A leading global custodian and asset management client automates interest claims and CSDR penalties processing with Meritsoft, avoiding headcount costs and accelerating interest claims issuance.

Our client is a leading global custodian and asset manager. Its offerings span a wide range of investment services, and it deals on behalf of its customers with asset managers, securities exchanges, central securities depositories (CSDs) and other counterparties across the globe.

The client was aware of upcoming changes to the European Securities and Markets Authority (ESMA)’s Central Securities Depository Regulation (CSDR), which would introduce financial penalties for trades that were matched late (LMFP) and/or failed to settle on time (SEFP). To be ready for this new Settlements Discipline Regime (SDR), the client needed a way to receive, report and process payments of CSDR penalties efficiently through the chain of custody. At the same time, the client’s system for tracking and managing interest claims on failed trades was at end of life and a replacement was needed.

The client saw an opportunity to automate interest claims and CSDR penalties management to automate work required in both areas. Its legacy interest claims system could identify and track claims, for example, but could not identify the party responsible for the fail. This created work to review trade instruction times, share availability, SWIFT messages and other evidence to determine the responsible party and handle claims accordingly.

The client had initially planned to build a custom application to manage CSDR penalties, but the pressing timescales and the opportunity to automate interest claims as well as CSDR led it to consider a commercial off-the-shelf (COTS) solution. Having reviewed the market, it concluded that the only vendor able to meet all of its requirements was Meritsoft, a Cognizant company.

The client chose to implement Meritsoft’s Interest Claims and CSDR Manager solutions primarily to benefit from the rules-based automated interrogation of failed trades to determine fault attribution.  The client predicted that this would create efficiencies if a future rise in interest rates led to higher volumes of claims — as indeed happened.

Meritsoft solutions are designed to work out of the box and are configured to match the client’s specific requirements and workflows. They are fully integrated with the client’s upstream and downstream applications using various APIs. An experienced Meritsoft team worked with the client to understand their requirements and configure and integrate the systems.

The engagement was conducted in five phases:

  • Discovery: We held workshops with client our client to understand their business model and trading ecosystem. We also identified the systems, data, and workflows that Meritsoft would need to interface with, and the specific functionality and outputs the client wanted to gain from the Meritsoft platform.
  • Interest Claims configuration: We implemented Meritsoft Interest Claims Manager and configured the solution to the client’s specific requirements.
  • CSDR implementation and fine-tuning: On the CSDR side, we worked with the client to get the required functionality in place ready for the introduction of penalties. This was a more challenging project due to the newness of the regulation and varying states of readiness client across the industry. Through close collaboration we were able to prioritize and deliver functionality. In the event, the delay to the introduction of penalties by ESMA due to a lack of overall preparedness in the market, allowed us to implement more CSDR functionality upfront. For example, at the client’s request we implemented a two-day forecast of penalties pending on a customer’s account, with automatic notification to client of the amount ahead of the penalty being applied.
  • Testing: We worked with the client’s quality assurance (QA) team to conduct integration testing and user acceptance testing of the Meritsoft solutions, integrations and cross-functional workflows, with daily meetings to review and address any issues.
  • Support: When CSDR penalties were eventually introduced, the first weeks were a crunch time for the client and its partners. Our engineers worked hard to support the client until the processes bedded down.

Our client has seen many benefits since going live with Meritsoft Interest Claims and CSDR Manager —ranging from cost avoidance to faster processes and improved control and insight. Specific outcomes include:

  • Head count saving: Automation has removed the need to hire more staff as interest rates and claims volumes have risen. When interest rates were last high in the 2000s the company needed a team of 14 to handle the volume of claims. With claim volumes back to similar levels the Meritsoft application allows the same work to be done with a team of four.  Part of the firm’s CSDR compliance involves determining who was at fault in the matching or settlement delay. It estimates it would have had to hire 20 staff to do this work manually within the required timescales. With Meritsoft, it has only had to hire four additional people to handle all penalty allocations, processing and reporting.
  • Faster claims issuance: Meritsoft’s automated trade interrogation capabilities mean the client can now issue claims much faster – saving an average of 20 minutes per claim.
  • Faster payment collections: Meritsoft Interest Claims calculates claim amounts, determines responsibility, generates claim letters, and creates reminders for follow-up actions, flagging any exceptions. This allows the client’s team to spend more time on payment collections.
  • Improved visibility and control: With common field values feeding both the CSDR and Interest Claim applications data integration was simplified and the two Meritsoft solutions leveraged to enable smoother workflows with improved visibility and control over penalties and claims. The configurable user interfaces also saves time by enabling users to filter, sort and slice data in an intuitive layout.
  • Reduced Operational risk: The rules-based logic in Meritsoft’s Interest Claims solution eliminates the potential for human error in the initial fault determination. The ability to auto-issue claims to contacts stored in the system also reduces the potential for errors.

With Meritsoft’s solutions in place, our client benefits from an automated solution for the allocation of penalties to the responsible party as well as the automated identification of the party at fault when determining whether an interest claim should be issued or not, allowing it to focus only on fails that require more in-depth review. As interest rates have risen along with volumes of interest claims, the client can issue claims well before industry deadlines and spend more time focusing on collection. The solutions have not only streamlined and accelerated workflows, but has also enabled the client to keep its CSDR penalty management team to just four people, rather than the 20 it would have required otherwise. The client is now optimally placed to meet its obligations to clients and regulators, and to accommodate new settlement regulations as they arise.

“The Meritsoft claims system has all of the functionality we needed and even more, and the implementation team was excellent to work with. They were very responsive to our needs. They also were able to help guide us in different directions based on what was the best way to use the system instead of doing anything we asked them to do, which vendors do not always do.”

Broker Claims Manager

Please get in touch to learn more about our interest claims management and CSDR penalty processing solutions: MeritsoftCapMarkets@Cognizant.com.