Incorporation of sustainability efforts in Asia funds slows
ESG resources have increased at Asia funds while work on sustainability policies and implementation has slowed, according to the Morrison Foerster Asia Funds ESG Survey 2023. The research found that 43% of respondents have both an ESG committee and an ESG specialist, up from 8% in last year’s report, but 90% of respondents have made no recent changes to their ESG policies or work on implementation of those policies.
Sustainability is a consideration at each stage of the investment process. Some 84% of respondents conduct non-compliance-related ESG due diligence on most or all deals they consider. Still, only 23% of respondents have pulled out of an investment process after uncovering adverse ESG issues during diligence.
General partners (GPs) recognise the potential for sustainability performance to drive value and return, with 91% of respondents having invested in a company with negative or neutral ESG credentials, expecting to increase its valuation by improving these metrics. Additionally, 84% of respondents believe positive ESG metrics will increase the valuation of a target.
Responsible tech is a crucial theme for investment and sustainability in 2023, as 80% of respondents say they have adopted or made it a requirement to adopt responsible tech at portfolio companies. A full 20% either have not taken this action or are unfamiliar with the concept.
The survey also found that a push for innovation in a competitive global marketplace puts downward pressure on ESG integration. Half (50%) of respondents mentioned competing priorities for tech innovation over responsibility and social considerations at their firm.
Sustainability work goes well beyond climate-related issues, with many GPs working particularly hard to make progress on diversity, equity, and inclusion (DE&I). Almost three-quarters (73%) of respondents have identified clear and measurable goals for DE&I, and 58% have conducted internal training on DE&I for management and staff or communicated the importance of DE&I internally and externally.
Also, in the ESG space, greenwashing risks have spurred meaningful action across operations, portfolio companies and supply chains, with 70% of respondents now having policies regarding ESG communications or green claims by portfolio companies, up from 54% a year ago.
Finally, GPs face significant regulatory and operational challenges. Over half (53%) of respondents cited the need to keep pace with rapidly evolving regulatory regimes as their most significant challenge. The lack of transparency and reliability of ESG data came in second (43%).
Central Bank of Brazil publishes Pix Automatic operating rules
The Central Bank of Brazil has published the operating rules for Pix Automatic, establishing operational procedures and value limit rules. Pix Automatic is a payment method that enables recurring charges through the Pix system, particularly relevant for businesses offering products or services that are regularly billed. Another set of publications, including technical manuals, is scheduled for the beginning of 2024.
The offer of Pix Automatic to paying users will be mandatory for participants of Brazil’s instant payment platform. The central bank says that participants who do not pass the approval tests or make Pix Automatic available to their users at the service launch on 28 October 2024 will be fined for up to 60 days per day of delay. The central bank also changed other parts of the Pix Penalties Manual to cover the offer of the new service.
For the paying user, Pix Automatic is designed to bring even more convenience, offering a frictionless recurring payment alternative. Upon prior authorisation, given in a secure account environment via their cell phone, the user will allow periodic debits automatically, without needing authentication for each transaction. For the receiving user, Pix Automatic can potentially increase efficiency, reduce the costs of billing procedures and reduce defaults. As the operation is independent of bilateral agreements, which is currently the case with direct debit, and uses the infrastructure already created for the operation of Pix, it should reduce costs.
Among the general operating rules of Pix Automatic are the specification of working hours for prior authorisation, rules for cancelling authorisation, rules for rejection and settlement of the transaction, functionalities to be made available to the paying user and the receiving user, return rules and liability in case of error, daily limit for transactions related to the product, among others.
The new resolution also deals with rules relating to Pix Scheduled to improve service provision. The main change is that the recurrence functionality, currently optional, will become mandatory from October 2024.
Although both serve use cases related to periodic payments, Pix Automatic and Pix Scheduled recurring have differences that the central bank says make them complementary. In Pix Automatic, payment instructions are always provided by the receiving user, who must necessarily be a legal entity with prior authorisation from the paying user. In turn, in the recurring Pix Scheduled, payment instructions are always provided by the paying user, who may be the recipient of an individual or legal entity.
Dealing with volatility in mortgage-backed securities
Rising interest rates have unleashed a wave of volatility in US mortgage-backed securities (MBS) this year. As market participants prepare for projected growth in investment in mortgage products during 2024, buy-side and sell-side firms expect to increase spending on data, AI and other technology to upgrade risk-management capabilities for a more challenging and dynamic environment.
A post-Covid jump in the average 30-year mortgage rate of almost 400 basis points in just ten months set the stage for a near “perfect storm” of volatility in MBS markets. Both the buy and sell sides express serious concerns about inflation, the unprecedented speed of rate increases and risks associated with macro events like the 2023 regional bank crisis. In particular, fixed-income professionals taking part in a new study from Coalition Greenwich report serious concerns about recent reductions in MBS market liquidity and transparency.
“Today’s MBS market is much more complex than the market that existed before the pandemic,” said Audrey Blater, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of Managing Mortgage Market Risk Becomes More Complex. “The current and unprecedented environment has changed investment behaviour from a risk management and trading perspective.”
Despite the many challenges associated with higher rates - or perhaps because of them - more than 40% of investors participating in the Coalition Greenwich study expect to increase their MBS trading volume in 2024.
Ramping up activity in a market that is increasingly difficult to forecast and hedge will force market participants to ensure their risk management processes and investment tools are up for the task. For both the buy side and the sell side, risk and other systems must have the capacity to consume more information and make meaningful sense of it. Fortunately, the emergence of AI, machine learning and other advanced technologies are helping market participants shift price and factor estimation away from art and more toward science.
“A surprisingly large share of market participants has yet to upgrade their risk-management processes and platforms,” Blater added. “As existing systems are put to the test in the months to come, we expect to see increased investments in real-time data and innovative technologies for risk management.”
Deutsche Bank partners CIMB on Southeast Asia Shariah custody offering
Deutsche Bank has partnered with Malaysian bank CIMB to provide Shariah custody (the servicing of funds compliant with Shariah law) to clients in Malaysia. In addition, the bank has been appointed by CIMB to support its foreign custody services with its CustodyOne product.
The partnership involves Deutsche Bank complementing its existing Shariah custody function with CIMBs to offer clients in Malaysia regulatory-compliant services (in line with guideline changes made by the Securities Commission in late 2022). Most targeted clients are fund managers governed by the Securities Commission’s guidelines for Shariah capital markets products.
Also in Southeast Asia, Deutsche Bank has launched Shariah-compliant custody capabilities in Singapore, which will complement its CustodyOne offering, designed to simplify global access for clients.
Deutsche Bank says that Shariah funds globally held US$105bn in assets under management as of the end of Q2 2023 and Malaysia held the largest share of this total with 27%. Southeast Asia accounts for 80% of Asia Pacific’s total Shariah banking assets and market growth is forecasted at 8% over the next two years. Malaysia and Indonesia are the most dominant markets for Shariah banking in Asia Pacific.
HitPay introduces mass payout APIs
HitPay, a commerce infrastructure for businesses, has introduced a mass payouts feature in Singapore, Malaysia, and the Philippines. Businesses can now seamlessly pay workers, contractors, partners, and suppliers via HitPay. Marketplace and platform-based businesses can also manage mass payouts with the firm’s Payout APIs.
Supported payment networks include FAST in Singapore, RTGS in Malaysia, InstaPay, and PESONet in the Philippines. HitPay will soon be supporting PayNow payouts in Singapore and DuitNow payouts in Malaysia, and will launch additional payment rails in 2024.
Payout APIs aim to help businesses streamline operations and improve cash flow efficiency. With a single Payout API call, companies can send payouts to one or multiple recipients without the need for intermediaries. The APIs have built-in compliance features, including transaction monitoring and fraud protection. HitPay is a registered operator of a payment system (OPS) regulated under the Bangko Sentral Ng Pilipinas (BSP) and is regulated by the Monetary Authority of Singapore (MAS). Businesses can set up flexible payout instructions and reconciliation based on their payment preferences and receive insights on their transactions, enabling better tracking and management of payouts from one account. In Singapore and the Philippines, 24/7 payouts are also available.
HitPay will support additional payment rails in the coming year, expanding its mass payout capabilities to more countries. Upcoming releases in 2024 include domestic payouts in Indonesia, Thailand, Vietnam, and Australia, as well as global cross-border payouts using real-time payment networks, e-wallets, and OTC channels.
Citi leads strategic investment round in Colombian fintech Supra
Citi has led a strategic investment round in Supra. Far Out Ventures and H20 Capital also participated in the financing round. Supra is a Colombian fintech that enables cross-border payments and treasury solutions for small and medium-sized businesses (SMBs) participating in import and export activities.
The new capital will enable the growth of Supra’s Colombian operations to fulfil its payment aggregator role in partnership with foreign exchange market intermediaries (IMC) and licensed payment service providers.
In Colombia, more than 40,000 companies participate in import and export commercial activities, and the market for business-to-business cross-border payments in 2022 was approximately US$134bn, according to data from the Colombian Tax Authorities (DIAN). The investment was led by Citi’s strategic investments arm, which invests in innovative fintech companies aligned with the bank’s core businesses.
Santander migrates CIB banking platform to the cloud
Banco Santander is taking another step in its transformation by migrating the Corporate & Investment Banking (Santander CIB) business to the bank’s new digital banking platform, Gravity. The bank has already migrated all commercial customers in the UK and the consumer business in Chile without any service interruption. Santander CIB, which supports corporate and institutional clients, has used the Gravity platform to migrate to Google Cloud, managing more than a million accounting operations and half a million treasury operations per day.
Gravity, the bank’s software and cloud-native core banking platform, enables Santander to deploy on both private and public clouds. The bank’s core banking digital journey started in 2022 and the vast majority will be completed at the end of 2024. Apart from UK, Chile and Santander CIB, the transition is well advanced in Brazil. After the programme, more than one trillion technical executions will be managed every year by the Gravity platform within Santander’s systems.
Dirk Marzluf, chief operating and technology officer at Banco Santander, said: “Innovation is at the heart of our transformation, helping us serve customers better while delivering profitable growth and value creation. The Gravity banking platform, and other examples across the group, are testament to this. The Santander CIB migration to the cloud is a new milestone in the group’s transformation towards a simpler, more integrated model, contributing to enhanced profitability.”
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