How have buy-side firms adapted to the Settlement Discipline Regime?

Penalty spot kick

How have buy-side firms adapted to the Settlement Discipline Regime and what are the operational challenges that remain? By David Veal, Senior Executive: Client Solutions, corfinancial®

The Settlement Discipline Regime is a new obligation stemming from the European Commission’s review of the Central Securities Depositories Regulation (CSDR), which came into force on 1 February 2022. These additional regulatory processes supplement the existing CSDR protocols and focus on enhanced controls and governance around trade settlement.

In this article we highlight anecdotal thoughts and feedback received from market participants and corfinancial clients who have been working with the proposed changes. Full details of this feedback can be found in this Discussion Paper.

Failed Trade Management and T+1 Lifecycle

Buy-side firms in Europe that trade in US instruments will soon have less time in which to allocate and fund stocks, resolve any settlement issues and comply with the CSDR’s new penalties regime.

Having access to a central source of executed trade data and being able to track transactions throughout the entire securities lifecycle is vital to facilitating settlement efficiencies. Clients want robust governance with which to minimise trade settlement failure. However, there are changes to operational processes and potentially regional coverage that need to be considered in future   environments that support global trading from Asia to Europe and the US, especially when a single middle office team manages this. Firms must work towards avoiding trade failure rather than managing this after the event. Having the right tools to achieve this in a near real-time environment is essential.

Cash Penalty Fees Management

 The provision of prime broker or custodian statements to support the reconciliation of cash penalty fees is improving, but there is still a way to go. The sentiment we received was that some parties still lack the full infrastructure to manage the timely provision of cash penalty fee data, so some may be choosing to absorb cash penalty fee debits rather than passing them on (although penalty fee credits are being sent). The argument is that penalty fee amounts are often too small, and net/net are not worth passing on. However, this approach certainly goes against the essence of the SDR cash penalty objective.

Automating The Processes

 Some feedback focused on the most effective trade records on which to base best practice controls and governance. It was suggested that some solutions base their primary trade position records on the market side of trades, whereas solutions like SureVu® centre on the buy-side view of executed trades. There are clear differences with how solutions in the space have been designed. It is uncertain how these different models will evolve in the lead up to T+1 and beyond.

The SureVu SDR solution from corfinancial was designed differently.

SureVu clients believe it is essential to manage post execution trade settlement positions from their own record of executed trades, not data assimilated by third parties.  

For a more detailed assessment of our investigations, please download our free Discussion Paper or contact us at and we will be happy to share our thoughts and details of how we help address the SDR challenges.

The differentiation potential within consumer duty

Wealth Management
By Daryl Roxburgh – President and Global Head, BITA Risk® part of the corfinancial® Group
Wealth Management
Late July saw the Financial Conduct Authority unveil the finalised version of its new Consumer Duty regulations, setting in motion what the regulator has termed a “paradigm shift” in its expectations of the UK’s retail financial institutions. Highly laudable though its aims certainly are, the timeframes for implementation are short and the challenges around proving compliance numerous, with firms having to have plans in place by the end of October.
I say ‘proving’ with purpose. Any reputable firm will have surveyed the guiding principles underpinning the new regime and see little that will not already be in their corporate DNA. Clear communications and meaningful customer support, fair charging, and a client-centric approach to providing financial services and products with a focus on good outcomes are nothing new to this country’s already tightly regulated – and highly respected – financial services sector. Developing capabilities to meet the regulator’s expectations for evidencing all of this may well be, however.
The FCA estimates that the implementation costs for the sector will be as high as £2.4 billion and wealth managers can be expected to bear much of the brunt of the pain due to the wide-ranging and often very long-term relationships they have with their clients. Dizzying changes to wealth demographics and investor preferences, along with an economic outlook which is uncertain to say the least, further complicate the picture.

Segments of one

Never has the old saying that each client is “a segment of one” been truer. How then to prove the consistency of outcomes among increasingly diverse client bases? With ESG considerations arguably rubbing against fiduciary duty in the time-honoured sense, even the seemingly simple matter of proving that an investment was appropriate in the first place is becoming vexed.
The wealth management industry has long had to wrestle with a paradox: while deeply personalised service lies at the heart of its value proposition, cost considerations – on both sides – must limit customisation to where it really counts. Mass customisation of portfolios facilitated by technology has long been acknowledged as the only workable path. But now, these customisations need to be factored in when considering the analysis of the consistency of outcomes and foreseeable risks under consumer duty. Whether it is a restriction on what can be bought, a restriction on what can be sold, or a desire to hold a proportion in cash, these are some of the myriads of reasons that a portfolio will perform outside its peer group. In understanding outcomes, these points must be considered.
Foreseeable harm in theory precedes outcomes, and this requires testing to evidence that a client’s portfolio is suitable. Not just in a high-level asset class check, but in terms of the assets bought and their contributions to overall risks taken. These risks naturally include market risk whether volatility or CVaR, but should go further into looking at illiquid, un-researched, high risk and concentrated positions. The first challenge is knowing that these exist in a portfolio, only when they are known can they be addressed, mitigated, or agreed with the client as acceptable.
The challenge is daunting: according to EY*, 87% of firms see a need to implement key technological change to meet it. The good news, however, is that offering the kinds of monitoring and evidencing capabilities firms need will really be nothing new to leading technology vendors. For our part, we feel there has been a great deal of prescience in how we have developed BITA Risk’s solutions over the years: Consumer Duty represents just a sort of cross-cutting complexity our products were designed to solve.

Beyond box-ticking

Canvassing the large and growing range of institutions which already rely on our products reveals a heartening degree of confidence in how they will cope with the new rules. Others who have perhaps held back on their investments are now feeling the April 2023 deadline bearing down. The industry is however showing itself eager to wring the maximum business benefits from this compliance challenge, as it should: rather than merely “ticking the box”, EY* has found that 60% of firms want to take a holistic, business-wide approach to the Consumer Duty rules.
What this already looks like at our client firms is very positive, with foreseeable harm monitoring, performance and yield outcome monitoring already deployed in many cases. This monitoring – with the attendant MI (management information) on trends and systemic issue identification – is backed up by a systematic approach to collecting reasons why a portfolio may be out of line, enabling management of the exceptions apart from consistency checks on the core.
Firms with our profiling solution are carrying out risk-profiling and suitability assessments at the level of individual financial goals, monitoring against clients’ capital and income requirements, and keeping a close watch on ongoing costs and charges at both the portfolio and asset level. As a result, many can already point to immaculate management information on any Consumer Duty metric the regulator might choose.
But, of course, for the best providers, all this is about so much more than fending off potential compliance concerns. They will want to be able to deeply interrogate their information to be absolutely sure that their clients are achieving optimal outcomes – and to be able to further improve their investment and advisory strategies wherever they can. From our experience, the message that duties can be readily transformed into differentiation opportunities is very much one firms want to hear.
We all know that upholding Consumer Duty will already be business as usual for any wealth manager worthy of the name; that the whole industry is now being asked to fully operationalise and evidence adherence to these principles should therefore be a welcome change – and particularly so for those organisations able to compete more vigorously on this basis. It certainly is for us.
As leaders in portfolio monitoring and governance, BITA Risk analyses circa £180 billion of wealth management assets every night for a range of Wealth management firms. At our core is the quick, efficient analysis and aggregation of data, with seamless and efficient workflows for governance and client managers alike. We have extended our solutions to deliver what firms need now for ESG, TCFD, and Consumer Duty together with the significant added benefit for the firm of identifying problems before they arise, reducing both compliance risk and the chance of poor client outcomes, meaning both parties can benefit from a forward-thinking approach.
If you would like to discuss any of the points raised here, please contact us at or see more information on our solution here.
In the next few weeks, we shall be sharing thoughts on the monitoring of CIPs as well as Risks and Suitability. Sign-up here to receive these updates directly.

Facing the new monitoring challenges in wealth management: going beyond drift and minding the gap

Wealth Management

Daryl Roxburgh – President & Global Head BITA Risk® part of the corfinancial® Group

Wealth Management

Living through 2022 is underscoring an eternal truism: that life’s challenges are seldom episodic and often come piling on top of each other in a way that is most challenging. This is very true for those managing portfolios in the wealth management space.

Long gone are the days where asset allocation drift, and possibly asset class risk, were enough to satisfy suitability and ongoing portfolio monitoring requirements. These are just one slice of a large – and growing – portfolio monitoring “pie”, and there are several portions I fear firms will find hard to digest without modern technology designed for the purpose. These coalesce around two core themes: sustainability and the highly tricky business of not just doing right by clients but proving one has done so. Spreadsheets and manual data manipulation are just too time consuming, labour intensive and risky to be fit for purpose.

So, the challenge of properly monitoring portfolios has become multifaceted, requiring the checking of numerous metrics, both individually and across your entire client base – and all of the time. These metrics can often be client or proposition specific and at both asset and portfolio levels adding further complexity. This requires automation and exception management if it’s not to become a drain on the front office’s time.

The acknowledgement of change is supported by recent research carried out by Compeer which found that 46% of firms are now reviewing suitability on a continuous rather than an annual basis. From a compliance perspective, but more importantly from that of clients themselves, this is no small thing, although the industry as a whole clearly has some way to go still.

Consumer Duty

Putting the customer first is a movement which has been gathering pace globally for some years building on TCF and which will reach something of an apotheosis in the UK when, at the end of July, the FCA publishes its final “Consumer Duty” rules. The regulatory focus is now on firms tracking and measuring the investment journey to ensure both consistency of outcomes and how these are best achieved. We will need to map and document such that even if clients choose slightly different paths and different vehicles (pun intended), those with similar objectives still arrive at the same place or it is clearly documented as to why not.

You may think that this is solved by Centralised Investment Propositions (CIPs), but research has shown that this is not always the case. Firms must be able to ensure and demonstrate that Centralised Investment Propositions are working as intended for each client’s objectives, and alert and document where not. Being able to identify early on and rectify reasons why performance, and yields, aren’t quite meeting an individual’s expectations and needs will help head off all manner of risks apart from those related to compliance – not least that of losing the client.

ESG and Ethics

It is in the sustainability sphere, however, that things are getting really thorny in portfolio monitoring. Our research with Compeer found that 80% of clients now request some access to ESG-compliant investments in their portfolio, with this figure rising to 94% for clients under the age of 40. Demand, in the purest sense of the word, is most certainly there and will only grow to ubiquity. It is just as strong (if not stronger) from regulators, with SFDR and TCFD headlining an alphabet soup of frameworks, rules and regulations requiring carbon, ethical and other non-financial metrics also be part of what institutions monitor, measure and report on. This starts to become complex, as not only does the ESG (in the broadest sense) data need to be managed and applied to portfolio positions in et context of client preferences and restrictions, but a number of metrics need to be looked at through time.

Compeer found that a lack of personalised reporting and portfolio updates are a deal-breaker for two-thirds of clients and firms clearly see that ESG reporting is shaping up to be a real differentiator in these conscientious times: 43% already report on ESG metrics to clients and the remainder are working hard to catch up. Ethical restrictions have been simplistically applied for years, but now that there is detailed data on companies and funds, there is the opportunity to apply these automatically both pre-and post-trade. No longer does the front office have to spend time manually checking each month, this along with sustainability metrics can be constantly monitored.

Multifaceted Solutions to Multifaceted Challenges

These slices of the monitoring pie may seem to be largely compliance, but the reality is that more and more of it takes up front-office resource. Indeed, Compeer tells us that for a quarter of firms as much as 80% of a compliance project is performed outside of the compliance department – and this at a time when margin pressures mean front-office efficiency is more important than ever. The more automation in portfolio construction, monitoring and reporting which can be achieved, the better both direct and indirect compliance costs can be kept down – and high standards of provision kept up. These tools provide managers with decision support as well as calls to action in investment management Managers must be freed up to manage and build their client bases.

All of this is to say that when faced with multiple challenges, wealth and asset managers need to be seeking truly multifaceted solutions. That way, multiple problems which threaten to become an entangled mess can actually be solved pretty much at a stroke. Future-proofing can then also come into scope. Once you have a cutting-edge portfolio monitoring solution in place, then it doesn’t much matter what regulators, clients, senior management, or anyone else requires you to measure and report upon. You could even choose to break with the pack and look at portfolios through an entirely new lens. I know some of our clients are already thinking about this.

Our BITA Wealth® solution has consistently stayed ahead of the market and encompasses a wide range of risk, portfolio analytics and decision support tools to monitor suitability and outcome meeting today’s challenges. Now servicing over £180bn in client AuM, we can confidently say that we’ve helped get a large part of the sector to a position where proper guardrails are always on.

That, I would argue, has to be the spirit in times like these: you can seek resilience in the face of a regulatory onslaught and wring business benefits from compliance challenges. Our client stories give ample evidence for how that’s already been done. If you would like to receive our updates on Consumer Duty, please subscribe here.

For more information please visit or contact us at

The clock is ticking on ESG


When it comes to regulatory change, wealth managers have two choices: they can either “run down the clock”, changing the way they do business only to the extent that they absolutely must; or, they can seize the initiative and commit to achieving the maximum business benefit they can out of the new regime.

The EU has led the way on ESG reporting with its Sustainable Finance Disclosure Regulation and accompanying taxonomy framework, but similar moves are well underway globally, including of course in the UK. Now is the time to decide whether to compete or just wait to comply.

The introduction of UK sustainability disclosure requirements and a sustainable investment labelling system may be a little way off, but there is no time at all to be lost, particularly when firms with their finger on the pulse are already leading the way. As one always really should, they have embraced inevitable change in full appreciation of the opportunities it presents to them and their clients.

This course was set a long time ago, but we are now speeding to our destination. First came the COVID-19 pandemic and now tragically a war, with both exposing with quite painful force how urgently global issues need to be addressed and understood in the context of a portfolio. The pressure for wealth managers to make what might be quite radical changes is coming both from the regulator, and from individual investors who now appreciate more than ever what is at stake in how each and every one of us deploys our capital.

A stark divide

The scale and impact of the shift to sustainable investing reminds me of when the first regulation around suitability came in, and a similar stark division between the leaders and the laggards is apparent once again. Now, as then, we’re seeing firms readying themselves for rule changes well ahead of time as they have seen it is simply good business. The difference today of course is that we are talking about nothing less than the ultimate good of the planet and its inhabitants too.

Wealth managers stand at a critical juncture on sustainability. It is no exaggeration to say that the regulatory – and reputational – risks are immense if they underinvest in their capabilities. On the flipside, the rewards for “doing” sustainability really well are commensurately great, with these spanning reduced risks, improved investment performance and very much happier, more loyal clients.

The trouble is, while it is fairly easy to make the right noises on sustainable investing, it can be a real challenge to operationalise it so that it is, itself, a sustainable way of doing business which is scalable, cost-effective and readily adaptable to change – and not just of the regulatory kind. The screeching u-turn on attitudes towards defence companies that world events have imposed underscores how important that is; likewise, we can all see the need for considerable nuance on decarbonisation in portfolio construction. Simplistic negative screening is nowhere near adequate today. Depending on the feelings and objectives of your current clients (and those you wish to attract), impact, investor activism and stewardship, positive screening and thematic strategies might all form part of mix.

Born to do it

In many ways, cutting-edge sustainability is what BITA Risk®, part of the corfinancialTM group, was born to do; it is the apotheosis of the mass customisation movement we have spearheaded for many years and rests on the core values of insight and transparency which underpin our whole approach. In fact, constructing, managing, monitoring and reporting on portfolios with sustainability as the north star could be seen as the perfect use case for our technology as it joins sustainability data with every portfolio.

Client institutions certainly seem to agree. A substantial number have already deployed BITA Wealth® ESG Manager to manage, monitor and report on ethical and ESG exposures across client portfolios to great effect and this element of our solution is proving to be a compelling “hook” for entirely new ones as well. Each has a slightly different take on how they should embody clients’ ESG preferences and/or ethical restrictions in portfolios, but they are all united in their desire to embed degrees of ESG customisation rapidly, painlessly and with surety of success.

Very often we win out after a wealth manager has conducted an exhaustive search for a solution and only found the depth and flexibility required in BITA Wealth and our expertise. From fulfilling immediate carbon exposure requirements, through understanding longer term carbon exposure trends across all business divisions, offices, teams or managers, to differentiating through a sophisticated sustainability offering, BITA Wealth ESG Manager can help. To give firms a flavour of what can be achieved, we will be offering studies on recent BITA Wealth ESG Manager implementations. I would urge all firms considering their options to take a look.

The clock is now loudly ticking on ESG requirements, not only from a regulatory perspective but as it regards marketing, client retention, talent management and cost control too.  And the overriding benefits of transparency of investment risks and opportunities should not be forgotten. We’re looking forward to showcasing how we’re helping wealth managers hit all these targets with our award winning software and more

So, are you going to gain competitive advantage and act now, or do you think you can afford to wait?

Daryl Roxburgh, President and Global Head, BITA Risk

The key pain points of portfolio monitoring

The Key Pain Points of Portfolio Monitoring

Instead of wasting time data mining, advisors should be able to focus on constructive portfolio and client relationship management, argues Melinda Lovell, senior business development manager, BITA Risk, in this article published on WealthBriefing. 

The Key Pain Points of Portfolio Monitoring

The four ESG tech traps


Daryl Roxburgh, President and Global Head of BITA Risk, outlines the four main ESG-related technology challenges facing the unwary wealth manager.

When every failed trade will have a price tag


The avoidance of failed trades is now business critical, not a nice-to-have, writes Paul Bowen, corfinancial.

Every failed trade will have a price tag from February 2021.

Although the Central Securities Depositories Regulation (the “CSDR”) came into effect on 17 September 2014, its operational impacts on buy and sell-side firms is just coming into focus. In particular it is the Settlement Discipline Regime (SDR) element of CSDR that will have the most significant impact on market participants.

The SDR reform stipulates that trading venues and investment firms must implement measures to prevent and address failures in the settlement process. Every failed trade will cost businesses. Where a settlement fail does occur, CSDs must impose cash penalties on failing participants. The basis of the penalty is determined by the number of business days beyond settlement date that a transaction remains unsettled. Over and above this, there will also be a mandatory buy-in process for failed trades and the recovery of the costs will be passed on to the defaulting party.

In other words, increased settlement discipline and the avoidance of failed trades is now business critical, not a nice-to-have.

Slipped through the net

One may ponder, when so much automation has been successfully introduced into middle and back office processes over the years, how it is that failed trades have slipped through the net? How have failed trades become the last bastion of non-automation?

It could be argued that current penalties are not significantly punitive or material to attract focus and investment in this process. With the introduction of the new penalty structure, however, non-compliance could result in significant monetary and reputational cost. In a sense, therefore, failed trades were not the highest priority; SDR will have a substantial impact as it formalises the settlement process and gives failures added significance.

Another factor is SWIFT messaging. This communication method has been available for many years yet has not been adopted in its entirety. The custodians instead have often provided failed trade reports, either through portals or daily spreadsheets. The problem here is that all those portals and spreadsheets are different, with the result that the buy- and sell-sides would assign multiple resources to manually process numerous failed trade reports and rationalise them as best they could. The custodians had little incentive to introduce standardisation, hence manual workarounds were commonplace.

Operational challenges

In operational terms, there are several obstacles that the industry must overcome in order to effectively deal with SDR.

Firstly, the industry must minimise the cost impact of buy-ins. Trade failures will often occur in illiquid markets where there is a shortage of stock. If a firm is receiving buy-ins in illiquid markets, potentially there could be some large price differentials at a ‘Buy-in-Auction’ at the end of the day. In these circumstances, the premiums levied by empowered sellers are generally significant, leaving the counterparty at fault and with a painful variance.

Secondly, firms must reduce the manual processing stemming from SDR. This labour-intensive administration is likely to include extensive effort associated with buy-ins. It’s not just a case of sending an email; asset managers, for instance, may need to start cancelling trades, rebooking trades, pursuing the brokers for all the fines and so on. The introduction of SDR will mean that businesses will have to deal with far more manual workarounds.

Thirdly, operational teams must prove that they are in control of the settlement process. These teams will now need to report in more detail to senior management on unsettled trades and counterparty exposure. One of the key observations from the Lehman collapse was the lack of information regarding consolidated counterparty exposures. The new SDR regime, while imposing penalties, has the benefit of reducing settlement exposure and cash management for all parties involved in the trade cycle.

In summary, the most significant changes being made through SDR is fining firms, introducing rigour around buy-ins and reporting the worst offenders. All firms need to proactively prevent trade failures, understand their exposure to unsettled trades and protect their company’s reputation. SDR means asset managers and brokers must move nearer to real-time monitoring, compelling them to transition up the settlement cycle and adopt a pre-settlement mentality.

Just looking at trade fails is not solving the problem.

Paul Bowen
Senior Executive – Operations corfinancial

Post trade transparency: shining a light into dark corners


An effective post-trade programme is now business critical, writes David Veal, Senior Executive - Client Solutions at corfinancial.

Although well over ten years ago, many people still vividly remember the immediate chaos during the financial crisis. Firms were scrambling to understand counterparty exposures and settlement risk, along with a key requirement to know the exact state of asset and cash positions. Executed transactions sitting between trade date and settlement date fell into deep voids where the status, even post-settlement date, was not absolutely clear. It took many firms days, sometimes even weeks, to piece together a conclusive picture of the actual situation.

With multiple industry utilities, a plethora of systems and with transactions recorded in multiple mediums (including paper tickets ‘enhanced’ with coloured marker pens, faxes and spreadsheets) it swiftly became clear that such an environment only works when the outside world cooperates. Post-crisis, sanctions were introduced to impose responsibilities and liabilities upon firms, with the aim of firms having more control of transaction data. Equally, lucidity in post-trade processes supports the maintenance of IBOR platforms that also require near real-time position data. Can a company therefore survive without a transparent post-trade system? The regulators would say ‘absolutely not’.


The upcoming enhancements to the Central Securities Depositories Regulation (CSDR), which must be implemented by February 2021, pushes the responsibilities even further. In particular, the Settlement Discipline Regime (SDR) within CSDR means that where a settlement fail does occur, CSDs must impose cash penalties on failing participants, as well as compulsory buy-ins after a short time. The impact of this change will only add to reputational damage for parties that are unable to apply effective measures and controls.

I would argue that a better level of post-trade transparency brings challenges but also opportunities for the industry as a whole. Depending on the definition of transparency, additional controls and processes improve the ability to monitor the settlement status of a transaction and reduce exposure to settlement risk.

It’s time to shine a light into the dark corners.