corfinancial releases pioneering accounting system

beaconVu-SaaS-announcement
BeaconVu logo

corfinancial® announces the launch of BeaconVu by corfinancial®, a ground-breaking accounting system for financial institutions. BeaconVu is set to revolutionize the Treasury accounting space, removing the challenges and overheads of existing on-premise solutions and the inflexibility of remote third-party solutions.

BeaconVu is a multi-asset/currency, cloud-based, SaaS accounting solution for banks, credit unions and financial institutions, designed at a price point that matches the size of businesses and scales as they grows.

If you would like to record your interest in seeing how BeaconVu would benefit your Treasury Operation and business overall, we will be booking short demonstrations in Q2 2025.

Please go to www.BeaconVu.com for an overview of how BeaconVu can support your business, and contact us at info@BeaconVu.com to discuss a demonstration or if you would simply like to know more and receive updates throughout the year to come.

How to avoid FCA’s crackdown on wealth management non-compliance

Wealth Mosaic
Wealth Management

FCA: “We expect you to have implemented the Consumer Duty in full, which requires you to put the needs of your consumers first. This work will have resulted in meaningful changes to your business, service and proposition to further drive good consumer outcomes, which you should be able to demonstrate to us if asked.”

Introduction  
This article is a reaction to the FCA’s recent ‘Dear CEO letter’ which strongly emphasises the need for Wealth Management firms to comply with Consumer Duty regulations. These regulations aim to safeguard the interests of consumers and ensure transparency and fairness in financial dealings. However, the consequences of non-compliance or the ability to demonstrate compliance hang over wealth management firms, casting a shadow over their operations. In this narrative, we explore a potential scenario to underscore the fallout of a wealth management firm being unable to answer one of the FCA’s recent questions, and how BITA Risk®, part of the corfinancial® group, would emerge as the controls needed to keep a firm heading in choppy waters.

The potential scenario
A renowned wealth management firm known for handling high-net-worth portfolios must now ensure compliance with Consumer Duty regulations, maintaining utmost accountability, transparency, and demonstrable controls.

For a long time, it relied on sampled peer reviews of portfolios on a monthly or quarterly basis, with file notes and some centralised spreadsheets. It has had few client complaints and is well-regarded.

The situation worsens as the FCA emphasises Consumer Duty as a “Top Priority”, and adherence would be closely monitored to ensure that firms do not think it is a ‘once and done’ exercise.

In a wealth management data survey, the FCA asks a number of questions, including “Have any client portfolios deviated more than 10% from their stated mandate for more than five consecutive business days in the last 12 months, as of 30 September 2023?” The firm had peer reviews and contented clients, the data is aggregated across the firm and only covers 12 out of 244 business days, so it has little chance of answering the question. Much management time is devoted to sourcing data and evaluating the implications of stating its unavailability… A very difficult and dangerous place to be.

Consequences of non-compliance
The repercussions of non-compliance could be far-reaching. The inability to answer the question raises concerns about a firm’s control and management of information processes and systems. If it cannot answer this, how can it be managing other aspects of Consumer Duty? Where is the ability to demonstrate this to the FCA, when asked? How is the firm avoiding foreseeable harm and ensuring consistent outcomes?

Although this is presented as a hypothetical company position, not knowing is a problem for anyone. A sample of portfolios on a sample of dates cannot represent the knowledge needed.

Risk unwrapped: skipping consumer duty is like playing with financial dynamite – beware of the explosive consequences
Knowledge is control, and the ability to demonstrate mitigation and rectification of issues is crucial. Searching for portfolios with issues is like looking for a needle in a haystack, but it is better to find and understand them before the issue festers and becomes a problem.

BITA Risk: a solution to navigate the regulatory landscape
Amidst the challenges, BITA Risk’s wealth management clients can answer this primary question fast. In fact, most of them have been managing this daily, dealing with issues as they arise and before they can have an impact on outcomes. This cutting-edge risk management solution is designed to help wealth management firms manage the complexities of Consumer Duty regulations. With its sophisticated algorithms, daily monitoring capabilities and management information reporting, BITA Risk provides firms with the tools necessary to ensure compliance.

The platform conducts thorough risk assessments, identifies potential areas of non-compliance, and offers actionable insights to rectify shortcomings promptly. By leveraging BITA Risk, wealth management firms can proactively address regulatory measures, safeguard client interests, and protect their reputation from the debilitating consequences of non-compliance.

Harm in this context refers to deviating from the client’s objectives, typically assessed against the firm’s central investment model or a specified benchmark. BITA Wealth® Monitor, a component of BITA Risk’s software applications suite, plays a crucial role in minimising anticipated harm by consistently and automatically evaluating positions and portfolios, ensuring that risks remain within acceptable limits. Through quantitative risk checks at both portfolio and asset levels, as well as tests on portfolio construction and investment policies, the system alerts users to exceptions, rather than relying on sporadic random samples.

Conclusion
The FCA headlined a number of presentations in Q4 2023 reflecting how few clients were identified as vulnerable. Not knowing that client portfolios deviate by more than 10% from mandate could be the next area of focus.

In an era where Consumer Duty regulations are tightening their grip on the financial industry, wealth management firms cannot afford to ignore these challenges. The chance of repercussions for non-compliance serves as a motivator for firms to adopt comprehensive solutions like those provided by BITA Risk. As the financial landscape evolves, embracing compliance becomes not only a legal obligation but a strategic imperative for sustaining trust, reputation, and long-term success in the competitive world of wealth management.

If you would like to discuss any of the points raised here, please contact us at bitarisk@corfinancialgroup.com or see more information on our solutions here.

Addressing the impending surge in penalty fees

Wealth Mosaic
Wealth Management

The European Securities and Markets Authority (ESMA) proposes revisions to the penalty rate processes which could see fees skyrocket, as outlined in the ESMA Consultation Paper – Technical Advice on CSDR Penalty Mechanism – 15 December 2023.

With T+1 looming, the financial landscape stands on the precipice of a fundamental shift. While ESMA’s intentions aim to foster efficiency and accountability, the proposed changes pose a daunting challenge to affected parties, sparking debates over technical feasibility and the need for broader structural reforms.

The ESMA proposals include one option whereby penalty rates increase progressively up to six business days (after which they remain constant) based on the existing types of fails, as well as introducing a new type of settlement fail for lack of ETFs.

The following table sets out the proposal for the progressive penalty rates, which could potentially see a firm having to pay up to 25 times the current penalty rate if trades remain unsettled: 

A second option suggests adjusting the charges for failing to deliver specific asset classes based on their liquidity profiles.

Both options would result in substantially higher settlement fees and require firms to implement operational changes and processes to avoid failed trades from occurring rather than simply managing them.

In a recent article, Theo Normanton of WatersTechnology reported that penalty fees are set to skyrocket under ESMA’s alternative proposals, with expert opinions projecting an annual increase from €1.7 Billion to €10.2 Billion in generated CSD fees under option one and could reach up to €23 billion (US$24.9 billion) a year under option two.

If either of these options come into force, they would necessitate urgent action to implement a robust failed trade management solution. This solution must not only address the immediate challenge of mitigating penalty fees but also lay the foundation for more resilient and efficient settlement processes.

In a T+1 world, prioritising “Failed Trade Avoidance” over “Failed Trade Management” is the optimal approach.
SureVu® from corfinancial® stands out as the definitive solution for buy-side firms, empowering them to proactively prevent trade failures rather than just managing them after the event. With SureVu, say goodbye to the hassles of failed trades and embrace a future of seamless transactions and unparalleled efficiency.

Management Information Dashboard: SureVu provides asset managers with an Early Warning System highlighting trade statuses of concern in a pre-settlement window before settlement day, enabling prompt resolution of any issues and preventing potential failures.

Relying on your Data: SureVu employs the efficient method of leveraging an asset manager’s local trade records to monitor trade statuses, ensuring a seamless process based on 100% of executed trades. In contrast, some competitor solutions rely on third-party records creating potential reliability and timeliness issues, hindering effective trade management.

Real-Time Updates: SureVu distinguishes itself by providing real-time updates sourced directly from custodian banks and prime brokers through SWIFT messages. This guarantees access to timely and precise information, thereby improving capacity to meet regulatory obligations and prepare for T+1. In cases where custodians are unable to furnish information via SWIFT, users can manage status updates within SureVu, ensuring a thorough audit record for all executed trades.

Compliance Assurance: industry-based compliance is non-negotiable. SureVu is designed with the Settlement Discipline Regime as its core, ensuring firms adhere to the rules.

Conclusion
As ESMA’s proposed penalties loom large, the adoption of SureVu emerges as a critical imperative for market participants. By leveraging its advanced features and real-time capabilities, asset managers can navigate the complexities of trade settlement failures with confidence, mitigating risks and ensuring compliance in an ever-evolving regulatory landscape.

The Wealth Mosaic Talks To Daryl Roxburgh of BITA Risk about Better Controls & Management Processes

Wealth Mosaic
Wealth Management

In this series, we interview senior executives from leading wealth management firms, solution providers and WealthTech influencers to learn more about them, their journey, their perspectives on the market, and how they see the future of wealth management.

For this issue of The Wealth Mosaic Talks To (TWMTT), we talked to Daryl Roxburgh, President and Global Head of BITA Risk ®, part of the corfinancial® group and asked him to share his view on why, in today’s market, investment managers and firms need to consider dispersion of returns and evidencing the broader benefit they deliver to their clients in terms of overall value. 

Before we start, could you share a bit more about yourself and your career to date?
I’m head of BITA Risk. I started my career as a private client fund manager, before taking up managerial roles in Credit Suisse in the nineties. I then spent two years at M&G, before I was recruited by Prudential Portfolio Managers as Global Head of IT in 1998. My expertise lies in portfolio construction, analytics and risk solutions for the quantitative, wealth management, and private banking markets.

What are the current issues, generally, that wealth management firms face around control and insight?
Wealth management firms today know that the FCA is likely to become far more prescriptive in its demands; it is looking to see that customers are not being exposed to inappropriately high-risk or complex instruments in the investments that they make while having consistent returns and fair value.

That means that firms must be able to demonstrate a daily understanding of where portfolios are relative to their mandate. To do this effectively, wealth managers need sophisticated and effective controls, and a greater level of management information in place. Having these controls in place will keep them more informed and aware of the level and sources of potential risk in a client’s investment portfolio – foreseeable harms – as well as returns-outcomes.

To efficiently manage a book of client portfolios, managers need an exception-based dashboard which gives them the ability to hone in on any areas that need immediate attention.

Why is this an issue now?
The FCA is constantly discussing the need to prevent consumers from being sold or recommended products and services that are of poor value, and is consistently advocating the need for wealth management firms to shift to an investment model that is built on best practice and evidence based. As a result, wealth managers are introducing more robust monitoring systems to spot issues, evidence that they are treating their customers well, and are firmly focused on delivering on the best possible all-round outcome to their clients.

How can firms best address this issue on a high level?
I think value can be measured in a number of different ways, in terms of meeting the clients’ objectives for risk and return. For example, a fund manager does not need to be constantly turning over a client portfolio to add value. But they do need to be continually assessing whether the portfolio’s components are the right ones and are in line with the defined investment mandate – that means carrying out the right level of oversight and review on a systematic basis. The fund manager’s focus very much needs to be on anticipating foreseeable harm and increasing standards overall as well as performance dispersion.

What would this look like at a granular level?
Firms need to break down the causes of performance dispersion to understand the risks inherent in the portfolio. They also need the means to manage and resolve risk and foreseeable harm-related issues. This implies a governance structure that is effective, non-conflicted, and with appropriate controls in place to steer a course back to the provision of best outcomes and customer value, when and where needed. It also means testing consumer understanding and ensuring they fully understand all aspects of their investment products and services. This can be done only if the portfolio manager clearly understands the customer’s needs, risk profile, and circumstances – including whether they are deemed vulnerable or not, according to the FCA’s definition of vulnerability.

Most firms are already focused on reducing harm and increasing their standards of service, but others are still playing catch up purely because they have a culture where they have, in the past, given their investment managers a lot of freedom with limited control frameworks or structures in place. They ae now obliged to apply something more robust than they have done in the past in terms of risk analysis and controls.

How does this feed into fair value and Consumer Duty?
Providing fair value means the amount paid by customers is reasonable relative to the benefits they realise from their investments. The investment manager must also ensure they deliver ongoing review/advice and do not overtrade, provide clear disclosures on fees and charges, deliver overall value to the customer and, finally, make required changes if and when issues around poor value are identified.

The aim is for wealth managers to have a circular process of defining the investment outcome their client expects, putting controls in to monitor progress against that outcome, and then analysing whether they achieve that outcome.

In this context, outcome management is an ongoing and iterative process; it does not look at the portfolio only at the end of a given year and says it is slightly below the expected return. Rather, an ongoing process that is focused on outcome management is more about monitoring a portfolio against various measures throughout the year to ensure that investment targets are met by the end of a given year.

For those investment managers who choose stocks on a fundamental analysis basis, quantitative methods and metrics, such as risk, will bring additional insight to their process. So I think this is now about having alerts and prompts in place to look at a portfolio such that the investment manager has a comprehensive and informed view of the underlying risks, and is comfortable taking calculated risks because they are aware and informed of when and where intervention might be needed to maintain a focus on consistently providing fair value to their client.

Key takeaways 

  • Quarterly sampling of portfolios for peer reviews is no longer enough.
  • Manual, spreadsheet-driven, Management Information has single points of failure and is labour-intensive, and unlikely to be timely.
  • A framework of metrics is needed to drive consistency of outcomes without rebalancing to model, and even rebalancing throws out outliers that should be monitored.
  • Managers having a view of their own alerts, enables rapid reaction and resolution, rather than passing down monthly reports.
  • Risk management is about a strong investment process, not just regulation.

SureVu: Your Shield Against the Menace of Failed Trades in the Era of CSDR’s Settlement Discipline Regime

Failed-Trades-in-the-Era of-CSDR-Settlement-Discipline-Regime

In the tumultuous world of asset management operations, where every trade counts, the spectre of failed trade management looms large. In the wake of the Central Securities Depository Regulation (CSDR) settlement discipline regime, the consequences of failing trades are something firms need to address. Efficiencies and controls within Asset management firms are in the spotlight, and without a vigilant guardian, the risk of non-compliance is a concern. Enter SureVu – the software system designed to help you avoid failed trades rather than manage them.

The Perils of Failed Trade
The CSDR settlement discipline regime has heavily impacted the landscape of securities trading. With more stringent measures in place, financial penalties for failed trades may escalate to previously unseen levels with the arrival of the T+1 settlement cycle. Firms failing to meet their settlement obligations face penalty fees and a harmed reputation.

Where governance and controls are key, ignorance is not bliss; it’s a dangerous gamble.

The consequences of failing trades are not limited to financial losses; they extend to the credibility and professionalism of an asset management firm.

SureVu: The Beacon of Assurance
A proactive solution that identifies and addresses potentially failing trades before they snowball into avoidable costs.

Early Warning System
SureVu acts as an early warning system, instantly notifying asset management firms of potential failing trades, managed via real-time SWIFT update messages from custodian banks. Its real-time monitoring ensures that you stay one step ahead, shielding your firm from the issues of settlement failures. By better managing pending trades, clients have seen up to a 75% reduction in failed trades, which is essential to meet stricter settlement processing times as part of the T+1 settlement date changes.

Compliance Assurance
With the industry-based controls imposed by the CSDR, compliance is non-negotiable. SureVu is designed with the settlement discipline regime at its core, ensuring that your firm adheres to the rules and sidesteps the pitfalls that can lead to unnecessary financial costs.

Know the Cost
Custodians report penalty fees on a daily basis and SureVu helps firms reconcile them monthly. Users stay well-informed about the status of trades throughout the entire trade lifecycle, minimizing the chances of trades not being matched before the settlement date.

Conclusion
Asset Managers must reflect operational excellence and the time for complacency has long passed. SureVu is the shield that stands between you and the increasing threat of larger penalties with the change of trade cycles from T+2 to T+1. Embrace the confidence that SureVu brings to the table, and let your firm navigate the future with certainty and resilience.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or click here to learn more about corfinancial’s post-trade settlement solutions, Salerio and SureVu.

Salerio: Defeating the Clock in Post-Trade Processing – Your Imperative Solution in the Age of T+1 Settlement

Defeating the Clock in Post-Trade Processing

In the relentless race against time in the operational world of asset management, the ticking clock of the T+1 trade processing arrival can be your greatest adversary. The post-trade processing landscape is evolving, and the consequences of falling behind are dire. In the business-critical environment, Salerio emerges as the indispensable guardian of your firm’s efficiency and success. Without it, the cost of lagging behind is a haunting reality.

The Threat of the ‘T+1 Arrival’: A Race Against Time
Shifts towards more T+1 settlement cycles are reshaping the fabric of post-trade processing. The demands for speed, accuracy, and compliance have never been higher. Asset management firms find themselves at a crossroads, where manual processes and outdated systems are becoming obsolete relics in the face of a ticking clock.

“Automate for Acceleration” – Automation for faster and error-free post-trade processes.

The consequences of missing T+1 deadlines are severe, ranging from financial penalties to reputational damage that can harm a firm’s standing in the industry. Falling behind is a palpable concern, and without a solution like Salerio, the risks are significant.

Salerio: Your Unassailable Fortress in the T+1 Era
Salerio is not just a solution; it is the imperative answer to the challenges posed by the arrival T+1 in several trading regions, with more to come. This cutting-edge software system is engineered to automate and streamline post-trade processing, ensuring that your firm not only meets but surpasses the demands of the accelerated settlement cycles.

Automated Efficiency:
Salerio eliminates the shackles of manual processing, ushering in an era of unparalleled efficiency. It automates complex post-trade workflows, reducing the risk of errors and ensuring that your firm operates at the speed imposed by T+1 trading. No longer will you be tethered to time-consuming, error-prone processes that put your firm’s operational costs on the line.

Real-Time Visibility:
In the T+1 era, information is power. Salerio provides real-time visibility into post-trade activities, enabling your firm to make informed decisions swiftly. With a comprehensive overview at your fingertips, you can navigate the complexities of post-trade processing with confidence; never being blindsided by unforeseen challenges.

The Reality for Those Without Salerio
For those without Salerio, T+1 is fraught with problems. Picture a scenario where every second counts, and the absence of automation leaves your firm mired in the inefficiencies of outdated processes. The fear of missing T+1 deadlines, of incurring financial penalties, and tarnishing your firm’s reputation becomes a real issue for concern.

In the fast-evolving landscape of post-trade processing, the time for complacency is over. Salerio is your shield against the impending storm. Don’t let the ticking clock dictate your fate – embrace the transformative power of Salerio and be a frontrunner in the race against time. The future of post-trade processing belongs to those who embrace innovation – make Salerio your ally in conquering the operational challenges of the changing T+1 era.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or click here to learn more about corfinancial’s post-trade settlement solutions, Salerio and SureVu.

Are your trade processing systems fit for purpose?

Not fit for purpose showing an ice cream cone

David Veal, Senior Executive at corfinancial®, outlines why trade processing systems in the buy-side arena may no longer be fit for purpose.

Wealth Management

The T+1 settlement cycle is due to be instigated in May 2024, and efficient trade processing systems are critical for the smooth operation of any financial institution. However, when such systems fail to address demands for accurate, efficient, and fast-paced processing, it can have far-reaching consequences for an organisation. This article dissects key factors that can lead to the failure of a trade processing system being fit for purpose, with a focus on common technical and operational issues. 

Root causes of problems with dated trade processing systems

Technical issues
Inadequate infrastructure: one of the primary technical issues that contribute to the failure of such systems is outdated and inadequate infrastructure – Dated systems often struggle to handle an increasing volume of trades, leading to performance bottlenecks and frequent outages.

Integration challenges: the lack of integration with other critical systems, further exacerbates technical shortcomings – This results in a disjointed workflow and hinders real-time decision-making.

Scalability problems: many in-house systems can fail to scale effectively with the growing demands of the business. As a result, increasing numbers of trades lead to delays, inaccuracies, and ultimately economic and reputational costs from failed trades.

Operational issues
Inefficient processes: poor or manually orientated operational processes play a significant role in the failure of many trade processing systems. Manual data entry, redundant workflows, and a lack of automation lead to errors, delays, and increased operational costs.

Inadequate training or intuitive functions: lead to suboptimal utilisation of a system’s capabilities and an increased risk of errors.

Insufficient monitoring and alerts: the absence of robust and timely alerts means that potential issues are not identified and addressed in a proactive manner. A reactive rather than proactive approach further exacerbates the impact of operational challenges.

Needing more people: reducing operating windows, where exception management is not maximised, results in a need for ‘more hands on deck’, in order to beat the clock. Changing working hours for operational staff can be challenging and costly.

Implementing changes
Organisations need robust solutions to address the technical, operational, and procedural challenges that lead to failures associated with ineffective systems. Two prominent platforms that have demonstrated effectiveness, governance, and controls in trade processing management are Salerio and SureVu from corfinancial.

Salerio is a trade management platform known for its ability to streamline trade processing operations and enhance efficiency, addressing technical issues that plague trade processing systems.

Here is how Salerio can serve as a solution:

  1. Scalable infrastructure: designed to handle high volumes of trades, ensuring that the system can adapt to the evolving needs of the business without compromising performance.
  2. Seamless integration: Salerio offers seamless integration with other critical systems, including OMS and position-keeping platforms. This integration fosters a cohesive workflow, enabling real-time decision-making and reducing the risk of disjointed operations.
  3. Automation and workflow optimisation: by automating manual processes and optimising workflows, Salerio minimises errors and delays associated with inefficient operational procedures, leading to increased operational efficiency and reduced costs.

SureVu is a failed trade management solution designed to enhance an organisation’s adherence to industry standards and regulations. In the wake of the new Settlement Discipline Regime (‘SDR’) introduced by the CSDR, SureVu plays a pivotal role in failed trade avoidance, rather than failed trade management activities still adopted by many firms.

SureVu provides governance to reduce the risk of settlement discrepancies. Its intuitive interface empowers users to avoid settlement failure rather than manage it, enabling high levels of STP.

Solving the problems
By integrating Salerio or SureVu into the operational framework, organisations can easily address the root causes of previous system failures.

Salerio’s technology addresses trade matching and processing issues, while SureVu helps firms avoid settlement failure as opposed to managing it after the fact. As part of a core middle office solution, these systems provide a comprehensive approach to trade management, fostering a resilient trade processing operation for sustainable growth when replacing dated solutions.

Salerio and SureVu resolve operational headaches and fears of a costly operational team that are destined to be a reality in the second half of 2024 cost-effectively and comprehensively. Salerio and SureVu do it well… and that includes the price.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or click here to learn more about corfinancial’s post-trade settlement solutions, Salerio and SureVu.

Responsible Investing – Putting Theory into Practice

Financial data sets

This article follows an assessment of Responsible Returns – Meeting Client Utility, seen here. BITA Risk® part of the corfinancial® Group, considers how to put all the theory around Responsible Investing into practice.

In the last article, we looked at maximising the client utility through using ESG data to aid the investment process through avoiding risks and seeking opportunities, incorporating client preferences in portfolio management, and stewardship. Being able to illustrate this to the client is key, through portfolio centric reports demonstrating the application of these processes to their portfolio. The key to success, is bringing together six sets of data within a single system, to maximise the use of each data set and the value that it can create, while reducing manual processes and re-keying.

  • One or more data vendor services
  • The firm’s investment and RI narratives at issuer level
  • The firm’s voting and active management actions
  • The firm’s screening criteria
  • Client preferences
  • And every portfolio’s positions

This applies, regardless of the firm’s chosen taxonomy and data vendors, and indeed should support multiple ones allowing reporting across TCFD, SDR, SFDR, SDG, SASB and PLSA, as appropriate and required.

BITA Risk’s ESG Manager delivers on the need collate this data, to provide robust, detailed and easy to understand responsible investment analytics at holding and portfolio level.

For the Central Investment Team, it provides model portfolio and research list, on-going monitoring against specified criteria as well as detailed exposure and what-if analysis. Regulatory TCFD reports are on-demand for all portfolios at any date, as are exposure trend reports. Asset narratives can be loaded for use in reporting across client portfolios, as well as disseminating information to investment managers.

ESG risk and opportunity analysis can be reported for any portfolio, including models and recommended lists, and not only be reported on at a point in time, but monitored on a daily basis with exception reporting.

To aid clients, preferences can be recorded to match either to a pre-determined set of screening criteria, or client specific requests. These typically align with the data vendors metrics, enabling both a great depth of granularity, as well as standard definitions of the preferences aligned to the ESG, ethical, product exposure and climate change data. For example, IMs in one of our charity focused investment managers can select from over 400 metrics when aligning client requirements.

Not only are these preferences recorded as structured data that can be shared with order management and reporting systems, but the client portfolios are monitored for conflicts with them daily, along with exception reporting.

It automatically applies the following data sets to the holdings of any client portfolio; one or more ESG and carbon data services, the firm’s own scores and narratives and the firm’s voting and active management actions. Combining this with firm’s central screening criteria and client preferences in on-going monitoring, provides powerful insight, automated checks and controls, as well as valuable reporting.

We are currently working on the collation of data on a firm’s voting and stewardship activities, which will then be applied to a client’s portfolio on the basis of activities relating to assets held during the reporting period, further demonstrating a firm’s capabilities.

BITA Risk’s ESG Manager delivers ESG, Ethical Restriction, and climate data, management and reporting tools to IMs, demonstrating a firm’s Responsible Investment approach as applied to each client portfolio. In this way, we feel the tools to mitigate ESG risks, seek ESG opportunities, personalise the portfolio, and demonstrate the firm’s stewardship role are delivered, helping improve client communication and maximise their utility.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or see more information on our solution here.

Responsible Returns – Meeting Client Utility

ESG and financial balance

This article follows a high-level assessment of Responsible Investing by Daryl Roxburgh, seen here. In aiming to maximise client utility, BITA Risk® part of the corfinancial® Group, considers three key questions associated with the challenges of implementing Responsible Investment: 

  1. There has been much debate as to whether ESG is good or bad for performance. ESG is a very broad set of disparate metrics and like any other metric for assessing investments, they are useful, but will not be applicable for all sectors all of the time in terms of driving performance – How can they be best used?
  2. The balance required between achieving return and meeting responsible objectives varies significantly across clients, as does personal perception as to what a responsible objective is. From a wealth manager’s perspective, this could become a logistical nightmare, but it does not need to be – How can these preferences be managed?
  3. Many firms have thought long and hard about ESG and have created considerable research and insight. This creates a positive point of differentiation for the fund manager, as long as this is demonstrated to the client – How can this be capitalised upon?

Investors, particularly younger ones, now hold ESG standards to be as important as performance; a recent survey by asset management firm Amundi and the Business Times found that 82% of Gen Z and close to two-thirds of young millennial investors have exposure to Environmental, Social and Governance (ESG) investments. Combined, Gen Z and Millennials account for 43% and 49% of the US and global population, respectively.

This trend is only set to continue, particularly as more wealth transfers to these cohorts.

The adoption of SFDR disclosure regulations in the EU has also helped to move awareness up the agenda. Fund managers are required to disclose how sustainability risks are considered in the investment decision-making process.

The International Institute for Sustainable Development sees the market for ESG-mandated investments reaching U$160 trillion by 2036, rising significantly from U$30 trillion in 2018.

But how can fund managers actually demonstrate that they have woven ESG and climate factors into their research processes and considered them in the same way that they would incorporate things like risk and suitability?

The key, we think, is to support the investment manager and client and make a good outcome more likely by putting in place a robust analytics and tracking system. This should focus on the ESG factors of a portfolio together with traditional risk and fundamental analytics, in the context of the client’s risk and suitability profile and financial objectives.

We think of this in three processes and report sections, which will drive investment returns and meet client objectives, as well is improving client communication and demonstrating the actions of the firm.

 

One: Risks and opportunities:

A firm should determine which ESG factors are considered as risk and opportunity signals – and this will vary by sector. In many cases, these are already embedded in the investment selection process. Their use should be extended into an ongoing process making use of data monitoring and management to provide individual client portfolio reviews and warnings, if an investment’s score has changed or there is a conflict with the client’s mandate. This should equip the investment manager to demonstrate to the client how the firm’s responsible investment process has been applied to risk management and return generation within their portfolio. This also adds the ability to flag any issues and take evasive action as soon as possible – again this comes down to being able to show that the best outcome was sought in good time for the investor.

Indeed, ongoing testing of ESG factors against the client mandate alerts to foreseeable harm that can be mitigated or documented.

Through identifying and managing these return risks and opportunities and reporting a firm’s view of individual investments in the context of the client’s portfolio, the firm demonstrates a true value add and improves the investment narrative for the client.

 

Two: Personal preferences:

The demonstration of the firm’s approach to responsible investment will partly mitigate the challenge of too many client-specific preferences. Where clients require further restrictions, these should be precise and confirmable and link to the metrics that a firm can access. This structured data could then be used to automate portfolio reporting and monitoring against the client preferences and provide checks and balances in the investment process.

ESG reporting should be more than a compilation of figures and measurements. There must also be context around ESG efforts to provide perspective to the client. By recording preferences in this way, the narrative could be focused on the client’s particular interests.  Adhering to an existing ESG framework is important at this stage, as it provides guidance and best practices for how the organisation should structure and convey the report and its data.

By following basic steps around data capture and careful matching of client ESG needs, the investment manager would gain much better insight into the client’s needs and objectives and could measure against those parameters at any time.

 

Three: Stewardship and actions:

Being able to successfully show how ESG data has been incorporated into the investment process, which, together with client preferences are monitored on an on-going basis, could only be positive for the wealth manager’s reputation. The next step is demonstrating the firm’s active investment approach. What has it done to push responsible agendas within the invested companies, how has it voted and been active.

This third process and report section, really underlines the wealth manager’s commitment to responsible investing. By relaying to the client what actions the firm has taken in respect of investments the client has held, would further strengthens the investment narrative.

However, it also has another positive effect; that of influencing positive change within the corporate world. Indeed, the influence of any wealth manager is not to be underestimated and can act as a force for change – companies that do not behave in line with expectations can expect disinvestment and suffer financial loss as well as damage to their reputation. That is no laughing matter! Think Uber – it has fallen out of favour due to numerous accusations of sexual harassment and discrimination within the company, as well as negative attention over the poor treatment of drivers. VMware meanwhile saw its reputation dip, off the back of a lawsuit alleging fraud and financial impropriety and sexual harassment. And Boohoo’s reputational damage has been intertwined with concerns about the company’s business practices and labour conditions at its suppliers.

Ultimately fund managers that want to be successful into the future need to equip themselves with the right data, tools and reports to accurately describe both the firm’s integrated approach and implementation of the client’s parameters when it comes to Responsible Investing. They need to be able to prove investments match that on an ongoing basis. Doing so requires a systematic approach, accurate data and dynamic tracking so as to be able to demonstrate that the Responsible Investing was taken care of as much as the Return on Investment. In doing this, the firm would add to the client utility through Responsible Investing, rather than just meeting regulatory targets.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or see more information on our solution here.

Our final piece on this topic, Responsible Investing – Putting theory into practice, will reflect on how companies can resolve many of the requirements raised in this article.

The impacts of TCFD on the wealth management space

Climate-related financial risks

In recent years, there has been growing recognition of the importance of climate-related risks and opportunities for the financial sector. The Task Force on Climate-related Financial Disclosures (TCFD) has emerged as a crucial framework that enables organisations to evaluate and disclose their climate-related financial risks. This article aims to explore the impacts of TCFD on the wealth management space, highlighting how BITA Risk can assist wealth management firms in navigating this evolving landscape. 

The TCFD was established in 2015 by the Financial Stability Board (FSB) to enhance transparency and improve the understanding of climate-related risks and opportunities in the financial sector. The framework provides recommendations for voluntary, consistent climate-related disclosures across four key areas: governance, strategy, risk management, and metrics and targets.
Impacts of TCFD on wealth management

Enhanced risk assessment and management
With the TCFD framework, wealth management firms gain a structured approach to identify, assess, and manage climate-related risks. By integrating climate risk considerations into their investment decision-making processes, firms can more effectively safeguard their clients’ investments against climate-related threats. TCFD-aligned disclosures provide investors with the necessary information to understand and evaluate the potential impact of climate risks on their portfolios.

Investor demand and preferences
As climate change gains increased attention, investors are increasingly interested in aligning their investments with sustainable and climate-conscious strategies. According to a 2020 survey conducted by Morgan Stanley, 85% of individual investors expressed interest in sustainable investing. TCFD-aligned reporting allows wealth managers to meet this demand by providing transparency and evidence of their commitment to sustainable investing practices. By doing so, wealth management firms can attract new clients, retain existing ones, and stay competitive in an evolving market.

Regulatory landscape 
Regulators worldwide are actively incorporating TCFD recommendations into their policies and regulations. For instance, the European Union’s Sustainable Finance Disclosure Regulation (SFDR) requires financial market participants to disclose the integration of sustainability risks, including climate risks, into their investment decision-making processes. Similarly, other jurisdictions are following suit, creating a global push towards climate-related financial disclosures. Compliance with TCFD recommendations positions wealth management firms favourably in meeting evolving regulatory requirements.

Long-term value creation
By integrating TCFD into their operations, wealth management firms can unlock long-term value-creation opportunities. Climate change can impact asset valuations, profitability, and business models across industries. Through TCFD-aligned disclosures, wealth managers can identify investments that are well-positioned to capitalise on the transition to a low-carbon economy. By focusing on companies with sustainable practices, wealth management firms can generate positive returns for their clients while aligning with broader environmental objectives.

BITA Risk: assisting wealth management firms
BITA Risk, a leading provider of risk management solutions, offers comprehensive tools to support wealth management firms in complying with TCFD recommendations and navigating the associated challenges. Here is how BITA Risk can assist:

1. Climate risk analytics:
BITA Risk provides analytics to assess climate-related risks across investment portfolios. By leveraging vast amounts of climate and financial data, the platform enables wealth managers to identify and quantify the potential impact of climate risks on investment returns. These insights empower wealth management firms to make informed decisions, optimise asset allocation, and mitigate risks associated with climate change.

2. Scenario analysis:
BITA Risk’s platform enables wealth managers to conduct scenario analysis, a critical component of TCFD recommendations. Scenario analysis helps firms assess the resilience of their investment portfolios under different climate-related scenarios, such as transition and physical risks. By stress-testing portfolios, wealth managers can identify vulnerabilities and adjust their strategies, accordingly, ensuring the long-term resilience of their clients’ investments.

3. Reporting and disclosures:
BITA Risk offers reporting capabilities that facilitate TCFD – disclosures aligned with the CET and IA templates. The platform generates comprehensive reports that highlight climate-related risks, governance frameworks, and sustainability strategies. By streamlining the reporting process, wealth managers can efficiently produce high-quality disclosures that cater to the evolving needs of regulators, investors, and other stakeholders.

Conclusion
The TCFD framework has significantly influenced the wealth management space by fostering improved risk assessment, meeting investor demands, navigating regulatory requirements, and driving long-term value creation. Wealth management firms can leverage solutions like BITA Risk to effectively implement TCFD recommendations. By embracing the TCFD framework and incorporating climate-related considerations into their operations, wealth management firms can enhance their risk management practices, attract clients, and capitalise on the opportunities presented by the transition to a sustainable, low-carbon economy.

If you would like to discuss any of the points raised here, please contact us at BITARisk@corfinancialgroup.com or see more information on our solution here.