In the current cost cutting climate, corporate actions automation projects need to hit three sweet spots in order to secure funding, Justin Chapman, senior vice president of Northern Trust told delegates to CorpActions 2009 Europe. These sweet spots take the form of cutting costs, reducing risks and providing more intellectual property, he explained.
“Although it is a tough climate for spending, corporate actions projects can meet all three of these sweet spots and that’s why I’m positive that these projects will continue this year,” Chapman told delegates during the regulatory change panel.
Anthony Kirby, director at Ernst and Young, added that the model for these projects has changed due to a focus on shared responsibility. The perception of risk in the industry has increased and the traditional outsourcing model is no longer appropriate, he explained. This is perhaps why there has been a lengthening of the initial stages of a project due to the requirement to alter service level agreements accordingly.
Kirby emphasised that more regulation is on the cards in the near future and likened the increase in rule changes as a result of the crisis to mushrooms popping up after a rainstorm.
However, Tomas Kindler, managing director of CSD-led Link Up Markets, bemoaned the lack of regulation or industry initiatives directly dealing with the corporate actions space. “Big industry initiatives such as the Clearing Code of Conduct and Target2-Securities don’t address the corporate actions area directly and there are significant gaps in regulation across the sector,” he said.
Andrew Douglas, head of industry relations at Swift, referred Kindler to Giovannini barrier three as a relevant industry initiative but agreed that the financial services community is surprisingly far behind in being ready for its removal in 2011. “It is clear that private initiatives can only go so far, we need the regulators to wield a stick for compliance. But once the regulators get involved, nobody wins,” he added.
Douglas also highlighted the Shareholder Rights Directive, which is due to come into force on 3 August this year and is aimed at ensuring shareholders have timely access to rights issues for proxy voting purposes. But he admitted that this legislation may not go far enough.
Chapman added that Northern Trust has seen an increase in rights issues of 20% since the start of the financial crisis, thus exacerbating the challenge to comply with the new directive.