, Middle Office Manager, IMPAX AM.

Andrew Putwain: Working with custodians can sometimes involve a lot of resources and create an admin burden – can you talk about strategies to mitigate that?

Chris Dobson: We are agile with our strategies for the use of software, as we are a smaller firm and couldn’t hire a lot of staff to cover manual tasks. In the early days, we would take clients where we could and as a result, we would have to plug into the client’s custodian relationship. We ended up with around 25 custodians across different jurisdictions. We, therefore, had to manage the ratio of custodians and accounts versus staff to maintain lower costs. After trying several strategies, we focused on outsourcing.

We used a third party to prepare reconciliations for us, they got the data from the custodians, and we supplied our data to them. Certain outsourcing companies we used were manual in the background, but they were offshore and a lot cheaper plus they had the scale that we didn't. As we grew, we added more accounts and custodians, and their solution wasn't able to support us any longer that led us to look for alternative solutions, which is when we looked to technology rather than a people solution.

"Having multiple custodians means challenges around corporate actions. When it comes to selecting an event across 25 different custodians, it takes a long time to log into all the custodian portals to enter those."

We use technology wherever we can. Trade matching, for example, and to make sure that we utilise a Straight Through Process workflow.

Having multiple custodians means challenges around corporate actions. When it comes to selecting an event across 25 different custodians, it takes a long time to log into all the different custodian portals to enter and approve those elections. We have a project currently looking at corporate action software providers that will help to manage the significant operational risk for this process.

A few years ago, we built an in-house SQL Data Warehouse that is connected to our Order Management System. It has now grown from a data repository to an internal web portal with reporting capabilities. The theme is having your data in one place across the firm, having that central location is key because different teams across the organisation need it for different reasons.

Andrew: An outsourced service provider becoming overloaded with work as they can’t scale up effectively – is that something you’ve seen before or that operations managers should be aware of?

Chris: We have seen it happen where certain outsource providers don't necessarily have the technology to help their staff. However, this was several years ago, and most technology has come down in price and is more accessible. It is hopefully less common these days where firms use staff or low-budget tech (i.e., macros) in the background instead of purpose-built software.

"The lack of standardisation is the issue. Clients A and B might want the same thing, but they want it in different formats, timings, etc."

Andrew: What strategies would you recommend for standardisation in the sphere – is it the best way to cut down on non-value-adding work or does it only tackle low-hanging fruit?

Chris: As a middle office function we have always tried to be a value-adding team, whether that is a process or an internal or external request. Cutting down on non-value-add work is a great idea but isn’t always possible. The non-value-add work often comes from client requests and therefore is not always possible to push back. Clients have an infrastructure that they want us to plug into, which we must do.

The lack of standardisation is the issue. Clients A and B might want the same thing, but they want it in different formats, timings, etc. We utilise our data warehouse wherever possible to send automated reports, but this is often very tricky to manage with certain systems that our clients want us to plug into.

"More standardisations would be great, however in reality everyone has their legacy reporting requirements due to old or ageing systems, which compound the problem of needing certain data in a certain format."

Andrew: Does there need to be more honest conversations about why tasks need to be done to free up resources and create standardisation, such as asking clients about a task if it’s not value-adding?

Chris: More standardisations would be great, however in reality everyone has their legacy reporting requirements due to old or ageing systems, which compound the problem of needing certain data in a certain format. This results in many different reports for many different clients.

We utilise our data warehouse in these scenarios. Where our data is in good order, we can provide a report with all of the data points so that these customers can choose what they want from it.

It doesn't always work, but it does give wiggle room and is a pragmatic solution from a client's perspective.

"We try and utilise an electronic signing platform where possible, this was particularly useful during the pandemic however custodians are often unable to accept electronic signatures."

Andrew If a fund operator has to deal with a legacy client and accounts what are the best recommendations for minimising paperwork and time-consuming endeavours?

Chris: It comes down to being as efficient as possible. Send one report instead of ten and look at the data. The difficulty is to maintain that data and make sure it is kept accurate and up to date.

Minimising paperwork also requires buy-in from the custodian, for which there isn’t a lot at the moment due to legacy and outdated processes. For example, we try and utilise an electronic signing platform where possible, this was particularly useful during the pandemic however custodians are often unable to accept electronic signatures and still demand wet ink signatures sent via fax.

Andrew: EU Regulation on Central Securities Depositories (CSDR) was implemented in February, which is designed to increase the safety and efficiency of securities settlement and settlement infrastructures (CSDs) in the EU – what are the ways that it could affect hopes for standardisation and the ongoing efforts in this area? What should fund operators watch out for?

Chris: Since CSDR went live, we have seen changes on both the buy and sell-side in operations with technology. The regulation was designed to improve efficiency in the settlement cycle and for both sides look at their processes and strategy to ensure trades settle as close to the intended settlement date as possible.

We have already seen some changes on the broker side from before the regulation went live. We were told that brokers would enhance their inventory management in the CSDR-eligible markets, and we saw improvements in this almost immediately, however, we still see similar rates of failing trades across other markets.

 

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