Fintech Insights

Why it’s time to set new standards for corporate actions management

George Harris | senior director, Data Management Solutions, Business Operations and Delivery Management, Asset Management and Alternatives, FIS

July 20, 2021

Corporate actions management has always played an important role in asset servicing operations. Not only do events themselves command the attention of the investor, investment management and asset ownership communities, but the typical manually managed, error-prone life cycle is also a magnet for risk.

Now, the end-to-end operational processes that support corporate actions management are under wider industry scrutiny than ever from various consumers of information. And a lack of standardization is increasingly a cause for concern.

Whether as part of a service level agreement between intermediaries or a regulatory reporting requirement like the Shareholder Rights Directive (SRD II) and the Securities Financing Transaction Regulation (SFTR), there’s a growing need to capture and publish the key economic detail of every corporate action event, the relevant decision points, and the predicted and actual outcomes.

But in the absence of a single source of truth or golden copy of records, opportunities for misinterpretation abound. Despite the availability of SWIFT messaging standards such as ISO 15022 and ISO 20022, issuers of corporate actions still broadcast events to the industry in a range of formats that intermediaries must then “translate” into SWIFT for onward distribution through the investment chain.

When combined with a lack of automation and straight-through processing, the resulting dearth of standards not only reduces operational efficiency but can also lead to errors and, ultimately, financial loss.

What the industry can do

The asset-owning industry has a key responsibility to help reduce these risks. In fact, as the major stakeholders in the process, it’s in asset owners’ interest to identify best practices and mechanisms that will drive standardization and optimize efficiency throughout the life cycle of a corporate action event.

More specifically, the industry has the opportunity to tackle the challenge of disparate event notifications, which recipients usually need to normalize before they can process the event downstream.

Publishing all issuer-generated notifications on a common platform would go a long way to eliminating the interpretive risks, processing ambiguities and threat of operational losses that plague corporate actions management.

It could be down to investors, underwriters or listing authorities to ensure issuers’ commitment to such publication methods as part of the IPO process. Or, corporate engagement and governance initiatives might come into play if an issuer has a poor track record of broadcasting comprehensible announcements to the market and has historically caused problems for the intermediary chain.

How technology can help

While ISO 15022 and ISO 20022 have their rightful place as enablers of standardization, burgeoning technologies such as distributed ledger technology and APIs are also likely to assist with the active management of corporate actions risk.

So, whatever direction the industry takes to drive standardization, technology will help lead the way. That makes it more critical than ever for asset managers and servicers to choose a corporate actions management platform that connects and interoperates easily with the wider market infrastructure, as well as handle the increased complexity and volume of today’s corporate actions events.

With the volume peaks and troughs associated with deferred dividends, and the switch to homeworking, the pandemic brought into sharp focus the need for robust, resilient and scalable operations. Now, organizations are sure to be assessing how they could have better managed corporate actions at the height of the crisis.

In these times of introspection, we could see an accelerated shift toward much-needed standardization. Are your operations ready to move with the times?