麻豆传媒 finance: The future
23 June 2020
EquiLend brought together a panel of industry heavyweights from trade bodies and prominent firms in the securities finance space to discuss the market鈥檚 future
Image: frankie's/shutterstock.com
In the wake of what may ultimately turn out to be only the first wave of market disruption brought on by the COVID-19 pandemic, EquiLend (virtually) assembled a panel of industry veterans to dissect what exactly happened in Q1 and offer their insight on what鈥檚 on the horizon.
Despite each panellist boasting decades of experience in the securities finance industry, discussions more often than not strayed off the well-trodden path of the usual industry talking points; with a few exceptions. Instead, panellists examined less industry-centric lessons that could be learned from the pandemic and the new normal of remote working, including a better work-life balance and the importance of looking at business-continuity-plans and outsourcing through the lens of longevity and sustainability. More mainstream topics, such as what the latest market crisis means for the adoption of central counterparties (CCPs) and incoming troublesome regulations did feature but they didn鈥檛 dominate the hour.
In part, such an introspective discussion of industry norms was enabled by the fact that the market, according to consensus across the panel, proved to be remarkably resilient in the face of a global economic shutdown. Trading venues saw volumes soar to record-breaking levels as equity markets tanked, settlement fail rates spiked and long-planned regulatory timetables were torn up, but the market appeared to take it all in its stride. At one point, Andrew Dyson, CEO of the International 麻豆传媒 Lending Association (ISLA) noted that, unlike previous crises, the volatility seen in February and March was typified by the lack of a big failing counterparty.
That is not to say that lessons can鈥檛 be learned and improvements made. Although the pandemic is primarily a healthcare crisis, it also exposed deficiencies and weaknesses across global economies, which for the securities finance market primarily meant liquidity concerns, and action must be taken to avoid the situation deteriorating further. This is especially true in the EU, where the Central 麻豆传媒 Depositories Regulation (CSDR), due in February, is predicted to be an acute pain point in this area. Elsewhere, trade bodies were also roused into once again combatting the age-old reflex of regulators to blame short sellers for exasperating the downturn in equities markets. The latest round of bans, which have since been lifted in Europe, prove that that particular battle is far from over for the industry, but this latest clash indicates that some ground may have been won since 2008.
All this and more was discussed in front of an audience of more than 480 viewers at its peak. Whether you were among the viewers or catching up now, here are some of the key takeaways from EquiLend鈥檚 鈥樎槎勾� Finance: The Future鈥� panel discussion.
Crisis? What crisis?
When asked to outline the challenges brought on by the recent COVID-19-fuelled market disruption in February and March, CIBC Mellon鈥檚 chief capital markets officer, Rob Ferguson, described them as 鈥渞elatively minor鈥� adding that one of the only stand-out hurdles was adapting to virtual meetings.
In the securities lending market, Ferguson acknowledges that clients did initiate sales that required recalls but noted that this was a very manageable process. 鈥淲e are doing the same things we were doing prior to the pandemic, but in a different way,鈥� he concluded.
ISLA鈥檚 Dyson embellished this analysis by explaining that the work firms had put in since the Global Financial Crisis to sure up their business continuity plans (BCPs) has put them in good stead to manage the latest troubles. In addition, Dyson noted that some of the buffers regulators have inserted since the 2007/08 crisis to ensure banks had enough liquidity had worked well.
鈥淚n March we saw some significant changes in volumes because of volatility and we saw equity markets falling exponentially, which was causing challenges for people using equities as collateral because they were struggling to post new equities as fast as they were falling,鈥� Dyson explained. 鈥淭his meant you saw the emergence of more fixed income into collateral pools. But, the point is the system worked.鈥�
Dyson continued: 鈥淲hen you bring together market stress and the fact that organisations were having to work in ways they had never contemplated in the past we can all take a huge amount of credit in achieving what the UK鈥檚 Financial Conduct Authority (FCA) told me was absolutely crucial, and that was to keep markets functioning.鈥�
Fran Garritt, director of securities lending for the Risk Management Association (RMA), added that one noteworthy feature for the US was that there were 鈥渁 few shocks here and there鈥� in certain pockets of financial markets. This included the fact that some of the prime funds got close to their liquidity thresholds and had to be ready to pull up the gates on outflows. 鈥淭his probably sparked a little bit of concern,鈥� he added.
But, ultimately, Garritt echoed the sentiment of other panellists and said the US market likewise handled the increased volumes and volatility 鈥渧ery well鈥�, with the liquidity there to meet the higher demand for fixed income.
The buy side did not flinch
Ferguson had even more good news for viewers: that the buy side, at least not CIBC Mellon鈥檚 clients, had stood firmly by their lending programme amid the mass equities sell off.
He noted that most of CIBC Mellon鈥檚 clients were with it during the credit crisis and they 鈥渆xpressed confidence in our ability to manage the volatility again鈥�. Moreover, CIBC Mellon has seen new clients join the securities lending programme since February and several existing clients have also expanded their programmes.
The key lesson from the credit crisis, according to Ferguson, was the importance of having 鈥渞egular and timely鈥� dialogues with clients, particularly during stress events.
As such, Ferguson said the Canadian asset manager was focused on ensuring its underlying clients were aware of its BCP during the upheaval seen in Q1. 鈥淎s the pandemic unfolded we reached out to clients to inform them of our BCP roll-out and update them on what was going on in the market to provide assurances that the risk controls were in place and answer any questions,鈥� he explained.
Are we over reliant on central banks?
The question was posed by the panel鈥檚 chair, Grant Davies, whether the active role played by central banks in the market today to inject liquidity and provide a backstop to pricing is likely to be a permanent fixture from now on.
To this point, the International Capital Market Association鈥檚 (ICMA) Godfried De Vidts outlined how central banks in Europe have all increased their holdings significantly but that this is a temporary feature. 鈥淚 have had a long career and seen rates of 5,000 percent in Sweden and negative rates of Saudi Arabia in the 1980s and neither were here to stay. Things will go back to normal,鈥� he reassured viewers.
Offering a US perspective, Garritt stated the 鈥済oing negative鈥� is unlikely to offer the same economic boost that some might hope. Instead, he predicted the US Federal Reserve will continue its balance sheet expansion. 鈥淚t doesn鈥檛 mean you can鈥檛 go negative but you wouldn鈥檛 get that economic stimulus,鈥� he said. 鈥淲e鈥檝e seen negative rates in Europe and the world hasn鈥檛 ended, from a macroeconomic perspective, but you also haven鈥檛 seen the impact that the central banks might have hoped.鈥�
Retail investor will pick up the bill. Again.
When asked whether CSDR would mean illiquid assets were 鈥渋n for bumpy ride from next year鈥�, De Vidts revealed himself to be far more sanguine about the controversial regulation than some of his colleagues at ICMA.
鈥淵es, bumps will come but we have seen bumps all the time,鈥� he explained.
De Vidts offered an anecdote of when he was visited by the UK鈥檚 FCA to discuss the EU repo markets and how he had to outline to them that although the new regulation might be well-intended, they inevitably led to banks re-pricing their assets to reflect the new environment.
鈥淚n the future, we are going to see this more and more, such as with the cost of collateral and capital in particular. The Capital Markets Union and the Banking Union projects are ongoing in Europe and have to be absorbed. But, it鈥檚 not the banks that are going to pay for it. It鈥檚 the people who use the banks, the buy side.
De Vidts explained that the buy side is already 鈥渟creaming that the cost of short term funding is too expensive鈥�, add that although rules such as the net stable funding ratio contain some risks for banks, they also just push those risks on to the buy side.
Regulators say they don鈥檛 have a view on the buy side, De Vidts noted, and the 麻豆传媒 Financing Transactions Regulation (SFTR) will help this. However, it doesn鈥檛 remove the fact that banks will push costs to the pension and insurance funds who will push them on to the retail market.
鈥淐SDR is also a tough nut to crack but much more can be done and if we as a market can make ourselves even more robust then the public will never have to bail out the banks, the pension funds or whoever,鈥� he extolled.
Reinforcing this point, Dyson stated: 鈥淭he rising costs of liquidity with SFTR and SFTR will always find its way through to the retail investor and the costs we all pay for our pensions.鈥�
Short-sighted bans
Continuing the focus on Europe, EquiLend鈥檚 Davies picked panellists鈥� brains on their views on the spate of short selling bans that came about in March and were only lifted in May. Bans also appeared in Asia and remain in place in a handful of markets, including most notably, South Korea. Regular readers of SLT will earn no points for guessing that the panel unanimously expressed deep scepticism of the effectiveness or appropriateness of the bans.
Dyson noted that ISLA is an outspoken critic of such bans and has published multiple papers laying out the academic and economic arguments on why they are misguided and fail to achieve their aims.
鈥淲hen you鈥檙e a regulator in a crisis and you need to be seen to be doing something and putting in a short selling ban is a relatively easy way to demonstrate you are,鈥� Dyson stated.
He conceded that 鈥渋n some cases, they may actually have some limited short term benefit鈥�, but went on to note that the evidence from Europe suggests that those markets that banned shorting did not perform any better in terms of their price volatility than those that didn鈥檛.
鈥淓quity markets didn鈥檛 go into freefall because of short sellers. They went into freefall because the long-only traders were selling off assets,鈥� he concluded.
Elsewhere, it was noted that the major markets of the US, Canada and the UK did not impose bans, whereas they did in the previous crisis. The market authorities in Canada and the UK even publicly endorsed the role of the short sellers in a developed market, suggesting that the hearts and minds campaign by ISLA is having a positive effect.
It was the wrong type of crisis for CCPs
The pandemic鈥檚 ability to create a new world order does seem to have its limits, and panellists were unconvinced about whether the crisis had materially moved the needle on the debate around the business case for central counterparties (CCP).
鈥淲e have to let the economics of what鈥檚 in front of the institutional investor drive this and when it makes sense they will come. For whatever reason, right now it doesn鈥檛 make sense,鈥� stated Dyson. 鈥淭he product is pretty much there and has been for a while 鈥� but there are many facets to the question.鈥�
Dyson went on to note that the busy pipeline of regulations still to come, in particular Basel IV, included some new rules that would tip the scales further in the favour of using CCPs as a mitigator to those challenges in the years to come.
Ferguson also mulled whether there were any challenges caused by the crisis that could have been helped by a CCP and concluded it鈥檚 difficult to know for sure.
Garritt concurred with Dyson that the nature of the crisis had not allowed CCPs to act as the market鈥檚 white knight but this was in part because the market hadn鈥檛 needed saving.
Dyson noted that the volatility seen in February and March was typified by a lack of a large counterparty failing and as such what the market went through wasn鈥檛 the type of crisis that a CCP鈥檚 services are built for.
Going further, Garritt states that what would have helped would have been if the securities lending market had gained the much-anticipated changes to SEC Rule 15c3-3, which currently limits the use of equities as collateral in the US.
To outsource or not to outsource?
For many years, the risks associated with outsourcing included infrastructure stability, technology, personnel skill sets and geopolitics, but panellists agreed that the pandemic may now cause firms to re-evaluate this criteria.
CIBC Mellon鈥檚 Ferguson noted that firms evaluating outsourcing proposals probably ignored factors such as the underlying healthcare system of the location.
鈥淭he pandemic has motivated us to review everything we do, including outsourcing arrangement,鈥� he stated.
Outsourcing serves to diversify your geographical reach but until now plans had maybe not been in place to address the possibility of global disruption, which is what the pandemic brought, Ferguson explained. As such, firms must now consider how to reinforce those outsourced locations against future risks or consider moving out of those locations if that鈥檚 not possible.
鈥淚nsourcing does not solve pandemic risk,鈥� he stated. 鈥淵ou need to be able to move operational activity from region to region dynamically based on where the risk is. Will outsourcing stop? No. But we are going to pause and think beyond just the bottom line of the cost-of-service and elevate factors such as the resilience of the workforce and society underpinning the service centre.鈥�
鈥淪imply, don鈥檛 put all your eggs in one basket,鈥� he concluded succinctly.
Garritt, who also holds a risk management role within the RMA, offers a different perspective, saying he has seen a lot of previously outsourced services come back to the US from India and Asia and moved to lower cost-centres in the US.
Moreover, post-crisis regulations also require entities to establish a more meaningful presence in their markets to avoid shell entities being used to shift risk and profits. In the US this further incentivises finding domestic outsourcing locations away from high-cost centres, such as New York.
Although this trend of rowing back from global outsourcing did not start this year, Garritt believes the pandemic will accelerate it.
WFH
The government-mandated work-from-home orders across the world have provided an unexpected case study to test what happens when the concept of flexi-working is taken to its most extreme. Those in client-facing roles, of which there are many in a securities lending business, not to mention actual traders, were all forced to adapt overnight to entirely new ways of working.
With businesses now assessing how to move forward in a post-lockdown world, the question is how much of this novel work environment should be kept? Panellists noted that some will jump at the first opportunity to be back in the office while others will wonder why they even have an office at all.
ICMA鈥檚 De Vidts says that the normalisation of video conferencing is a double-edged sword. On the one hand you get a much better quality of life, not least because you don鈥檛 face the morning commute or semi-regular business trips that, in hindsight, maybe could have just been a video call.
However, he also noted that video conferencing is often less productive and prone to disruption or allowing participants to be distracted.
Meanwhile, the new normal of home working brings new issues for firms that will need to reinforce home workers鈥� systems in the same way they do in their offices, added Ferguson. Power back-ups and telecom redundancies are just some of the infrastructure investments that will need to be made to ensure compliance rules are met.
Dyson further noted that 鈥渃ertain red lines that were set by regulators, particularly in the UK about trading from home were always considered to be unmovable but when the pandemic hit they were lifted within 24 hours鈥�.
鈥淚nitially, policy had to be developed on the run, but now things have settled down a bit we see a level of pragmatism that鈥檚 needed to get markets to where they need to be, and that鈥檚 no bad thing,鈥� he added.
EquiLend鈥檚 Davies concurred and noted that regulators may find it difficult to get the genie back in the bottle with those regulations that have been eased or amended during the crisis.
Despite each panellist boasting decades of experience in the securities finance industry, discussions more often than not strayed off the well-trodden path of the usual industry talking points; with a few exceptions. Instead, panellists examined less industry-centric lessons that could be learned from the pandemic and the new normal of remote working, including a better work-life balance and the importance of looking at business-continuity-plans and outsourcing through the lens of longevity and sustainability. More mainstream topics, such as what the latest market crisis means for the adoption of central counterparties (CCPs) and incoming troublesome regulations did feature but they didn鈥檛 dominate the hour.
In part, such an introspective discussion of industry norms was enabled by the fact that the market, according to consensus across the panel, proved to be remarkably resilient in the face of a global economic shutdown. Trading venues saw volumes soar to record-breaking levels as equity markets tanked, settlement fail rates spiked and long-planned regulatory timetables were torn up, but the market appeared to take it all in its stride. At one point, Andrew Dyson, CEO of the International 麻豆传媒 Lending Association (ISLA) noted that, unlike previous crises, the volatility seen in February and March was typified by the lack of a big failing counterparty.
That is not to say that lessons can鈥檛 be learned and improvements made. Although the pandemic is primarily a healthcare crisis, it also exposed deficiencies and weaknesses across global economies, which for the securities finance market primarily meant liquidity concerns, and action must be taken to avoid the situation deteriorating further. This is especially true in the EU, where the Central 麻豆传媒 Depositories Regulation (CSDR), due in February, is predicted to be an acute pain point in this area. Elsewhere, trade bodies were also roused into once again combatting the age-old reflex of regulators to blame short sellers for exasperating the downturn in equities markets. The latest round of bans, which have since been lifted in Europe, prove that that particular battle is far from over for the industry, but this latest clash indicates that some ground may have been won since 2008.
All this and more was discussed in front of an audience of more than 480 viewers at its peak. Whether you were among the viewers or catching up now, here are some of the key takeaways from EquiLend鈥檚 鈥樎槎勾� Finance: The Future鈥� panel discussion.
Crisis? What crisis?
When asked to outline the challenges brought on by the recent COVID-19-fuelled market disruption in February and March, CIBC Mellon鈥檚 chief capital markets officer, Rob Ferguson, described them as 鈥渞elatively minor鈥� adding that one of the only stand-out hurdles was adapting to virtual meetings.
In the securities lending market, Ferguson acknowledges that clients did initiate sales that required recalls but noted that this was a very manageable process. 鈥淲e are doing the same things we were doing prior to the pandemic, but in a different way,鈥� he concluded.
ISLA鈥檚 Dyson embellished this analysis by explaining that the work firms had put in since the Global Financial Crisis to sure up their business continuity plans (BCPs) has put them in good stead to manage the latest troubles. In addition, Dyson noted that some of the buffers regulators have inserted since the 2007/08 crisis to ensure banks had enough liquidity had worked well.
鈥淚n March we saw some significant changes in volumes because of volatility and we saw equity markets falling exponentially, which was causing challenges for people using equities as collateral because they were struggling to post new equities as fast as they were falling,鈥� Dyson explained. 鈥淭his meant you saw the emergence of more fixed income into collateral pools. But, the point is the system worked.鈥�
Dyson continued: 鈥淲hen you bring together market stress and the fact that organisations were having to work in ways they had never contemplated in the past we can all take a huge amount of credit in achieving what the UK鈥檚 Financial Conduct Authority (FCA) told me was absolutely crucial, and that was to keep markets functioning.鈥�
Fran Garritt, director of securities lending for the Risk Management Association (RMA), added that one noteworthy feature for the US was that there were 鈥渁 few shocks here and there鈥� in certain pockets of financial markets. This included the fact that some of the prime funds got close to their liquidity thresholds and had to be ready to pull up the gates on outflows. 鈥淭his probably sparked a little bit of concern,鈥� he added.
But, ultimately, Garritt echoed the sentiment of other panellists and said the US market likewise handled the increased volumes and volatility 鈥渧ery well鈥�, with the liquidity there to meet the higher demand for fixed income.
The buy side did not flinch
Ferguson had even more good news for viewers: that the buy side, at least not CIBC Mellon鈥檚 clients, had stood firmly by their lending programme amid the mass equities sell off.
He noted that most of CIBC Mellon鈥檚 clients were with it during the credit crisis and they 鈥渆xpressed confidence in our ability to manage the volatility again鈥�. Moreover, CIBC Mellon has seen new clients join the securities lending programme since February and several existing clients have also expanded their programmes.
The key lesson from the credit crisis, according to Ferguson, was the importance of having 鈥渞egular and timely鈥� dialogues with clients, particularly during stress events.
As such, Ferguson said the Canadian asset manager was focused on ensuring its underlying clients were aware of its BCP during the upheaval seen in Q1. 鈥淎s the pandemic unfolded we reached out to clients to inform them of our BCP roll-out and update them on what was going on in the market to provide assurances that the risk controls were in place and answer any questions,鈥� he explained.
Are we over reliant on central banks?
The question was posed by the panel鈥檚 chair, Grant Davies, whether the active role played by central banks in the market today to inject liquidity and provide a backstop to pricing is likely to be a permanent fixture from now on.
To this point, the International Capital Market Association鈥檚 (ICMA) Godfried De Vidts outlined how central banks in Europe have all increased their holdings significantly but that this is a temporary feature. 鈥淚 have had a long career and seen rates of 5,000 percent in Sweden and negative rates of Saudi Arabia in the 1980s and neither were here to stay. Things will go back to normal,鈥� he reassured viewers.
Offering a US perspective, Garritt stated the 鈥済oing negative鈥� is unlikely to offer the same economic boost that some might hope. Instead, he predicted the US Federal Reserve will continue its balance sheet expansion. 鈥淚t doesn鈥檛 mean you can鈥檛 go negative but you wouldn鈥檛 get that economic stimulus,鈥� he said. 鈥淲e鈥檝e seen negative rates in Europe and the world hasn鈥檛 ended, from a macroeconomic perspective, but you also haven鈥檛 seen the impact that the central banks might have hoped.鈥�
Retail investor will pick up the bill. Again.
When asked whether CSDR would mean illiquid assets were 鈥渋n for bumpy ride from next year鈥�, De Vidts revealed himself to be far more sanguine about the controversial regulation than some of his colleagues at ICMA.
鈥淵es, bumps will come but we have seen bumps all the time,鈥� he explained.
De Vidts offered an anecdote of when he was visited by the UK鈥檚 FCA to discuss the EU repo markets and how he had to outline to them that although the new regulation might be well-intended, they inevitably led to banks re-pricing their assets to reflect the new environment.
鈥淚n the future, we are going to see this more and more, such as with the cost of collateral and capital in particular. The Capital Markets Union and the Banking Union projects are ongoing in Europe and have to be absorbed. But, it鈥檚 not the banks that are going to pay for it. It鈥檚 the people who use the banks, the buy side.
De Vidts explained that the buy side is already 鈥渟creaming that the cost of short term funding is too expensive鈥�, add that although rules such as the net stable funding ratio contain some risks for banks, they also just push those risks on to the buy side.
Regulators say they don鈥檛 have a view on the buy side, De Vidts noted, and the 麻豆传媒 Financing Transactions Regulation (SFTR) will help this. However, it doesn鈥檛 remove the fact that banks will push costs to the pension and insurance funds who will push them on to the retail market.
鈥淐SDR is also a tough nut to crack but much more can be done and if we as a market can make ourselves even more robust then the public will never have to bail out the banks, the pension funds or whoever,鈥� he extolled.
Reinforcing this point, Dyson stated: 鈥淭he rising costs of liquidity with SFTR and SFTR will always find its way through to the retail investor and the costs we all pay for our pensions.鈥�
Short-sighted bans
Continuing the focus on Europe, EquiLend鈥檚 Davies picked panellists鈥� brains on their views on the spate of short selling bans that came about in March and were only lifted in May. Bans also appeared in Asia and remain in place in a handful of markets, including most notably, South Korea. Regular readers of SLT will earn no points for guessing that the panel unanimously expressed deep scepticism of the effectiveness or appropriateness of the bans.
Dyson noted that ISLA is an outspoken critic of such bans and has published multiple papers laying out the academic and economic arguments on why they are misguided and fail to achieve their aims.
鈥淲hen you鈥檙e a regulator in a crisis and you need to be seen to be doing something and putting in a short selling ban is a relatively easy way to demonstrate you are,鈥� Dyson stated.
He conceded that 鈥渋n some cases, they may actually have some limited short term benefit鈥�, but went on to note that the evidence from Europe suggests that those markets that banned shorting did not perform any better in terms of their price volatility than those that didn鈥檛.
鈥淓quity markets didn鈥檛 go into freefall because of short sellers. They went into freefall because the long-only traders were selling off assets,鈥� he concluded.
Elsewhere, it was noted that the major markets of the US, Canada and the UK did not impose bans, whereas they did in the previous crisis. The market authorities in Canada and the UK even publicly endorsed the role of the short sellers in a developed market, suggesting that the hearts and minds campaign by ISLA is having a positive effect.
It was the wrong type of crisis for CCPs
The pandemic鈥檚 ability to create a new world order does seem to have its limits, and panellists were unconvinced about whether the crisis had materially moved the needle on the debate around the business case for central counterparties (CCP).
鈥淲e have to let the economics of what鈥檚 in front of the institutional investor drive this and when it makes sense they will come. For whatever reason, right now it doesn鈥檛 make sense,鈥� stated Dyson. 鈥淭he product is pretty much there and has been for a while 鈥� but there are many facets to the question.鈥�
Dyson went on to note that the busy pipeline of regulations still to come, in particular Basel IV, included some new rules that would tip the scales further in the favour of using CCPs as a mitigator to those challenges in the years to come.
Ferguson also mulled whether there were any challenges caused by the crisis that could have been helped by a CCP and concluded it鈥檚 difficult to know for sure.
Garritt concurred with Dyson that the nature of the crisis had not allowed CCPs to act as the market鈥檚 white knight but this was in part because the market hadn鈥檛 needed saving.
Dyson noted that the volatility seen in February and March was typified by a lack of a large counterparty failing and as such what the market went through wasn鈥檛 the type of crisis that a CCP鈥檚 services are built for.
Going further, Garritt states that what would have helped would have been if the securities lending market had gained the much-anticipated changes to SEC Rule 15c3-3, which currently limits the use of equities as collateral in the US.
To outsource or not to outsource?
For many years, the risks associated with outsourcing included infrastructure stability, technology, personnel skill sets and geopolitics, but panellists agreed that the pandemic may now cause firms to re-evaluate this criteria.
CIBC Mellon鈥檚 Ferguson noted that firms evaluating outsourcing proposals probably ignored factors such as the underlying healthcare system of the location.
鈥淭he pandemic has motivated us to review everything we do, including outsourcing arrangement,鈥� he stated.
Outsourcing serves to diversify your geographical reach but until now plans had maybe not been in place to address the possibility of global disruption, which is what the pandemic brought, Ferguson explained. As such, firms must now consider how to reinforce those outsourced locations against future risks or consider moving out of those locations if that鈥檚 not possible.
鈥淚nsourcing does not solve pandemic risk,鈥� he stated. 鈥淵ou need to be able to move operational activity from region to region dynamically based on where the risk is. Will outsourcing stop? No. But we are going to pause and think beyond just the bottom line of the cost-of-service and elevate factors such as the resilience of the workforce and society underpinning the service centre.鈥�
鈥淪imply, don鈥檛 put all your eggs in one basket,鈥� he concluded succinctly.
Garritt, who also holds a risk management role within the RMA, offers a different perspective, saying he has seen a lot of previously outsourced services come back to the US from India and Asia and moved to lower cost-centres in the US.
Moreover, post-crisis regulations also require entities to establish a more meaningful presence in their markets to avoid shell entities being used to shift risk and profits. In the US this further incentivises finding domestic outsourcing locations away from high-cost centres, such as New York.
Although this trend of rowing back from global outsourcing did not start this year, Garritt believes the pandemic will accelerate it.
WFH
The government-mandated work-from-home orders across the world have provided an unexpected case study to test what happens when the concept of flexi-working is taken to its most extreme. Those in client-facing roles, of which there are many in a securities lending business, not to mention actual traders, were all forced to adapt overnight to entirely new ways of working.
With businesses now assessing how to move forward in a post-lockdown world, the question is how much of this novel work environment should be kept? Panellists noted that some will jump at the first opportunity to be back in the office while others will wonder why they even have an office at all.
ICMA鈥檚 De Vidts says that the normalisation of video conferencing is a double-edged sword. On the one hand you get a much better quality of life, not least because you don鈥檛 face the morning commute or semi-regular business trips that, in hindsight, maybe could have just been a video call.
However, he also noted that video conferencing is often less productive and prone to disruption or allowing participants to be distracted.
Meanwhile, the new normal of home working brings new issues for firms that will need to reinforce home workers鈥� systems in the same way they do in their offices, added Ferguson. Power back-ups and telecom redundancies are just some of the infrastructure investments that will need to be made to ensure compliance rules are met.
Dyson further noted that 鈥渃ertain red lines that were set by regulators, particularly in the UK about trading from home were always considered to be unmovable but when the pandemic hit they were lifted within 24 hours鈥�.
鈥淚nitially, policy had to be developed on the run, but now things have settled down a bit we see a level of pragmatism that鈥檚 needed to get markets to where they need to be, and that鈥檚 no bad thing,鈥� he added.
EquiLend鈥檚 Davies concurred and noted that regulators may find it difficult to get the genie back in the bottle with those regulations that have been eased or amended during the crisis.
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