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Monthly Update

The Pushback Against Greenwashing Continues

ESG (environmental, social, governance) and sustainable investment approaches are being integrated more extensively into the strategies of asset managers. According to PwC estimates, ESG-related assets under management (AUM) could reach $33.9 trillion by 2026, an increase from $18.4 trillion last year.[1] Amid this growth, however, greenwashing has become a real problem within the industry and one that threatens its credibility.

Some regulators – including the EU and now the UK FCA (Financial Conduct Authority) – want to tighten the rules on managers making sustainability claims, and require them to specifically define their goals and methods around sustainable investing.   

For instance, the FCA is looking to clamp down on managers mislabelling their funds as being green while simultaneously creating a framework to support investors when looking for sustainable funds.

So how will the FCA go about this?

Firstly, the FCA is proposing three separate labels for funds – ‘sustainable focus’, ‘sustainable improvers’ and ‘sustainable impact’.

There will also be restrictions on how certain sustainability-related terms such as ‘green,’ ‘ESG’ or ‘sustainable’ can be used in product names and marketing for products which do not qualify for the sustainable investment labels. The FCA also added managers should make additional disclosures to clients who want more information about a product’s sustainability.

This comes not long after the FCA wrote a “Dear Chair” letter, in which the regulator described some of the more egregious instances of asset managers making unsubstantiated claims about sustainability to investors.

For example, the FCA observed that one purportedly sustainable investment firm contained two high carbon emissions energy companies in its top 10 holdings, without providing any context or rationale behind it (i.e. a stewardship approach that supports companies moving towards an orderly transition to net zero). 

The FCA is the latest regulator to clamp down on greenwashing. The EU is widely considered to be one of the most advanced markets when it comes to ESG having introduced the SFDR (Sustainable Finance Disclosure Regulation) and the Taxonomy for sustainable economic activities.

The US is starting to take a tough line on managers misrepresenting their ‘green’ credentials as well.  Earlier this year, the US Securities and Exchange Commission (SEC) announced plans to target asset managers with misleading fund names, by demanding firms prove that 80% of their holdings match the names given to their funds. In other words, if a fund has green in its title, then 80% of its underlying assets should be green.

The SEC is also recommending that funds and advisers provide more specific disclosures about their strategies in prospectuses, annual reports and adviser brochures. In the case of managers who claim to be making an environmental impact, they will be required to publish the greenhouse gas emissions associated with their underlying portfolio investments.

ESG and sustainable investing have been littered with challenges, not least because some managers have made spurious claims about sustainability. One of the reasons why this has been allowed to happen is the lack of regulation in the new market.

Although new regulation is welcome – if it improves standards and safeguards investors against miss-selling it is vital that there is a degree of harmonisation between what different market supervisors are doing in terms of their policies –  otherwise it risks sowing confusion, and undermining the industry’s push towards ESG and sustainable investing.

IIMI will be looking to provide feedback to the FCA on these proposals. As part of this, IIMI will be gathering the opinions of its members, particularly those in the IIMI ESG Network. Any correspondence or opinions on this issue should be sent by IIMI members to the executive committee.


[1] PwC – October 10, 2022 – PwC’s Asset and Wealth Management Revolution 2022 Report

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Monthly Update

Trade Settlement Changes to Impact Asset Management

With the US now set to reduce its trade settlement cycle for equities from T+2 to T+1 beginning in March 2024,  asset managers in the UK need to start thinking about how this change could impact their operations.

Why asset managers should take note of the move to T+1

Pushed for initially by SIFMA (Securities Industry and Financial Markets Association), the ICI (Investment Company Institute) and the DTCC (Depository Trust & Clearing Corporation) following the market pandemonium caused by COVID-19 and the meme trading escapade, the SEC (Securities and Exchange Commission) finally gave its backing in February to shortening equity settlement times from T+2 to T+1.

By narrowing the time it takes to settle a trade by a whole day, regulators argue it will help mitigate settlement and counterparty risk during the transactional process, curtailing the need to post as much margin on trades, and ultimately allowing for capital to be freed up, and deployed elsewhere, generating surplus liquidity. The US’s transition to T+1 is something which many financial institutions –  including asset managers –  largely welcome, at least from a balance sheet perspective

Confronting the challenges of settlement compression

Although T+1 could help generate capital efficiencies, there are some unresolved issues, which need clarifying. Firstly, there are concerns about whether financial institutions based in different time zones to the US will need to pre-fund some of their trades. Under the existing T+2 model, financial institutions have two days after the trade date to settle their FX transactions, but under T+1 organisations would need to book FX trades on either the same day or T+1.

A move to T+1 could also lead to fund managers suffering from an increase in trade fails, resulting in additional costs or even fines. If penalties for settlement fails are to be avoided,  it is vital that managers ensure their operational processes and in-house systems can handle T+1.

Another risk which needs avoiding is market fragmentation. Not all markets will move to T+1 simultaneously raising the prospect of having a multiplicity of different trade settlement times in various markets. Not everyone is convinced that fragmentation of this sort will be a problem though. Asset managers, for instance, have a long track record of operating in markets where trade settlement times are not harmonised, so the US’s move to T+1 should not be particularly onerous for them.

Is anyone else following in the US’s footsteps?

The US is not the only market adopting T+1. India is already phasing in T+1, while Canada is poised to introduce T+1 at the same time as the US. A handful of emerging markets (especially those whose equity markets are closely tied to the US) have also indicated they could eventually move to T+1, although it is still early days.  

Experts – speaking during an AFME (Association for Financial Markets in Europe) Conference in London, recently said that Brexit could potentially enable the UK to take a lead on embracing T+1, ahead of the EU. Nonetheless, the appetite for T+1 in the EU is fairly limited (although not non-existent), especially following the trading bloc’s laborious implementation of T+2 several years earlier.

With settlement times likely to change across more markets, asset managers should think about how this could affect their core operations.

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Monthly Update

The Use of Private messaging apps falls under the regulatory spotlight

It has been well over a decade now since the early  social media pioneers (i.e. LinkedIn, Facebook)  first started integrating themselves into the world of financial services. However, their arrival was not welcomed initially by everyone –  including compliance departments at asset managers, who  became increasingly alarmed at the regulatory and legal risks, which these online platforms posed.

In contrast to corporate email accounts or mobile phones, private correspondence conducted via social media could not be monitored –  making it hard for firms to spot incidences of insider trading or other inappropriate communication exchanges. Almost immediately, a number of investment firms drafted up strict policies governing the use of social media by staff, with many dictating that any official communications between colleagues themselves or with prospective or existing clients should only be carried out through authorised channels (i.e. company email accounts and work phones, and not social media platforms or personal devices).

This exact same problem is once again repeating itself today.  

Over the last few years, the use of private messaging tools such as WhatsApp – often on personal devices – has become increasingly ubiquitous in the workplace. There are several reasons for this. In the aftermath of the 2008 crisis, a number of financial institutions engaged in aggressive cost cutting programmes, with some even asking employees to use personal mobile phones for work purposes, a policy which resulted in more people – intentionally or otherwise – leveraging private messaging apps for business reasons.  

It was the pandemic, however, that had the most dramatic effect as the introduction of remote working forced staff to rely more on their personal devices and private messaging apps for communication purposes.

Consequentially, the ability for firms to accurately monitor and document internal and external communications has diminished  thereby  increasing the risk of deliberate or inadvertent compliance breaches.  Regulators are taking note of this deficiency.

Even before COVID-19 struck, regulators including the Securities and Exchange Commission (SEC) had been probing banks about the controls and recordkeeping arrangements they had in place over employees’ personal devices. The SEC has since fined a number of leading banks more than $1 billion collectively over failures to keep proper records of employee communications conducted on personal mobile devices. Data regulators are also examining whether sensitive information is being relayed and stored on private messaging platforms – amid concerns that General Data Protection Regulation provisions are being violated.

In response, nearly all banks have now imposed a blanket ban on staff conducting official business on private messaging apps such as WhatsApp. So will asset managers follow banks in restricting these private messaging apps?

It is looking increasingly likely that they will, not least because one major European asset manager has already confirmed  it will be setting aside $12 million to cover any potential regulatory fines linked to its employees’ use of personal devices and recordkeeping arrangements.

In terms of next steps, some investment firms intend on formally banning staff from using private messaging tools or personal devices for work purposes. Others are purchasing technology systems which allow them to monitor employee conversations carried out on WhatsApp, together with other communication channels like Zoom and Microsoft Teams.

This is an issue which the funds industry needs to address urgently, especially as regulators are likely to extend their scrutiny beyond just the banks.

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Monthly Update

Fund Managers Examine the Virtues of Tokenisation

Tokenisation – namely the conversion of real assets or financial instruments – into digital tokens which are traded on a Blockchain – is making waves in the funds’ industry.

This is because tokenisation can also be applied to fund shares or units. The concept of tokenisation is something which industry bodies –  including the Investment Association (IA) –  are urging UK regulators to get on top of.

But what is driving this interest exactly, and is it something the FCA (Financial Conduct Authority) ought to consider?

Proponents of tokenisation argue the practice can facilitate faster settlement, reduce counterparty risk by displacing a number of intermediaries in the investment chain, improve transparency during the transactional process, and supports fractional ownership.

In theory, fractional ownership of fund units or shares would make it much cheaper and easier for investors to gain exposure to a fund, versus buying directly into one. From an allocator perspective, this would democratise investment.

Similarly, asset managers also have a lot to gain from tokenisation – assuming it is implemented correctly.

By making the investment process less outmoded and manual, tokenisation could help managers win mandates from millennials and Generation Z investors, a retail demographic which has largely avoided putting money into traditional funds, often preferring instead to engage in day trading or speculating on unregulated products such crypto-currencies.

This could allow managers to widen their investor footprint enabling the industry to grow AUM share further and future proof their businesses.

It is hard to fault the merits of tokenisation in this particular instance.

While tokenisation could bring a number of opportunities to the traditional funds industry, there are some areas where IIMI believes it might pose challenges.

Tokenisation’s advocates have repeatedly said that fractionalisation will open up private markets and other illiquid assets to retail clients by lowering minimum investment thresholds and boosting secondary market activity. This – they argue – will unlock a lot of liquidity, which is currently trapped in the private markets.

But should private markets be open to retail investors?

IIMI is of the view that private markets ought to be the domain of institutions only.  Irrespective of whether they are fractionalised and the amounts of money involved are nominal, private markets are complicated in nature and unsuitable for retail.

Moreover,  there are mounting concerns that liquidity mismatches could emerge in tokenised versions of private markets.  If retail clients do suffer losses or are unable to redeem cash from tokenised versions of the private markets, then this could cause irreparable damage to the tokenisation cause as a whole.

IIMI is conducting a survey of its membership on digital assets, with the aim of producing a white paper later in the year. We encourage the membership to participate in this survey.

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Monthly Update

The rise of active ETFs – An opportunity for boutiques?

With boutique asset managers increasingly targeting a wider investor demographic – including US retail and wholesale clients – many are attempting to do so by launching new fund products, including active exchange traded funds (ETFs). So what are they?

In contrast to passive ETFs which simply track an underlying index, active ETFs are – as you would expect – actively managed. The number of active ETFs in the market has increased dramatically. According to Morningstar data, 60% of the 500 ETFs which launched in the US last year were actively managed, making it the first year in which the number of active ETF launches exceeded passives.[1] However, active ETFs are still a relatively small proportion of the overall $7 trillion US ETF market,  accounting for 4% of assets and 10.5% of net sales, notes Morningstar. [2]

Nonetheless, several high-profile active managers did launch their first-ever ETFs including BNY Mellon and Nuveen, while a number of firms – such as JP Morgan Asset Management and Dimensional Fund Advisors – have converted some of their existing mutual fund structures into active ETFs.

So what is driving this activity? Previously, active ETFs were subject to stringent transparency requirements obliging them to disclose their holdings on a daily basis, but the provisions have since been relaxed, which has made these wrappers more appealing to traditional fund managers.

The US Securities and Exchange Commission (SEC), for instance, has allowed certain active ETFs – otherwise known as semi-transparent ETFs or non-transparent ETFs – to be less open about their holdings. Although less transparency is normally a bad thing, the SEC’s decision is actually quite sensible, as it helps managers of active ETFs safeguard proprietary trading information.

There are other factors facilitating the growth in active ETFs. Increasingly, active managers are facing stern competition from passive products, which charge significantly lower fees, and have been effective in attracting investment from both retail and institutional allocators. This is prompting managers to trial active ETFs as part of their wider offering.

Additionally, ETFs in the US confer on investors a number of tax benefits, which are not available through traditional funds. This is another advantage which has been onboarded by fund managers.

For boutiques looking to accumulate capital from US investors, active ETFs are much cheaper to run, at least relative to a conventional ’40 Act Fund, according to one IIMI member. He continues ’40 Act funds are largely out of reach for smaller boutiques, adding that active ETFs could be a more efficient way for managers to attract US mandates.

As boutiques increasingly attempt to diversify both their returns and sources of investor capital, a number of them may see some virtue in establishing active ETFs, especially if they want to conquer the US market.   


[1] Financial Times – December 31, 2021 – Debut in active ETFs surge as US investors’ appetite grows

[2] Financial Times – December 31, 2021 – Debut in active ETFs surge as US investors’ appetite grows

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Monthly Update

Putting an End to Greenwashing


Just as regulators – in the aftermath of the 2008 crisis – clamped down on product misselling – whereby exotic funds and dicey financial instruments were inappropriately marketed to retail investors – the US SEC (Securities and Exchange Commission) is now looking to make an example of managers who they believe are guilty of “greenwashing”. This refers to misleading investors by overstating a focus on ESG (environmental, social, governance) factors, or sustainability impacts.

This nefarious practice has been allowed to proliferate due to the lack of joined-up regulation on ESG, the sheer volume of competing industry standards, and significant differences of opinion around the meaning and measurement of “ESG”.

So what is the SEC proposing?

The SEC is recommending that funds and advisers provide more specific disclosures about their ESG strategies in prospectuses, annual reports and adviser brochures.  In the case of managers who say they are looking to make an environmental impact, they will be required to disclose the greenhouse gas emissions associated with their underlying portfolio investments.

The SEC continues that funds claiming to achieve a specific ESG impact could be required to describe the impacts in question and provide a summary outlining their progress in terms of meeting their ESG targets.

Other rules are also being tightened up. Existing SEC requirements stipulate that if a fund’s name implies it is investing in a particular industry, geography or investment types, then at least 80% of its portfolio must be made up of those assets. The SEC is now extending this to include ESG. This follows mounting concerns that a minority of managers are giving their funds ESG names or labels, but are running strategies which do not correlate.

Elsewhere, funds that use proxy voting could be required by the SEC to disclose information regarding their voting of proxies on particular ESG-related voting matters and information concerning their ESG engagement meetings.

The SEC’s uncompromising stance on ESG comes not long after it fined the investment advisory arm of BNY Mellon $1.5 million following misstatements and omissions about its ESG approach to managing funds. The SEC said claims made by BNY Mellon Investment Advisor that it had embedded ESG quality reviews into all of its funds turned out not to be the case.

Given that the SEC has repeatedly warned the industry that it would target greenwashing, the fine should not come as a surprise. As such, managers are bracing themselves for further ESG scrutiny – and potential sanctions – from the SEC.

The US’ approach towards ESG is largely being welcomed by the funds’ industry, who have been asking for greater clarity on the issue for a long time.

If investors are unable to benchmark managers on ESG – or believe they are being mis-sold products masquerading as ESG funds – then the appetite for ESG investing will inevitably flounder. Therefore, it is essential regulators take a tough line on greenwashing if confidence in the ESG market is to be retained.

It is very probable that other regulators will follow the US’ lead as they look to root out greenwashing.

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Monthly Update

The Need for Oversight in Crypto Markets

As volatile asset classes go, few exceed the violent and gyrating price swings seen in crypto-currencies. Even so, the events of the last month have resulted in serious questions being asked of crypto-currencies, with some calling for greater regulation of the asset class.

A small chorus of institutional investors – dominated mainly by family offices, high net worth individuals,  smaller hedge funds, and specialist crypto-fund managers –  have built up exposures to crypto-currencies and StableCoins, a type of crypto-currency designed to have a stable price which is pegged to a fiat currency or another tangible asset.

However,  many – including a number of IIMI members –  have chosen to avoid crypto-currencies altogether. Their reasons for avoiding crypto are well-documented. Crypto-currencies are unregulated; have been used extensively to facilitate illegal activities such as money laundering and terrorist financing, while some experts question the basic macro fundamentals and valuations behind the asset class. 

Nonetheless, two events in May are likely to trigger even more regulatory scrutiny of crypto-assets.

Not-so StableCoins

The first involves StableCoins.  StableCoins act as a medium of exchange between the traditional financial world and the crypto-universe, meaning that their values are pegged to conventional assets (e.g. USD, Euro, etc.) so as to avoid some of the volatility which is endemic in crypto-currencies like Bitcoin.

That one of the largest StableCoins – Tether – broke its one on one peg with the USD is likely to invite regulatory intervention. A number of regulators have repeatedly warned that StableCoins – despite the comforting name – could suffer serious losses or become illiquid during stressful market events.

This is partly because of concerns about the nature of the reserve assets underpinning StableCoins amid fears that some StableCoin issuers have provided only limited details about their underlying holdings and how they are managed. In the case of the latter, Tether, for instance, has said this is strictly proprietary information.   

However, a recent article in the Financial Times notes that half of Tether’s $80 billion of reserve assets comprise of US Treasuries, while corporate debt accounts for 25% of its holdings. Nonetheless, a lot of this corporate debt – according to reports – has been issued by Chinese companies.

This is not the first time that Tether’s reserve assets have been challenged by the authorities. In October 2021,  Tether was fined $41 million by the  Commodity Futures Trading Commission for making misleading statements and omissions about its reserves.

While the $180 billion StableCoin market is not systemically important per se,  it has grown exponentially in the last two years and its price movements could one day have a wider market impact than what they do today. As such, the volatility witnessed earlier in the month could usher in further oversight of StableCoins and their holdings.

The crypto-custody model faces tough Questions

The second incident to tarnish the crypto-asset market follows an SEC (Securities and Exchange) regulatory filing made by Coinbase, a publicly listed crypto-custodian which is widely considered to be the dominant provider in this growing space.

Coinbase’s filing warned that custodied crypto-assets “could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.” Although Coinbase’s CEO and analysts were quick to point out the company had significant liquidity, the statement has raised eyebrows in institutional circles.

Given that Coinbase is one of the most sophisticated providers in its field, the revelations prompted intense debate about the operating models of the countless other –  and arguably less cutting edge-   crypto-custodians in the market. 

While some traditional bank custodians are looking to develop solutions supporting digital asset trading, incumbent providers have made it clear that firmer regulation is needed in the crypto-custody market.

Crypto will face a regulatory reckoning

The latest turmoil afflicting crypto markets will likely result in sweeping regulations being introduced across these asset classes beyond what is being lined up already.

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Monthly Update

Another “Dear CEO” Letter Shakes up the Industry

“Dear CEO” letters issued by the UK’s Financial Conduct Authority (FCA) rarely make for enjoyable reading – as the asset management industry can surely attest –  having been on the receiving end of several brusque missives over the last few years. In late March 2022, it became the turn of the custody and fund services sector to face the FCA’s opprobrium in one of the regulator’s latest communique. The FCA outlined four principal challenges facing fund servicers – all of which could have serious downstream consequences for asset managers and asset owner clients.

Cyber controls in need of improvement

Chief among the FCA’s priorities were operational resilience and cyber-security, which the regulator identified as being areas of weakness at some firms. “The levels of interconnectedness between systems, lack of internal knowledge on how the systems operate, and ineffective oversight of third party or intra-group service providers can all threaten resilience. These are areas where you can expect questioning on how risks have been mitigated,” according to the FCA’s letter. 

The FCA reiterates that asset servicers hold sensitive investor data, stressing this information should be safeguarded by robust security measures. The FCA also highlights that asset servicers, where controls have been found wanting, are currently being subjected to heightened technology reviews.

Protection of Client Assets and Money

Although the FCA notes that providers have invested heavily into facilitating CASS (Client Assets Sourcebook) compliance, it says there are deficiencies at firms in terms of their change management; dependency on legacy or end of life IT infrastructure; and high levels of manual processing.

“We think that challenges with CASS compliance often have their root causes in poor governance and oversight, under-investment in systems, and a failure to fully consider CASS impacts when managing change. We have seen cases where the root causes also include a lack of adequate CASS knowledge,” says the FCA.

Depositary oversight requires remediation

Entrusted with overseeing asset managers’ operations (i.e. cash flow monitoring, compliance with investment mandates, service provider oversight etc.), depositaries are a vital investor protection tool. Despite these critical responsibilities, the FCA criticised depositaries for having inadequate oversight processes in place and failing to properly challenge fund managers when needed.

“This can lead to potential harm to unitholders and investors. We also have concerns about the robustness of controls used to oversee fund liquidity, and investment and borrowing limits. We have seen examples of a lack of holistic judgements in these areas, including – for example –  a narrow interpretation of the applicable COLL rule requiring a ‘prudent spread of risk’ and the lack of policies or procedures related to it,” adds the letter.

Be wary of speculative and illiquid investments

Although the FCA said it was not presently aware of any fund services providers manufacturing or promoting speculative or illiquid products (i.e. mini-bonds), the regulator warns “firms in this sector may contract with and provide services to the issuers or promoters of these products, such as trustee, safekeeping and administrative services. In some cases, FCA regulated custody and fund services firms may inadvertently provide increased legitimacy to the marketing of unregulated products. Promoters of these products may exploit the FCA badge of a regulated entity from which it is procuring services, to create false confidence surrounding a product, marketing claims or consumer protections,” it says.  

The FCA warns there have been instances of providers displaying “a disregard for consumer outcomes in their activities and inadequate due diligence on parties with which they have contracted”, adding it will take action against organisations when serious misconduct is suspected.

Why fund managers should care

Although this “Dear CEO” letter does not apply to fund managers directly but rather to their asset servicers, the industry should take note of its contents. Engaging with poor quality providers (i.e. a depositary who does not flag problems or an administrator with lax cyber hygiene policies) can have adverse consequences for fund managers together with their investors.  In addition, boutiques – including IIMI members – should be wary of being locked into asset servicer relationships– where higher service costs do not necessarily reflect a reinvestment in systems and security processes.

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Monthly Update

Fund managers brace themselves for Russian fall-out

Despite the glaring warning signs and litany of pessimistic Western intelligence reports, the Russian invasion of Ukraine caught a number of institutional investors by surprise. According to data from the Moscow Exchange (MOEX), foreign investors are currently sitting on circa $86 billion of Russian equities, $20 billion of Russia’s USD debt and  $41 billion of Rouble denominated sovereign bonds. [1] 

A number of institutional investors – including pension schemes and sovereign wealth funds across the US, UK, Canada, Norway and Australia – are coming under massive political and regulatory pressure to divest their Russian holdings. Several Russian-focused funds have already suspended investor redemptions. Given the extent of the sanctions being imposed on Russia –  offloading these problem assets will be incredibly tough. Capital losses are also expected to be substantial owing to the precipitous fall in market prices, doubling of Russian interest rates and collapse of the Rouble’s value.

So what is exactly happening? The exclusion of certain Russian banks from the SWIFT financial messaging network at the end of February had already made it extremely complicated for foreign institutions to exit their Russian investments. In short, this measure effectively rendered it almost impossible for firms to remit any sales proceeds from Russia. Not only are foreign investors at enormous risk of breaching sanctions rules if they do sell their Russian assets, but few – if any counterparties – will want to buy or sell Russian securities because of the political environment, market risk and potential scope for incurring harsh penalties should they violate sanctions.

Compounding matters further is that foreign institutions are banned by the Russian government from selling locally listed securities on MOEX while trading of Russian companies abroad has been suspended. According to the FT-  Nasdaq, Deutsche Borse and the London Stock Exchange (LSE) are among some of the major stock exchanges to have introduced share trading bans on listed Russian securities.[2] In addition, the LSE has ceased trading of global depository receipts of several Russian-based companies including Rosneft, Sberbank, Gazprom, En+ and LuKoil.  Elsewhere, MSCI and FTSE Russell have both excluded Russian securities from their respective EM (emerging markets) indices – a decision that will further heap pressure on the country’s embattled equity market.

At a financial market infrastructure level, CSDs (central securities depositories) have also made it significantly harder for foreign institutions to trade in the Russian market. Euroclear confirmed it would suspend its link with the Russian Bank, VTB, which until now has acted as the main outlet for trades in Russian securities for both Euroclear and Clearstream. Clearstream also stated that the Rouble was no longer an eligible settlement currency inside or outside of Russia, while Euroclear stopped settling Rouble denominated trades transacted outside of Russia on March 3. [3] Asset servicing has also been impacted with income distributions accrued from Russian securities now suspended until further notice. It is unclear what would happen if a Russian security undertook a corporate event but it should be assumed overseas investors impacted by the embargo would have to allow it to lapse.

With there being no end in sight to this crisis, it is highly probable that foreign institutions’ holdings of Russian assets are likely to be trapped for the foreseeable future. Local providers in Russia – such as custodians – can certainly provide information to clients, –  but other services will likely be restricted.


[1] Financial Times (March 1, 2022) Investors struggle to trade Russian assets as sanctions hit market plumbing

[2] Financial Times (March 1, 2022) Investors struggle to trade Russian assets as sanctions hit market plumbing

[3] Reuters (February 28, 2022) Europe carves out Russian securities from financial markets

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Monthly Update

Market data faces a regulatory reckoning

The cost of market data being supplied by benchmarks and indices to asset managers – together with the complexity of the contracts binding investment firms to these providers – is an issue that IIMI (Independent Investment Management Initiative) has repeatedly raised with regulators  – most notably the UK’s Financial Conduct Authority (FCA). In a missive released in January, the FCA confirmed that it will launch two studies investigating how easily market participants can access wholesale data. 

According to the FCA, this comes amid mounting concerns that there is limited competition in the markets for benchmarks and indices, credit ratings and trading data, which in turn is leading to higher costs for fund managers and their end investors. The FCA said the first study – which will start in the Summer – will review concerns that contracts for benchmarks and indices are excessively complex – in what is precluding investment firms from switching to cheaper, better alternatives. At the end of the year, the FCA continued it would launch a follow-up study examining whether high charges for access to credit rating data is creating added costs for investors and hindering new market entrants.

The FCA said it will be gathering input about competition in the market for wholesale trading data, namely information about what financial instruments are being traded; how much people are prepared to pay for them, and the prices at which transactions are executed. A lot of this information is supplied by trading venues – principally stock exchanges – where the transactions take place. Nonetheless, there is disquiet about the absence of proper competition in this corner of the market, in what some say is resulting in asset managers facing higher costs. Others point out these costs might even have an impact on the nature and type of assets that investment managers buy and sell.

One IIMI manager adds that the lack of clarity over display and non-display data contracts with wholesale data providers and exchanges is still a live issue. This is because many managers are being challenged on how they use security/index data in their trading activities. Some firms have been informed by providers that these activities are not covered by their existing contracts or are being forced to sign new contracts to cover data use for something they did not need to pay for previously.

Experts say this FCA review could pit stock exchanges  – where proceeds from data distribution and sales are becoming an increasingly important component of their revenues – against asset managers, who are frustrated about the rising data charges – especially at a time when margin pressures elsewhere continue to grow. A number of investment firms are spending more than ever on operations – including data –  despite facing fee compression and heightened regulations. In response, many managers are looking to net meaningful cost savings, something which could be facilitated through greater competition in the benchmarking world.

As the UK increasingly strives to attract more foreign investment into the country post-Brexit, greater competition in terms of how market data is supplied could be one of the ways in which this is achieved.