Chat with Valérie Urbain

Dive into this episode of Chat with Valerie series to explore Euroclear Bank’s 2020 strategic focus. 

From our European franchise, international expansion, collateral optimisation, funds servicing, innovation to market challenges, Valerie Urbain, the CEO of Euroclear Bank, covers them all in this wide-ranging, tour d'horizon interview.

Question: What is the direction of travel for Euroclear Bank in 2020?

Valerie: At the end of 2019 we received our CSDR licence. We were the first International Central Securities Depository (ICSD) to receive a licence, and this was a major milestone for us. It has allowed us to free up resources that had been focused on this project for the past three years and turn our attention to other strategic developments. 

The raison d’etre of Euroclear Bank has always been to match the needs of investors and issuers while minimising the associated risks. Our continuous efforts on this front are therefore key for us to further strengthen our European franchise. Similarly, Euroclear Bank’s international expansion is very much fuelled by our demonstrated ability to provide easy access for international investors towards emerging and frontier markets. This is something our clients are keen for us to continue.

We have also seen an evolution of our clients’ needs. In the past, settlement was the most important service we provided. Although it is still a key service and our main function, things have changed over the past five to ten years and there is an increased demand for liquidity provision and therefore our collateral management services. Likewise in our investment fund business, our solutions for ETFs and their reputation are expanding extremely rapidly. 

And, while an important part of CSDR might be behind us, the regulatory agenda remains important for the financial market as a whole with the implementation of the CSDR settlement discipline regime. There are still numerous challenges ahead, and one of our key objectives is continuing to find ways to help our clients to comply with new and existing regulatory requirements.

Q: Can you tell us more about how Euroclear will be strengthening your European franchise?

Valerie: Well, while we were working on obtaining our CSDR licence, we were able to gain an in-depth understanding of the drivers behind the liquidity needs of our clients. 

For instance, last year we saw interest in the Target2 Securities (T2S) platform really picking up and more and more clients want to take advantage of this central bank money environment – while at the same time continue to have access to commercial bank money through Euroclear Bank.

We felt that it was important to offer clients a way to swing from one environment to the other and efficiently manage their credit and liquidity needs, as well as their capital costs. This too would allow them to manage a single pool of collateral across the two money environments. Which is why, towards the end of last year, we announced our intention to connect Euroclear Bank to T2S. On top of the reasoning I outlined before, we strongly believe that connecting our ICSD directly to T2S will further help strengthen and promote the European Capital Markets Union. 

Q: In what ways will you be continuing your international expansion?

Valerie: First, we are working with local market authorities to help them develop and implement recognised international market practices and standards. We know that international investors will access an emerging market, provided they have these practices and standards in place. 

We will soon launch a link with the Shanghai Clearing House (SHCH). Together with the SHCH, we are working on the creation of a new asset class for the Chinese bond market. This new asset class, to be made available through our link with the SHCH, will be Chinese corporate bonds denominated in foreign currencies. Also, as mentioned in my previous interview for this series, last year we signed an MOU with the CCDC to offer post-trade services for the onshore Chinese bond market. We are working hard to make this a reality and will share more about timing as soon as we can.

In addition, our link with the United Arab Emirates (UAE) is operationally ready. It is pending the final go live from Central Bank of UAE, and we fully respect the timing the authority determines most appropriate for their market. This link will initially be for the Central Bank of UAE Monetary Bills and target the domestic UAE banks, with the intention of further opening the link to the Ministry of Finance issuance and international investors in the future.

In 2019, we also signed an agreement with Egypt and an MOU with Saudi Arabia. We are now in the process of helping them establish and implement the standards that international investors expect. 

We are as well in close contact with the local market authorities in Turkey to activate our link so Euroclear Bank can provide international investors access to Turkish domestic government bonds.

When you look at our footprint, we are developing more and more direct links to domestic markets, increasing investment opportunities and operational efficiency for our clients. We have also been restructuring a number of indirect links that we have had in place for a number of years and turning them into direct links, in some cases operated by local agents. A concrete example is what we have done at the end of last year in the US, where we now have a direct account with the DTCC, operated by JPMorgan Chase Bank. Similarly, we have also developed direct links to the CSDs of Czech Republic and Israel, operated by Citibank as our agent.

Q: Collateral optimisation is a major concern across the entire financial landscape, for both buyside and sellside. What role can Euroclear play in helping its clients to both mobilise and optimise their collateral activities?

Valerie: Collateral management is definitely an area of growth for us. We regularly speak to our clients to understand their needs and this has ensured that we develop the products and services they need. An example which impacts both buy- and sellside is the work we have done over the past five years to address the requirements of the Uncleared Margin Rules (UMR).

Most of the sellside already make use of our services to pledge collateral to cover their margin needs, but now we are preparing for Phases 5 and 6 of UMR where the buyside will become more actively involved in the process. 

There is considerable concern in the market about these two phases as many buyside firms lack the infrastructure to pledge collateral. Likewise, many of them are not familiar with our services as they themselves make use of the services provided by global custodians.

To address this need, we have developed a Pledgee Representative model. A simple way to describe this service is that it grants the buyside indirect access to our collateral management platform by allowing their custodians – who are our clients - to act on behalf of them, with the appropriate legal documentation in place. 

Another example is in the securities lending business. We know that the cost of capital has increased dramatically over recent years. And our clients are constantly looking for ways to ensure they make the most efficient use of their own capital.  Which is why we have been actively promoting one of our existing services – securities lending under pledge. The capital advantages of this model have led to the move of large volumes from transfer of title to the pledge model.

One of our key priorities for 2020 is thus to continue to adapt our collateral management services to allow our clients to tap into liquidity as efficiently as cheaply as possible while ensuring true optimal collateral allocation to minimise their capital costs.

Q: In what way will 2020 be a year of innovation in terms of products?

Valerie: Innovation has always been part of our thinking, as despite the fact we currently occupy a strong market position, we cannot afford to stand still. To that end, I see innovation happening on two distinct levels.

Firstly, we are continuously reviewing our processes to make them more efficient and effective while keeping them relevant. What this means is we are exploring options to lower the cost of delivering our services while also controlling the associated risks. An example is the journey we have embarked on to integrate new technologies like machine reading and robotisation to improve our processes.

The second level of innovation is based on the discussions we have with our clients to see how we can use new ideas and new technology to improve our end-to-end processes. This is also about developing new services that help our clients meet their regulatory requirements and take advantage of new business opportunities.

One concrete example is the Taskize solution which eases the process for our clients to comply with the impending CSDR settlement discipline regime. This cost-effective solution facilitates and standardises the buy-in communication process while enabling the management of penalty and buy-in workflow in a secure, multi-party, fully audited environment. 

Another example, representing some of the new technology we are looking at, is the pilot we launched at the end of last year that assessed how blockchain can be used to support the issuance of medium term notes.

As the largest European ICSD, we also sit on vast quantities of high-quality data, based on which we are developing our suite of data products. Today, we have developed products that use new technology to enhance the information we have on new issuances, securities meta-data and corporate actions information. 

Now we are looking at ways to harness the data we have on liquidity, providing insight and price indicators, which will allow our clients to make more informed investment decisions.

Q: What do you see as being the biggest challenges for the market and Euroclear Bank in 2020?

Valerie: The biggest challenge that the industry faces today relates to negative interest rates. In the past, the financial industry has used positive interest rate conditions to grow. We don’t have this luxury today.  The market is still trying to understand what this will mean longer term and adapt accordingly. It is beyond our control and we all must find ways to deal with this situation the best we can.

The geopolitical backdrop will continue to play an important role. Issues such as the US-China trade war – although this seems to have thawed recently, Brexit, tensions in the Middle East and the upcoming elections in a number of key countries will all have an impact.

And of course regulation will continue to be a challenge as lawmakers seek to make the financial industry as safe as possible – very much in line with the way we continue to shape the Euroclear group. 

In this challenging and ever-evolving environment, we will continue the dialogue with clients and partners - and work hard to bring added value for all participants in our global ecosystem. 

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by Valérie Urbain

Valérie Urbain is Chief Executive Officer of Euroclear Bank, with responsibility for Euroclear Bank’s Operations, Commercial, Client Service, Banking and Network Management divisions worldwide. She is also member of the Euroclear SA Management Committee.