Capital markets and corporate banking are undergoing seismic changes fuelled by macro geopolitical volatility; technological transformations and disruption; newly emergent risks such as cyber-crime; evolving client expectations and a heightening emphasis on ESG. It is critical banks identify ways to adapt to these rapidly shifting dynamics. Within the bank’s Securities Services division, the Issuer Services business – dedicated to the provision of operational services, trustee and agency roles in support of capital markets transactions – is now rising up to these challenges.
Supporting increased global infrastructure demand
The need for more infrastructure development is irrefutable, but the availability of government funds to provide the necessary financing behind it is not guaranteed. According to data from Global Infrastructure Hub, there is currently a USD15 trillion shortfall between projected investment and the amount actually required to facilitate the building of adequate infrastructure by 2040.1 Consequentially, there is now a growing role for private sector participation in infrastructure programmes. “The market is opening up for more private sector involvement in infrastructure investment, whether it is banks, investors or sponsors,” commented Giovanni Fenocchi, Global Head of Issuer Services at HSBC.
In the context of the low interest rate environment and equity market uncertainty, the reliable long-term, returns offered by infrastructure are becoming more attractive to institutional investors, especially those looking to hedge against the risk of rising inflation. 2 With the asset class offering yields of around 5 per cent, institutional investors are now allocating record sums of capital into infrastructure funds3 or simply going direct. “This dynamic is creating a perfect market opportunity for Issuer Services, as we can support clients investing in this sector by facilitating seamless execution throughout the lifecycle of the transaction,” highlighted Fenocchi.
The infrastructure market is opening up for more private sector involvement in infrastructure investment, whether it is banks, investors or sponsors, says Gio Fenocchi, Global head of Issuer Services
ESG takes priority
The growth of ESG is also reshaping capital markets. “ESG is going to have a huge impact on our industry. Institutions such as HSBC are looking extensively at green investment products, green bonds and green pricing, the provision of cheaper financing to companies provided they can validate that their suppliers have robust ESG credentials,” said Patrick Nolan, Global Head of Corporate Banking at HSBC. Named the “World’s best bank for sustainable finance 2019 “ by Euromoney4, HSBC takes its UN Sustainable Development Goals and Paris COP 21 commitments seriously and is playing a key role in driving the green bond market forward. Amongst many achievements in this space, HSBC helped Indonesia issue the first ever Asian sovereign green bond5 amongst many other achievements in this space.
Increasing adoption of ESG is down to several factors. Firstly, regulators inside the EU are now legislating that institutions should incorporate ESG risk into their investment decisions while voluntary reporting standards such as the Financial Stability Board’s (FSB) Task Force on Climate Related Financial Disclosures are also becoming more ubiquitous. Elsewhere, investors are searching for green returns, buoyed by numerous studies that indicate ESG assets outperform conventional instruments.6 Intermediaries such as HSBC Issuer Services are fully supporting customers with their ESG requirements, facilitating green bond execution and dedicated support for insurance linked securities such as catastrophe bonds. Dedicated expert teams have been equipped to provide operational and administrative support during the lifecycle of transactions.
Source: Sustainable Financing and Investing Survey 2019, September 2019
Adapting to disruptive technologies
Disruptive technologies – such as distributed ledger (DLT), artificial intelligence (AI), big data analytics, cloud computing and application programming interfaces (APIs) are having a profound impact on clients and their relationships with their banking counterparties, according to Nolan. “Clients want instantaneous services and faster payments, for instance,” he added. HSBC Issuer Services has taken note and is currently digitalising a number of its existing services as it looks to enhance its overall business proposition for underlying customers. “Digitalisation is pivotal to our business strategy. We have a number of initiatives which will help us support clients more proactively and respond to their needs quicker,” said Fenocchi. He adds “For instance, we have now been using for a couple of years optical character recognition (OCR) tools which help us read PDFs and immediately transfer the information to our front end systems thereby increasing efficiencies, minimising errors and augmenting client experiences”.
The business’ digitalisation journey has since evolved fast as it is now also using AI software applications and in June 2019, Issuer Services launched its first ever API, which can enable clients to pull data from HSBC for its bond issuances on request. Not only will the API enrich customer services but it will enhance client connectivity with the bank itself. Fenocchi added the business was also developing a Loan Portal which will give bilateral borrower clients full visibility of their loans, self-service drawdowns and rollovers. Elsewhere, major upgrades are currently being applied to the bank’s Corporate Trust Portal so as to be able to provide in a near future issuers with real-time data, flexible and dynamic reporting and self-service tools, continued Fenocchi.
“Disruptive technologies […] are having a profound impact on clients and their relationships with their banking counterparties. Clients want instantaneous services and faster payments, for instance, Says Patrick Nolan, Global Head of Corporate Banking at HSBC.
Collaborating with fintechs
In order to accelerate some digital initiatives, HSBC’s Issuer Services has partnered with a number of promising fintechs. “HSBC proactively works with leading fintech companies. While many technology start-ups are very good at identifying specific problems in the value chain, they often lack the wider infrastructure, resources and client base to accumulate market share,” said Nolan. Through these collaborative partnerships, agile fintech providers can leverage the resources and industry experience at major banks enabling them to acquire scalability more quickly and deliver solutions to a wider audience.
Simultaneously, it is also vital that the existing services offered by banks are able to evolve in line with changing market practices. While escrow solutions have historically been utilised by clients to support a number of traditional transactions involving mergers & acquisitions, pension deficits, collateral accounts, insurance linked securities and securing contractual representations and warranties,7 Fenocchi said the service was poised to play a pivotal role in facilitating e-wallet and crowdfunding transactions moving forward: “Demand for escrow services is on the rise, and this is a trend I expect will continue into 2020,” stated Fenocchi.
HSBC’s Issuer Services is now offering a new third party loan service to US clients as part of the broader HSBC Asset Owners & Managers strategy to capture debt fund opportunities. The new integrated (Fund Services and Issuer Services) solution will allow Funds to appoint the bank as sub-agent to service their loans in conjunction with full fund administration services where funds invest in loan structures. The bank will be servicing both the client’s position as administration agent in syndicated loans and loans in other facilities that the client participates in, in its individual capacity.
Services will include loan capture; disbursement and receipt of funds; preparing and distributing notices to borrowers in a white labelled format; calculating interest rates and distributing rate set notices; collecting principal, interest and fee payments from borrowers and distributing them to lenders; loan amendments; reconciliations and reporting of loan agreements between the client and its borrowers to ensure that the bank can service the loan as specified in the agreement.
Historically, balance sheet strength and creditworthiness were among the primary considerations for clients prior to selecting bank counterparties. Nowadays, clients are putting enormous emphasis on understanding the preventative measures that banks have in place to mitigate cyber-attacks. “Cyber-security is a problem that impacts banks 24 hours a day and it is one of the most serious risks facing financial markets presently,” said Nolan. At HSBC significant resources are deployed in preventative measures. This is reinforced by a recent market study by the Depository Trust & Clearing Corporation which found 37 per cent of respondents designated cyber-crime as being the biggest threat to financial stability.8 The volume and intensity of cyber-attacks have increased over the last few years, and it is something banks need to be fully prepared for.
A joined up counterparty
Both HSBC’s Issuer Services and Corporate Banking businesses actively work together to deliver a systematised and joined-up client service. “Our role as relationship bankers is to identify what the client needs and then find a solution accordingly. Having a best in class Issuer Services proposition is a great asset for us as it gives relationship bankers another avenue by which to reach out to clients. Issuer Services is a service that not many banks currently offer and it is a huge additive to our overall proposition. Having this solution helps us deliver an integrated offering to customers,” concluded Nolan.
To find out more about HSBC Issuer Services:
- Visit our website: www.gbm.hsbc.com/issuer-services
- Follow us on LinkedIn on the HSBC Global Banking and Markets page
- Contact us: APAC – firstname.lastname@example.org; Europe – email@example.com; Americas – firstname.lastname@example.org – MENAT: email@example.com
1 World Economic Forum (April 11, 2019) The world is facing a USD15 trillion infrastructure gap by 2040. Here’s how to bridge it
2 Morningstar (January 11, 2019) Why now is the time to invest in infrastructure
3 Financial Times (January 19, 2019) Infrastructure funds set for boom year after record 2018
4 Euromoney Awards for Excellence 2019, July 2019
5 HSBC (June 14, 2018) Developing the green bond market
6 ECB (February 6, 2018) Green & Social bond market update
7 HSBC GBM website
8 DTCC (December 11, 2018) New DTCC risk survey reveals growing concerns over Brexit’s systemic implications
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