On February 9, 2022, the Securities and Exchange Commission (SEC) proposed to shorten the standard settlement cycle for securities transactions from two business days after the trade date (T+2) to one business day after the trade date (T+1), beginning on March 31, 2024: https://www.sec.gov/rules/proposed/2022/34-94196.pdf.
The proposed change is designed to reduce the credit, market and liquidity risks in securities transactions, promote investor protection and increase operational efficiency.
The proposal would:
The Depository Trust & Clearing Corporation (DTCC) has been leading the industry to accelerate the settlement cycle in collaboration with the Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI) and the Industry Steering Group formed by market participants. Information from the industry, including a roadmap setting out the technical requirements for shortening the settlement cycle to T+1, can be found via the following DTCC link: https://www.dtcc.com/ust1.
U.S. Bank is actively monitoring this development and is engaging with industry working groups and the DTCC on the related changes in an effort to assess the required product updates impacting both our customers and internal processes.
On February 9, 2022, the Securities and Exchange Commission (SEC) proposed new rules to require registered investment advisers and investment companies to adopt written cybersecurity policies and procedures reasonably designed to address cybersecurity risks: https://www.sec.gov/rules/proposed/2022/33-11028.pdf.
The proposal aims to enhance cybersecurity risk management and improve cybersecurity resilience for investment advisers and registered funds through the adoption of a comprehensive set of requirements that address cybersecurity risk directly.
The proposal would:
The proposed rule directly impacts our clients who are registered advisers and registered funds. U.S. Bank Global Fund Services already provides customers with du diligence presentations, materials and webinars on our cybersecurity risks and controls. We are also reviewing the proposal for any enhanced materials on U.S. Bank Global Fund Services’ information security practices in support of customers meeting their compliance obligations with a finalized rule.
On March 9, 2022, President Biden issued an executive order (EO) on ensuring responsible development of digital assets. The EO lays out a strategy for national policy on digital assets with six principal objectives:
The EO establishes a whole-of-government strategy — with significant roles for the State Department, Department of Homeland Security, Director of National Intelligence, and Commerce Department, as well as the Treasury Department and financial regulators — for advancing these priorities.
Certain agencies will be required to produce reports or frameworks on topics related to these six objectives over the next six to12 months. Among other things, the EO highlights and calls for reports on:
The EO is an important step towards developing policy recommendations that will guide the ongoing development of digital assets and encourage regulators to ensure crypto oversight and investor protection.
The Consultation Paper (CP) supplements the IOSCO 2013 ETF Principles. The proposed 11 good practices are divided into the following categories: effective product structuring, disclosures, liquidity provisions and volatility control mechanisms. We will focus on the key Good Practices (GP) of note.
Key changes and considerations
Effective product structuring
The expectation that UCITS ETFs are obliged to carry out due diligence on APs and MMs at the time of onboarding and have mechanisms in place that allow for ongoing monitoring and due diligence to take place is worth noting. Responsible parties should review their due diligence process and practices and enhance if required.
Investor protection and transparency for investors are key so that all investors are fully aware of the strategies and risks of the funds that they are investing in. Fully understanding the costs involved in investing in ETF funds and products, especially those ETFs traded on secondary markets, is crucial for investors. It is important to note that both offering documentation and websites should be enhanced to include the appropriate information.
Volatility control mechanisms
The consultation is open until July 6, 2022, and subsequently, IOSCO will issue a final good practices report. It’s unlikely that there will be much change when the final report is issued.
Due diligence process for APs and MMs should be reviewed and enhanced if deemed necessary. Controls and processes should be reviewed and enhanced to ensure there are appropriate liquidity and arbitrage mechanisms in place. It is interesting to note the divergence of approach in respect of the transparency of portfolio between IOSCO and the CBI and if IOSCO’s approach will be documented in the next reiteration of the ESMA Guidelines on ETFs and other UCITS issues. It is also interesting to note that IOSCO questions the eligibility and appropriateness of certain assets for UCITS ETFs.
U.S. Bank Europe has reviewed the Consultation Paper and will be keeping close to any further updates as we expand our U.S. ETF offering into Europe to service UCITS ETFs. It is an exciting time for the Irish U.S. Bank team as we aim to service our first ETF product later this year and working closely with our colleagues in the U.S. to deliver a seamless experience for our clients.
The CBI issued Cross-Industry Guidance on Outsourcing in December 2021. The intention is that this guidance will supplement existing and future legislation regulations and guidelines including the EBA Guidelines. The guidance will apply in a proportionate manner to the fund service providers associated with the operation of the fund and not to the investment fund itself.
Key change and considerations
The CBI expects that critical or important outsourced arrangements and any material changes are notified to the CBI. Firms are expected to update their outsourcing register.
Firms are working to ensure their processes, procedures, governance, and risk framework are compatible and adhere to the CBI Cross-Industry Outsourcing Guidance. Industry groups are reviewing the guidance and working to ensure there is a uniform approach to the guidance as much as possible across fund administrators, depositaries and management companies. U.S. Bank/Elavon are involved and participating in industry and Irish Funds working groups and are actively engaging with our counterparts in forging a way forward to meet the Irish Regulator’s expectations.
For questions or concerns, please contact a member of our team:
Vice President, Global Network Management Regulatory Review Manager
Vice President, Senior Depositary Manager - Europe
The information contained in this publication is for general information only and may have been obtained from one of several third-party vendors that have contracted with U.S. Bank. The publication contains information believed to be reliable, but is not guaranteed as to accuracy, timeliness, or completeness. U.S. Bank and its representatives are not providing tax, investment, legal, or any other form of advice by making this information available to you. Your tax and financial situation are unique. You should consult your tax and/or legal advisor for advice and information concerning your situation. U.S. Bank is not responsible for and does not guarantee the products, services or performance of third party providers. U.S. Bank will not be responsible for updating any information contained within this material and opinions and information contained herein are subject to change without notice. Any and all implied or explicit opinions or recommendations contained in this information has been written to be informative and does not represent legal, tax, accounting, investment, financial, or other form of professional advice. Investment in global securities markets may involve
significant risks of loss and U.S. Bank is not responsible for investment risks or other losses related to such investments made by you or on your behalf.
U.S. Bank Global Corporate Trust is a trading name of U.S. Bank Global Corporate Trust Limited, U.S. Bank Trustees Limited and Elavon Financial Services DAC (each a U.S. Bancorp group company). U.S. Bank Global Corporate Trust Limited is a limited company registered in England and Wales having the registration number 05521133 and a registered address of 125 Old Broad Street, Fifth Floor, London, EC2N 1AR. U.S. Bank Global Corporate Trust Limited, Dublin Branch is registered in Ireland with the Companies Registration Office under Reg. No. 909340 with its registered office at Block F1, Cherrywood Business Park, Cherrywood, Dublin 18, Ireland D18 W2X7. U.S. Bank Trustees Limited is a limited company registered in England and Wales having the registration number 02379632 and a registered address of 125 Old Broad Street, Fifth Floor, London, EC2N 1AR. Elavon Financial Services DAC (a U.S. Bancorp Company), trading as U.S. Bank Global Corporate Trust, is regulated by the Central Bank of Ireland. Registered in Ireland with the Companies Registration Office, Reg. No. 418442. The liability of the member is limited. Registered Office: Block F1, Cherrywood Business Park, Cherrywood, Dublin 18, Ireland D18 W2X7. Directors: A list of names and personal details of every director of the company is available for inspection to the public at the company’s registered office for a nominal fee. In the UK, Elavon Financial Services DAC trades as U.S. Bank Global Corporate Trust through its UK Branch from its establishment at 125 Old Broad Street, Fifth Floor, London, EC2N 1AR (registered with the Registrar of Companies for England and Wales under Registration No. BR020005). Authorised and regulated by the Central Bank of Ireland. Authorised by the Prudential Regulation Authority and with deemed variation of permission. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.
All banking services are provided through Elavon Financial Services DAC. U.S. Bank Global Corporate Trust Limited and U.S. Bank Trustees Limited are Trust Corporations and not banking institutions and are not authorised to carry on banking business in the United Kingdom, Ireland or any other jurisdiction.
U.S. Bank National Association is not responsible for and does not guarantee the products, services, performance or obligations of its affiliates.
U.S. Bank Global Fund Services (Ireland) Limited is registered in Ireland, Company Number 413707. Registered Office at 24 - 26 City Quay, Dublin 2, Ireland. Directors: Eimear Cowhey, Ken Somerville, Brett Meili (USA), James Hutterer (USA), Hosni Shadid (USA). U.S. Bank Global Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland.
U.S. Bank Global Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland. U.S. Bank Global Fund
Services (Guernsey) Limited is licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended, by the Guernsey Financial Services Commission to conduct controlled investment business in the Bailiwick of Guernsey.
U.S. Bank Global Fund Services (Luxembourg) S.a.r.l. is registered in Luxembourg with RCS number B238278 and Registered Office: Floor 3, K2 Ballade, 4, rue Albert Borschette, L-1246 Luxembourg. U.S. Bank Global Fund Services (Luxembourg) S.a.r.l. is authorised and regulated by the Commission de Surveillance du Secteur Financier.
Elavon Financial Services DAC, trading as U.S. Bank Depositary Services, is regulated by the Central Bank of Ireland and is registered in Ireland with the Companies Registration Office Reg. No. 418442. The registered office is Block F1, Cherrywood Business Park, Loughlinstown, Dublin 18, Ireland D18 W2X7.
Elavon Financial Services DAC Luxembourg Branch (trading as U.S. Bank Depositary Services Luxembourg) is registered in Luxembourg with RCS number B244276
and Registered Office: Floor 3, K2 Ballade, 4, rue Albert Borschette, L-1246 Luxembourg, regulated and authorised by the Central Bank of Ireland (CBI) as well as by the Commission de Surveillance du Secteur Financier (CSSF). Details about the
extent of our authorisation and regulation by the CBI and the CSSF are available from us on request