IN THIS ISSUE

• Assets under custody – a new record!
• Super regulatory change – deadlines approach (again)
• Crypto-assets – here to stay
• Member event – format and agenda update
• Listed managed funds – dual access, dual ISIN?
• In Focus – Sean Gardiner, ACSA’s most recently appointed director, talks about his journey in securities services and the importance of industry contribution

ASSETS UNDER CUSTODY

Early in the month ACSA released statistics for 30 June 2021 showing assets under custody surged by 10.9 per cent to a new record of $4.4 trillion in the six months to 30 June 2021. 

The record result occurred on the back of valuation impacts and ongoing confidence in the key services provided by ACSA Members. Members reported a bounce of 19 percent for assets held offshore for Australian investors, compared to an increase of only 7 percent for assets held onshore. While part of this differential relates to currency valuation changes, it also reflects the long-term trend of institutional investors seeking returns beyond Australia.

SUPER REGULATORY CHANGE

Two major changes are effective for reporting in September, the first round of APRA Superannuation Data Transformation (SDT) reports and the Your Super Your Future (YSYF) allocation and performance information.

SDT dramatically extends the data that superannuation funds need to report to the regulator and has knock-on impacts for fund managers. Although custodians are not the subject of the regulation, as an industry we have been concerned that implementation of the new requirements poses significant systemic challenges.

Key concerns include:

• Specific data challenges (in many cases a lack of clear definition, availability and cost in accessing the asset class, sector and detailed security characteristics required);
• A lack of guidance on standard interpretations for reported data. This creates a genuine risk that reporting across funds will be incomparable – APRA has responded on this point through industry consultation, published FAQs and worked examples, including responses to points specifically raised by ACSA;
• Timeframe pressure. Implementation will be compromised where systems and process change is deployed without sufficient time to specify and test. The complexity of data and current regulatory timeline heightens risk in deploying change for funds directly and each of their service chain partners.
• APRA has provided guidance that reporting in the first year of implementation will be viewed on a “best endeavours” basis, although expects funds to be fully compliant by June 2022.
• APRA has also recently announced staged implementation approach which includes an extension to the timeframe for the initial submission of 30 June 2021 data related to trustee-directed products. APRA will extend the due date for submission of 30 June 2021 data for trustee-directed products from 30 September 2021 to 28 October 2021 to allow sufficient time to implement reporting. Here is the link to the update. Note that RSE licensees must report 30 June 2021 data for MySuper products on these forms by 30 September 2021. The 30 September 2021 due date for other reporting forms remain unchanged.

A sub-group comprising members of the ACSA Regulatory Working Group and Data Taskforce continues to review SRS 550.0 - Asset Allocation, with focus on the asset class characteristics required for 30 June 2021 reporting. ACSA has met directly with APRA to highlight key specific concerns, outline potential alternatives and provide an update on service chain readiness, including availability of managed fund look-through data.

Constructive dialogue continues across the industry and with APRA.

CRYPTO-ASSETS

Four different activities by ACSA are contributing to dialogue in the active space of crypto assets and distributed ledger technology.

In the last edition of Industry Wrap we mentioned ASIC Consultation Paper 343 - Crypto-assets as underlying assets for ETPs and other investment products CP 343. ACSA has provided a detailed submission to ASIC. Members can contact admin@acsa.com.au to obtain a copy.

In a separate initiative, ACSA is preparing a submission to the Senate Select Committee on Australia as a Technology and Financial Centre specifically on the topic of custody for crypto assets.

It has proven timely that the International Securities Services Association (ISSA) of which ACSA is a member has release an article on their recent DLT Voice of Customer Survey.

The article “reports on the professional investors’ thoughts about digital assets at this point in time. What they are -and are going to be- investing in, why they are investing, the challenges and what they want from service providers”. A key take-away is that digital assets appear to be here for the duration. 

Source: ISSA DLT Voice of the Customer Survey. The article can be found at ISSA DLT.

ACSA has also been invited to speak at the AIST Superannuation Investment Virtual Conference on the topic of Digital Assets. Details can be found on the AIST website.

MEMBER EVENTS

Our planned member events for later in the year need to stay agile in the face of ongoing pandemic disruption.

In response to the delta surge, we are pivoting to a single virtual event format for 21 October.

• The draft agenda is:
• Strategic Update
• Key note address, Graeme Arnott, Deloitte
• Digital Assets
• The new ACSA Website
• Virtual Networking – a new way to engage with peers

DUAL ACCESSED MANAGED FUNDS

The past two issues of Industry Wrap have featured the increased interest in managed funds with dual access (that is, they trade on regulated markets that settle on CHESS, but also via bilateral orders for applications and redemptions to the issuer’s registry as a traditional unlisted fund).

While not entirely new, recent innovation has seen existing unlisted funds, including actively managed, convert to the dual access structure. ACSA understands there is a healthy pipeline of interest from fund managers considering the dual access structure.

As previously covered, despite offering a new channel for investors and issuers, dual access funds can pose operational issues for asset servicing firms, platforms, data vendors and registries. An industry sub-group has been formed to share insights and review areas for additional market education, positive change and common practice.

With leadership by the ASX, a proposal is currently being canvassed for dual access funds to carry different ISINs depending on their settlement channel. ACSA members have indicated support for the approach. The drivers of separate ISINs include:

• key transaction attributes vary in terms of order routing, pricing, and settlement
• holding unit divisibility varies – ie partial unit holdings on unlisted but integer only on listed
• investment criteria such as minimum initial and subsequent investment amounts varies between the venues

We understand that the ASX has in-principle support from ANNA (the global numbering authority) but will need to get agreement on any final proposal. The proposal does not only apply to ASX funds – Chi-X input is welcomed as both exchanges see potential in this fund structure. ASX is continuing engagement with other key stakeholder groups. Watch out for a member webinar on this and other top-of-mind operations topics in the next quarter.

IN FOCUS

Sean Gardiner is an Executive Director and heads up the Global Custody Middle Office for Australia and New Zealand with J.P. Morgan. Based in Sydney, Sean is the most recently appointed director of the Australian Custodial Services Association. For this  In Focus feature, ACSA Members and Services Working Group Chair Nichole Alexander spoke (virtually) with Sean to hear about his career journey and what being part of ACSA means to him.

Your career story, can you share how you got to where you are today?

As soon as I left Charles Sturt University Bathurst, I moved to London starting my career at Barclays Capital as a trader support officer for the OTC Fixed Income and FX desks.

After a couple of years in London I moved back to Sydney and ended up at Citibank in the APAC Fixed Income Currencies and Commodities Operations Centre of Excellence (COE). I built on my career at Citibank’s COE, first managing the OTC Derivatives unit then switching to managing the Fixed Income area and finally ending up managing the whole COE.

While at Citibank I had the privilege to also chair ISDA’s (International Swaps and Derivatives Association) APAC Rates Operations Working group for 3 years, getting involved in many of the region’s OTC markets developments.

In 2014, I was offered the opportunity to move into the Securities Services business at J.P. Morgan, first managing the ANZ Unit Pricing team and then setting up the regional Oversight team for ANZ Custody & Fund Services Operations. In 2018, I was asked to head up the ANZ Custody Middle Office and Managed Funds Operations department.

Can you tell us about the work you do with ACSA and why you choose to volunteer?

I represent J.P. Morgan on ACSA’s Executive Board and am also the co-sponsor of the Operations Working Group with Andrew Gibson (Citibank).

I am passionate about ACSA’s industry advocacy, and when I was asked to join the board in early 2020, I jumped at the chance to provide active contributions to shaping the future of Custody.

What do you believe are the short term priorities for our industry and how can ACSA help us get there?

The pace of change, particularly over the last 10 years has been unprecedented. In my view, there will be three key drivers for change in the coming years;

1. Technology, digitisation and data will pave the way for further transformation

2. Asset class expansion will create new market spaces for asset owners and of course asset managers and custodians

3. For Australia and New Zealand at least, we are experiencing a significant amount of M&A activity within the Australian superannuation market following the introduction of APRA’s heat map

In ACSA, the industry has an organisation that oversees the effects of these changes with a broadened industry view. There are a lot of changes impacting the custodial industry, and ACSA pulls together market participants collaboratively in working towards addressing industry challenges and setting us up for success in the long term.

One of the key challenges ACSA helped to overcome recently was the Tax Working Group’s creation of the Tax Data Standards.

In the Operations space we are focusing on initiatives to support the operating models of the future, with a focus on digitalisation as well as the industry’s preparation for CHESS 2.0.

J.P. Morgan continues to be the largest Global Custodian in the Australian Market – what are the key reasons why J.P. Morgan remains a member of ACSA and what is your advice for others considering membership and participating in a working group?

J.P. Morgan values ACSA greatly. It has a strong advocacy voice and is well regarded by the regulators and broader industry stakeholders. Being a part of ACSA is an incredibly rewarding experience; you get to network and engage with passionate likeminded people in your industry as well as achieving tangible outcomes as a group.

Besides the ACSA CEO and their office, ACSA is an entirely volunteer-led organisation, so for it to achieve things it needs strong contributions from those involved.