1. What is the data problem?
We all know that corporate actions present challenges - but where are the most acute risks and pain points today?
In our 2020 "Asset Servicing Innovation" research, we established that around 70% of business units across the world were paying out over USD2m in corporate action errors. We also identified data as being the root cause of 56% of corporate action errors.
This "Corporate Actions 2021" survey focuses on the central role of corporate action data at the heart of the multi-million dollar problem.
Drawing on views from over 230 organisations around the world and numerous expert insights, this report is designed to explain in detail what the corporate action data problem really looks like - and what we can do to fix it.
John Lee, Accenture
"No one says that corporate actions data isn't a problem"
It costs more to source a corporate action than it does to process it
56% of corporate action costs today are linked to sourcing the event data and preparing it for processing - making up the significant majority of our total corporate action costs.
Much industry and product development centres on event processing - but the data problem is bigger and more complicated to address.
At the beginning of the corporate action lifecycle, Exchanges and CSDs spend less than 21% of their corporate action costs on sourcing and preparing event data - less than half the level of their downstream customers and investors.
As a central point in the dissemination of corporate action data, this relatively low level of spend amongst CSDs is of some concern - as it gives rise to a lack of confidence in the data that CSDs publish and to unnecessary efforts to 'clean' and verify the data at every step of the process.
This explains why, worryingly, investors are spending as much to source their corporate actions as their Banking-providers: highlighting a clear duplication of effort along the corporate action chain. Although they predominatly rely on (custodian) banks' data as a core business input, investors are spending vast resources in order to reach a level of confidence in their data.
With every participant scrambling to source and manage event data that is ready to use, the costs of data across our industry are dramatically higher than they need to be.
..and getting an event ready to use costs more than sourcing it
Within the event data space, sourcing a corporate event notification makes up the minority of our overall data costs (and only 27% of the total cost of a corporate action).
31% of our corporate action costs are consumed by the need to clean, augment and interpret event data - to the point where it is ready for processing. In short, one third of our corporate action costs are driven by lack of confidence and completeness in the information we receive.
These cost are most acute in North America - where the cost of data interpretation alone makes up 13% of the total costs of a corporate event.
Half of us are missing 40% of our costs
Yet only half of us is actually tracking these 'hidden' costs of validation and enrichment (or even the cost of risk).
Constituting 40% of the total cost of our corporate actions, these costs are often buried in other cost centres or in other tracking mechanisms - basede as they often are on headcounts located within broader middle or back office teams.
Yet we overlook or underestimate these costs at our risk.
By focusing all of our attention on pure data sourcing and event processing costs, we maintain only a 60%-complete view of our true performance and the factors that drive it. With such poor oversight, we risk making the wrong decisions as we design our corporate action transformation programs with the wrong outcomes in mind.
We also risk significantly under-estimating these hidden costs. Whilst the majority of data sourcing and event processing has been outsourced or off-shored to low-cost locations in recent years, resources responsible for data validation and interpretation are invariably based in higher-cost, front-office locations. Person-for-person, these hidden tasks may be costing us more than we think.
Samar Banwatt, ISSA
"Our messaging is not investor-ready today"
Manual messaging dominates. Everywhere
So what is driving this significant data cost? Is it the cost of processing millions of dividend announcements in a highly concentrated season, or is it something else?
The debate around how to run more (simpler, mandatory) events through our systems in ever-greater volumes has dominated industry discussion in recent years, mainly because the problem is abundantly evident (sometimes requiring up to 50 additional headcount to manage peak season), definable and easier to resolve.
Yet there is a much bigger problem than incremental automation. The question of how to stop people resorting to websites, portals, faxes and emails is far more pressing - with websites and portals accounting for 46-59% of all corporate action events today (compared with around 16% via ISO15022 today).
Across the investment cycle, the average bank receives 43% of its corporate action data via entirely manual mechanisms. Only 50% of banks are then publishing that data in standardised formats to any reasonable level of automation.
Downstream, the average investor receives almost 60% of its data manually - with 66-70% of fund managers then sending their clients corporate action information by fax / email.
Manual sourcing and re-keying dominates the industry at every step of the chain - resulting not only in increased (direct) costs and risk but also in an enormous reconciliation burden as banks, brokers and investors play a daily reconciliation "ping pong" in order to consolidate and communicate events between them.
Manual risks are the biggest problem: on the way in and out
Our manual messaging is not just a widespread inconvenience, it is the main driver of risk in the corporate action lifecycle.
Beyond the commonly-cited priorities of data accuracy and timeliness, the risks associated with manual handling dominate the agenda - both inbound and outbound.
That many event notifications need to be sourced, validated and augmented manually as standard process is cause for concern - but more important is the large volume of exceptions that need to be handled before events can be processed and managed.
As these problematic, manually-sourced events travel through the system, they become responsible for a disproportionate volume of errors. Missed deadlines, incorrect elections or poor client instructions can all be traced back to the manual-entry risk that dominates the risk agenda.
As busy as we are sourcing event information by hand, we are making ourselves even busier by creating problems and risks all the way downstream.
Complex, voluntary events are driving the manual data problem
So which events are causing all this manual risk?
Highly conditional events (such as Dutch Auctions, Spin Offs, etc.) are consistently seen as the hardest to process without excessive amounts of manual intervention.
As corporate events have become increasingly tax efficient (in markets such as the USA, South Africa and Australia), the need to sight and review the original corporate disclosure documents is unavoidable. This gives rise to a massive, manual burden in these markets as issuers continue to run ahead of their respective markets.
In many cases market infrastructures have failed to keep up with the growing number of data attributes linked to events - making manual augmentation inevitable in some markets and for some events. In our findings, French dividends were harder to process than Hong Kong Spin-offs, for example.
“With so many events you just have to read the docs”
Different markets, different problems
The size of the manual data problem around the world does not follow any stereotypes or standard classifications. Developed markets show no lead over Emerging or Frontier markets. More complex markets do not appear to be more or less automated than 'simpler' ones.
The only driver of automation is effort.
With an established and specific focus on corporate actions, it is no surprise that markets such as Switzerland, South Africa and Singapore have risen to the top of the global leaders list. Years of investment in event automation and (in some markets) golden-copy data provision have yielded significant efficiencies for market participants (see next page).
Looking ahead, sustained investments from Australia and Hong Kong also look set to drive benefits for investors in 2022.