Described as “the average positioning of IA member firms’ views”, the timeline put forward is one of the more aggressive, with most task forces and associations more on board with 2027.   

The IA did add however, that should one or more jurisdictions only be able to transition at a later date before the end of 2027, and can commit to this before the end of 2025, the others should move their transition date back to align.   

The trade body added In the event the UK opts to move to a T+1 security settlement cycle ahead of Europe, there should be a “safe-harbour” exemption on UK traded and settled exchange traded products – including ETFs, ETNs and ETCs – which should remain on a T+2 secondary market settlement cycle until the EU transitions, at which point the exemption should expire.   

Should the EU transition first, a similar “safe harbour” should apply. This should also apply to Eurobonds. 

“In the US, the 15 months set out in February 2023 for a May 2024 go-live was sufficient, with settlement rates achieved by the broader market being higher than prior to the transition,” the IA said in its paper.  

“Whilst the UK, EU and Swiss market infrastructure may be more complicated, it is our view that many of the lessons learnt, system upgrades and process changes that firms undertook for the US transition can be applied in a UK, EU and Swiss context, making T+1 transition achievable by Autumn 2026, 24 months from now.” 

The UK has all-but committed to 2027 now, with Europe’s top markets watchdog subsequently signalling its intentions for moving EU markets to a T+1 settlement cycle through a statement outlining both the urgency of acting and the preference for aligning with the UK and Switzerland. 

“In a period when jurisdictions are aiming to demonstrate and boost the competitiveness of their capital markets, the ecosystem’s ability to enact a fast but orderly transition to T+1 settlement is crucial,” the IA concluded. 

The paper outlines a range of considerations across the UK, EU and Switzerland. One other point was that there should be a recommendation, but not a regulatory requirement, to transition the mutual fund subscription and redemption settlement cycle to T+2 from the common T+3/4 in the UK and other popular EEA fund jurisdictions to coincide with the UK, EU and Swiss transition to T+1 in capital markets.

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When trading, an asset manager will look to receive a timestamp for when the order was received and when it was executed. Given the speed at which FX markets move, these timestamps should ideally be provided on a millisecond basis, the IA said.

In some instances, traders will delegate their FX trading to a custodian, who may have greater expertise in a particular area. Moreover, trading may be further delegated to a sub-custodian for trades that occur in emerging market jurisdictions where that custodian does not have a local desk.

However, members of the IA have reported that on many occasions where a trade has been delegated by their custodian to a sub-custodian, the accuracy of the timestamps is highly unsatisfactory. Some members reported timestamps accurate only up to the nearest minutes, while others have received only the day on which a trade takes place.

This lack of precision makes accurate analysis of the quality of FX trades very difficult, the IA said, which in turn has a negative impact on the ability of asset managers to manage risk for themselves and their clients.

Principle 36 of the FX Global Guide states: “Market participants should keep a timely, consistent, and accurate record of their market activity to facilitate appropriate levels of transparency and auditability and have processes in place designed to prevent unauthorised transactions.” It further states that: “Information should be made available to clients upon request, to provide sufficient transparency regarding their orders and transactions to facilitate informed decisions regarding their market interactions.”

With this in mind, the IA is calling on custodians to continue to implement the recommendations of the guide and also apply pressure to sub-custodian partners to do the same.

A series of best practice recommendation was also set out by the IA, addressing engagement between clients and custodians; transparency of custodians’ approach to trading, sub-custodian appointment, and timestamping in emerging markets; and custodians regularly reviewing and applying commercial pressure to their sub-custodians to ensure, where possible, that data provision is improved.

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The buy-side trade association said investment firms have ramped up plans to move away from Libor to the Sonia (Sterling Overnight Index Average) benchmark, with a recent poll of Investment Association member firms showing that 70% had reduced their exposure to Libor throughout last year.

It also showed 65% already invested in Sonia-based instruments last year, and 75% had approved budget to complete the transition as planned. Around 25% of respondents had budgets related to the Libor transition of more than £2 million.

In January, the Bank of England, the UK’s Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates issued various documents and updated its roadmap, upon urging the industry to accelerate plans for the switch from Libor.

Describing 2020 as a ‘critical’ year for Libor transition, the update from UK authorities requested participants to cease issuance of cash products referencing Libor by the third quarter this year.

Market participants were also warned in March that the coronavirus pandemic could impact interim transition milestones of the move away from Libor. While the end of 2021 remains the target for firms to stop using the Libor benchmark, segments of the UK market, such as the loan market, have made less progress in the transition, the Bank of England said.

“Investment managers have made significant progress in the transition away from Libor to Sonia and other alternative reference rates,” said Galina Dimitrova, director for investment and capital markets at the Investment Association.

“With the FCA and Bank of England clear that Libor will cease to exist after the end of 2021, we strongly encourage investment managers, counterparties and vendors to work together in this final stretch to ensure a smooth transition, and reduce the reliance on LIBOR in all investments, operations and activities.”

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Known as the Investment Association’s Threat Intelligence Alert Network (IA TITAN), the platform will provide alerts from law enforcement, government agencies and other authorities on cyber risks via a real-time dashboard.

“Cyber security and operational resilience is a board-level focus for the investment management industry, which is why we need to tackle head-on the threat cyber espionage and financial crime can pose to members’ operations,” said Chris Cummings, CEO of the Investment Association.

“As COVID-19 has shown, criminals are prepared to take advantage of any situation for their financial gain. The ever-changing nature of these online threats goes right to the core of IA TITAN, which will provide industry-specific insights into cyber security threats, helping to keep customers and businesses safe.”

IA TITAN will be powered cyber security technology specialist Anomali, and the potential hazards that buy-side market participants will be alerted to through the new platform include potential malware, ransomware and software vulnerabilities.

Anomali chief executive, Hugh Njemanze, added that data and lack of clarity on which security technology services to adopt to combat the threat of a cyber security attack remain key challenges for investment managers.

“The problem of how to address cyberthreats is compounded by the overwhelming volumes of data about them, confusion over which security solutions are effective, and shortages of cybersecurity professionals,” Njemanze said. “With the introduction of IA TITAN, the Investment Association is arming its members with a platform that will provide them with the intelligence they need to protect their businesses against cyberattacks.”

Last week, the Investment Association welcomed five FinTech startups to participate in its recently rebranded accelerator programme. Now known as Engine, the five newcomers include cloud solution Exabel, data management platform Fundipedia, data sharing platform ipushpull, KiteEdge and workplace advice platform Rungway.

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Formerly known as Velocity, the asset management trade group’s FinTech scheme has now been renamed Engine. It offers financial technology startups the opportunity to connect with buy-side market participants to develop services that are looking to transform the investment process.

“The unveiling of Engine is fitting of our ambition to drive broader adoption of new technologies across investment management. Engine will continue to act as a catalyst for industry innovation, bringing together buy-side focused tech solutions addressing current and future business needs,” said Chris Cummings, chief executive of the Investment Association.

The association added that the latest firms joining the programme were chosen due to the quality of their solutions and focus on key industry problems. The five newcomers include cloud solution Exabel, data management platform Fundipedia, data sharing platform ipushpull, KiteEdge and workplace advice platform Rungway.

In addition to the incoming firms, Engine has added a new taxonomy and search feature on its website for quick identification of solutions across the value chain, asset classes and technologies. The Investment Association also reiterated the importance of technology in the current times for overcoming operational challenges.

“The COVID-19 pandemic is a clear reminder that now more than ever firms should be pursuing technological avenues to help resolve the operational business challenges of the day,” said Cummings.

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Market participants were sent the consultation early this week, following calls from the Association for Financial Markets in Europe (AFME) and the Investment Association last year to review European trading hours. Traders have until 15 May to provide feedback to Euronext.

Euronext confirmed last month it would launch a consultation on the issue, following the London Stock Exchange Group (LSEG), which launched its own consultation in December on reducing trading hours in European markets.

Chief executive of Euronext, Stéphane Boujnah, also told reporters last month that it remains unclear if the proposal for shorter trading hours, which came from London, is relevant to markets in Continental Europe. He also reiterated that all major exchange groups across Europe would need to support the idea if it is to move forward.

AFME and the Investment Association have argued that a shorter trading day will improve intraday liquidity for more effective markets, but also that it could spur diversity across the industry and improve the wellbeing of traders. The debate has been met with widespread approval across the industry.

“It’s high time we end the long hours culture, which is detrimental to diversity and mental health, and inefficient for the markets,” Galina Dimitrova, director of capital markets for the IA, said in January. “The current long hours culture impacts on traders’ mental health and wellbeing. It has also been identified as a key obstacle in recruiting and retaining more diverse talent.”

Both trade associations responded to the LSEG consultation, stating that reducing European market hours by 90 minutes would create more efficient markets to the benefit of investors and savers. European markets are currently open for business for 8.5 hours a day, much longer compared to the US and Asia where markets are open for 6.5 and 6 hours respectively.

European market hours should be changed from 8am-4.30pm to either 9am-4pm or 9.30am-4.30pm GMT, AFME and the Investment Association said, and they would support a 12-month pilot on all major European exchanges to test the impact of the market hour changes.

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In an open letter to the Financial Conduct Authority (FCA) and the Bank of England, the Investment Association made it clear that the buy-side back the consensus of keeping markets open during the coronavirus induced volatility to continue serving their clients’ needs.  

“Given on-going market uncertainty and continued media speculation, which is unhelpful during the current situation, we wish to assure you that our industry supports the continued opening of public markets,” Chris Cummings, CEO of the Investment Association, stated.

According to Cummings, it is critical for firms to have access public equity and debt markets so they can continue to manage savers’ investments and mitigate risks and discover prices. He also said the industry is providing governments across the globe with the capability to raise money to fund Covid-19 support programmes.

Similar calls for markets to remain open during the pandemic have been echoed by exchange groups globally. The Federation of European Security Exchanges (FESE), with members compromised of European exchange operators, said it was vital that markets stay open, and detailed the important role exchanges play in providing price formation, transparency and liquidity.

In the US, the chief executive of derivatives exchange operator CME Group, Jeff Sprecher, rejected a bid by US Treasury Secretary, Steven Mnuchin, to shorten US market hours due to increased market volatility amid the coronavirus pandemic.

“We recognise that markets have experienced extreme volatility, high trading volumes, and indeed diminished liquidity in recent days. However, closure of the markets themselves would not resolve these issues. In fact, it is our view that any closure would have the opposite effect to that intended and even the rumour of market closures can lead to adverse consequences for savers,” Cummings wrote.

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The Investment Association confirmed that Keith Skeoch, CEO of Standard Life Aberdeen, has been appointed chair of the board, while Michelle Scrimgeour, CEO of Legal & General Investment Management, and Patrick Thomson, CEO for EMEA at JP Morgan Asset Management, have been appointed deputy chairs. 

“Given the pace and scale of the changes faced by our industry, here in the UK and internationally, it has never been more important to have a strong voice speaking up for the investment management industry,” Chris Cummings, chief executive of the Investment Association, said. 

The senior appointments follow a board meeting and vote earlier this week, with all three buy-side bosses due to start their roles on 1 May this year. The Investment Association added the move aims to bolster the trade body’s long-term direction. 

“The asset management industry plays key roles in allocating capital to businesses and infrastructure projects, engaging with companies on ESG issues and importantly helping millions of people achieve their long-term financial objectives. I am honoured to be appointed chair of the board of the Investment Association,” Skeoch commented.

Skeoch replaces Peter Harrison, CEO of Schroders, who has been chair of the board for the past three years, and Scrimgeour and Thomson both replace Skeoch, who previously served as deputy chair of the board.

“I very much appreciate the confidence of my board colleagues and look forward to playing my part in ensuring that we have robust conversations around the future direction of our sector. As the industry’s trade body, we must continue to evolve and support the highest standards for all savers and investors,” Scrimgeour added.

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Under the proposal, the Investment Association said that when a request by an investment manager to trade on FX markets is not executed, brokers, dealers and platforms should use 13 high-level reject code categories. 

The code categories will provide the buy-side with more specific information on why a trade failed to execute quickly and consistently, allowing investment firms to take action based on the cause of rejection to reduce further poor performance. 

“Currently brokers on the FX markets have no consistent way to communicate why trades aren’t successful,” said Galina Dimitrova, director for investment and capital markets at the Investment Association. “Our new reject code categories help ensure the reasons for trade rejections can be analysed rapidly, so steps can be taken to put right any errors and minimise potential disadvantage to savers and investors.”

The sell-side is being asked to match up their existing reject codes to the 13 new high-level reject code categories and report to buy-side clients by the end of the first quarter this year. The proposal was produced in consultation with the Investment Association’s members, and it is in keeping with the Global FX Code of Conduct

Last month, Bank for International Settlements (BIS) markets committee took aim at larger asset managers for failing to adopt the FX Global Code of Conduct, which outlines a series of principles to address various issues in foreign exchange markets around ethics, governances, execution, risk management and settlement.

Some of the world’s biggest asset managers, including Vanguard, Allianz Global Investors, BNY Mellon Investment Management, Aberdeen Standard Investments and AXA Investment Managers, have still not agreed to comply with the FX Global Code of Conduct, which came into force in 2017.

The unclear business case for compliance, alongside lack of relevance and concerns that the Code does not go far enough to curb activities such as last look practices and disclosures, have been highlighted as the main issues.

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The Investment Association (IA) and the International Capital Market Association’s (ICMA’s) Asset Management and Investors Council (AMIC) representing asset managers in Europe penned a letter to the European Commission requesting a different approach to introducing the requirements, specifically the controversial mandatory buy-in provision.

Both trade groups urged the European Commission to undertake a ‘robust market impact’ assessment of the buy-in regime before it is rolled out across Europe in early 2021, and in the absence of such an assessment, they have requested cash bond markets be excluded from the buy-in regime, to allow for close evaluation of the rule’s impact on liquidity and market pricing.

“Our members feel that such a cautious approach to phasing-in the mandatory buy-in requirements, based on the careful assessment of market impacts, will ultimately be in the best interests of investor protection, market stability, and the goals of the capital markets union,” said the IA and ICMA AMIC’s letter to the European Commission.

Initiating a buy-in against a failing counterparty will become a legal obligation under the Central Securities Depository Regulation (CSDR), with limited flexibility on timing to complete the process. This allows market participants to manage settlement risk in the case of failed trades, as the buyer goes to market to source the securities from another party. The payment of the difference between the buy-in price or cash compensation must also be made by the failing trading entity. Buy-ins have typically been used with discretion as they can create unpredictable costs.

ICMA and the IA, alongside various other buy- and sell-side trade associations, have been vocal in their concerns about the buy-in regime, specifically the potentially ‘devastating’ impact on bond market liquidity and increased costs of trading.

“Liquidity is already very challenging and getting even more so,” ICMA said, summarising buy-side comments on the regime as part of a study in November. “This regulation, in its current form, is likely to mean that banks will not short bonds. This would have a devastating impact on market liquidity, function and asset managers’ ability to service their clients effectively. It is worrying that many in a front-office, markets-facing position know nothing or very little about this impending regulation.”

Earlier this month, multiple trade groups, including the IA and ICMA, also wrote to the European Securities and Markets Authority (ESMA) calling for a delay to the mandatory buy-in regime until its effects are understood more clearly. They suggested replacing the mandatory nature of the buy-in with an optional right of the receiving party to pursue a buy-in in the event of a non-delivering counterparty.

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