After more than 18 months of periodic lockdowns of varying intensity across the world, the securities services industry is now unrecognisable to what it was like pre-COVID-19. Initially, market participants were forced to rapidly transform their business models and ways of working, as the severity of the pandemic became increasingly stark. In addition to demonstrating enormous resiliency in an unprecedented crisis, the industry also managed to adapt successfully to the massive changes which subsequently followed. Speaking at The Virtual Network Forum (TNF), Alexis Meissner, Head of Banks & Broker Dealers at HSBC Markets and Securities Services, reflects on how the industry navigated COVID-19 and explores what the future may hold for securities services.
Putting mental health at the forefront
Although financial institutions have largely weathered the crisis, the emotional toll which the pandemic is exerting on employees should not be underestimated. Again, this is a problem that has been exacerbated by the blurring of boundaries between work and home life, a situation which is often leading to staff working unsustainable and long hours, putting them at risk of burnout. Meissner noted that the mental wellbeing of staff cannot be brushed aside. “Mental health is a serious issue, which the industry is having to grapple with. It is critical that senior leadership spend time checking in with co-workers to ensure that they are okay. This will be vital if banks are to be welcoming places for the next generation of people coming through the doors,” she added.
Facilitating career progression and relationship management in a virtual environment
As and when the situation stabilises, senior leaders concede there could be teething issues once employees start returning to the office on a more regular basis. In some instances, people who joined companies just before or during the pandemic itself are in the bizarre situation of never having met any of their co-workers outside of a virtual environment, said Meissner. While on boarding these new arrivals initially was straightforward, the flexible working arrangements - which are likely to become more ubiquitous post-pandemic - could pose possible long-term challenges for lockdown hires. "If we have a situation where new joiners are only coming into the office once or twice a week, then we need to make sure we have an environment that lets them grow both their careers and networks. I think that many people, including the new joiners as well as long term employees, have gotten used to this working pattern over the last 18 months, and while flexibility going forward is key, we have to ensure the we also adapt out environments to allow people to grow and develop in this new norm," said Meissner.
A greener securities services industry
Institutions are taking an increasing interest in ESG (environment, social, governance) matters, and are demanding greater information from asset managers about whether or not their investments are sustainable. Similarly, market regulators are now introducing rules on ESG. The EU, for example, has just implemented the Sustainable Finance Disclosure Regulation (SFDR) – a new ESG reporting requirement for investors, while it is also in the process of developing its Taxonomy Regulation, a proposal which will provide clarity on the types of economic activities that it considers to be sustainable. Other regulators elsewhere - including in China - are looking to replicate what the EU is doing.
Providers such as HSBC have a long track record of taking ESG seriously – evidenced by the bank’s commitment to the green bond market and its extensive provision of ESG reporting services to investor clients. In 2020, HSBC launched a reporting tool that provides asset managers and asset owners with independent measurements of how their listed asset investments score on ESG. The reporting service will consist of a monthly reporting dashboard, including portfolio-level analysis using ESG ratings, and carbon emissions data. The reporting service will leverage ESG scores and ratings from ESG rating providers including MSCI, Sustainalytics and Vigeo Eiris, and it can be applied equally to specialist ESG and non-ESG portfolios.
On the business side, Meissner said Securities Services – even pre-pandemic – had been looking at ways of reducing its carbon footprint, with international travel coming under growing scrutiny. However, the pandemic has once again thrust ESG into the limelight. With COVID-19 having all but decimated business travel, few in securities services expect it will return to anything like its pre-pandemic levels as organisations become increasingly conscious about their carbon footprints. In particular, Meissner noted that network managers – long accustomed to travelling all over the world to conduct due diligences on sub-custodian banks – will probably perform fewer on-site visits, and instead focus more on virtual assessments.
A new look industry
From the adoption of innovative technologies to facilitate client and internal communications through to flexible working practices and a greener approach towards conducting business, the pandemic has left a truly lasting impact on the securities services industry.