This Financial Markets Standards Board (“FMSB”) Transparency Draft of Standard for Sharing of Standard Settlement Instructions (SSIs) is applicable to Firms when sharing their own SSIs, or where they manage their clients’ SSIs as part of their commercial relationship (for example where they perform custodial or prime brokerage services), in relation to their clients’ SSIs. This Standard does not apply to Firms’ management of their counterparties’ SSIs.
The proposal is structured in two main parts:
- Standard: proposes Core Principles for the channels, processes, and governance around sharing of SSIs, and
- Templates: proposes standardised templates, based on industry-standard taxonomy, for use in residual cases where SSI instructions are sent manually.
FMSB is seeking views on the Standard and Templates, the final version of which will form part of the annual attestation that each FMSB Member Firm is expected to make annually and which non-Members are encouraged to consider for adoption.
FMSB is also seeking views on a selection of potential authentication options to address the vulnerabilities in the manual sharing of SSIs, which is reproduced after the consultation questions which follow, but which will not form part of the Standard.
Background
Standard Settlement Instructions (SSIs) specify the “where” of delivery/settlement after the execution of any financial transaction. The most significant cause of fails at the settlement stage, after lack of inventory, is incorrect or missing SSIs[1]. Human intervention is necessary to resolve exceptions prior to settlement, especially to remediate incorrect SSIs. This inefficiency is likely to become a greater risk with more jurisdictions moving towards accelerated settlement, including the UK’s planned move to T+1 in 2027 as outlined in the Geffen Report[2], leaving less time to input or amend the correct settlement details.
A significant factor is the continued use of manual SSI exchanges, which are prone to errors from transposition, and due to a lack of standardisation in taxonomy and format, are difficult to automate for ingestion by the receiving counterparty. However, errors may also occur even with the use of industry-wide automated SSI sharing solutions, due to insufficient discipline around their usage.
In April 2022, FMSB was approached by the Bank of England and FCA to continue the work begun by the Post-Trade Task Force they established. In Charting the Future of Post Trade the Task Force proposed recommendations to remedy these procedural inefficiencies. Amongst others, it recommended “Standardisation of data models and message formats for the automated settlement process”. Standardisation could also pave the way for future digitalisation and automation.
The proposed FMSB Standard takes forward this recommendation.
Purpose
This Standard aims to increase the adoption of electronic solutions that allow for standardisation and pre-authentication of settlement instructions, and which facilitate Straight-Through-Processing, to improve efficiency of SSI management by recipient counterparties and reduce settlement fails through incorrect SSIs.
Where such electronic solutions are not legally or operationally feasible, this Standard incorporates templates for manual sharing of SSIs which incorporate an industry-standard taxonomy (based on ISO 20022), which should minimise ambiguity around SSI data fields and allow for recipient counterparties to automate their ingestion.
Approach
FMSB creates all of its content by consensus. The FMSB working group for this Standard is chaired by Tim McLeod, Global Head of Lending & Liquidity Operations and Head of EMEA Investment Operations at Blackrock, and consists of reference data, operational, and change function representatives from FMSB members.
The manual templates have been designed in conjunction with the International Securities Association for Institutional Trade Communication (ISITC) through their Reference Data working group, with a focus on the receipt of manual SSIs by a broker from a client/instructing party or through an agent of the client who manages their settlement (e.g. custodian, prime broker, or other outsourced function).
FMSB would now like to seek feedback from a broader range of market participants to verify the outputs, and to ensure that they are compatible with manual exchanges of SSIs at other parts of the trade lifecycle.
Next Steps
FMSB invites comments on any or all of the proposed Standard and Annexes. We also encourage respondents to consider the specific consultation questions which can be found here. Please respond by 31 October 2024. As far as possible, please collate all responses from your organisation.
Please address any comments or enquiries by email to:secretariat@fmsb.com.
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[1] Charting the Future of Post-Trade – Report of Task Force – April 2022 (bankofengland.co.uk)
[2] Accelerated_Settlement_Taskforce_Report.pdf (publishing.service.gov.uk)