Chief Executive Officer’s report
Marc Bayle de Jessé


As my first full year as CEO of CLS, 2020 has been both exceptionally demanding and rewarding. The global Covid-19 pandemic brought with it multiple challenges for our team, not only operationally and logistically, but personally as well, as colleagues adjusted to multiple lockdowns and new ways of working.

As we mobilized quickly to continue delivering stability through a period of severe market stress, we took the opportunity to question some of the fundamentals of operational resilience, risk management, performance and connectivity, both among ourselves as colleagues and within the broader FX ecosystem.

The overarching premise of delivering high quality services, while also making the necessary investments in our infrastructure, enhancing our suite of settlement, processing and data solutions, and improving our controls environment, were the right areas to be focusing on in the medium to long term.

The pandemic was compounded by various political factors, such as the US presidential election and Brexit. The latter is particularly relevant to CLS, and we have a team who has been working proactively with relevant regulatory and government bodies across the EU for over two years to ensure continued access to CLSSettlement for all market participants. While there is still much uncertainty regarding the long-term impact on the financial services sector more broadly, we successfully ensured relevant legal frameworks were established ahead of the transition period.

What this year has reaffirmed above all is our organization’s sense of purpose. As is so often the case with FMIs, our value is underplayed when market conditions are strong but reaffirmed in periods of instability and market stress. Despite the entire team having to adapt almost overnight to fully remote working, and the challenges this presented from a technological, work-life balance and colleague connectivity perspective, we remained steadfast in our purpose. As highlighted in my interim message, we took decisive, pre-emptive measures right at the beginning of the pandemic to safeguard the wellbeing of our people and ensure the continued operation of our services. We maintained communication with our clients and regulators, providing assurances that we had appropriate structures, processes and protocols in place to deliver effective operations. Above all, we delivered a seamless settlement service for our clients, ensuring 100% system availability throughout the year.

On joining the organization in late 2019, I immediately recognized the validity of the strategy set out by the Executive Management Committee and the Board. The overarching premise of delivering high quality services, while also making the necessary investments in our infrastructure, enhancing our suite of settlement, processing and data solutions, and improving our controls environment, were the right areas to be focusing on in the medium to long term. We have continued to deliver on that strategy and despite the impact of the pandemic, have made good progress.

Product update

From a settlement perspective, we continued to focus primarily on ensuring uptake of CLSSettlement, growing overall third-party participation by 4.3%. We also had the pleasure of welcoming new settlement members Citadel and Nedbank to CLSSettlement in the second half of the year, taking our total number of settlement members to 74. And in late 2020, ANZ became the first bank in Asia Pacific to settle all 18 eligible currencies in CLSSettlement. Volumes in the service reflected the volatility across the market, reaching record highs of 2,664,798 transactions valued at USD13.4 trillion settled on 18 March 2020 compared to lows of 4,026 transactions at USD36 billion settled on 25 May 2020.

As I highlighted in my interim message, effective risk management, operational resilience and efficiency have become even more important for market participants. The Covid-19 pandemic has reinforced the importance of the role we play in ensuring market stability. And while this has not impacted on our overall strategy, it has caused us to revisit our priorities to ensure that everything we do is in support of our vision to deliver targeted, exceptional solutions to the FX market by applying the network, expertise and trust we have worked hard to build.

Following the publication of the 2019 Bank for International Settlements’ Quarterly Review on the rise of settlement risk, we have embarked on a market-wide engagement program to foster dialog on this subject. We published a thought leadership piece ‘Unsettling, the rise in settlement risk’ and have been actively engaging market participants and public policy representatives about how best to deliver an alternative solution to mitigating settlement risk across emerging markets currencies. This engagement has led to us frequently sharing the latest insights on settlement risk at global FX committee meetings, hosting panel discussions among member banks, speaking at major policy-related events and establishing a settlement member working group to explore the development of a payment-versus-payment (PvP) solution for those currencies not currently included in CLSSettlement, that can be adopted by the market with relative ease.

Meanwhile, we have continued to promote netting as an interim solution and are encouraging the community to adopt CLSNet. In the later part of 2020, we signed a letter of intent with Finastra, one of the world’s largest fintech companies, to provide customers of their confirmation match system platform (CMS) access to CLSNet.

From a technology perspective, and by the time of this report’s publication, we will have completed the migration of CLSNet to the cloud and separated it from our settlement infrastructure, thereby enhancing our ability to develop the service more easily, both in terms of functionality and connectivity. These milestones demonstrate the value of CLSNet, and we hope to onboard a significant number of additional clients in 2021.

In addition to CLSNet, we made progress across other areas of the processing business line by onboarding two new compression providers: Capitolis and Capitalab. Both of these services went live at the end of 2020 and join TriOptima under the CLSOptimization banner, a group of approved CLS providers delivering class-leading optimization services to enhance capital use and manage risk.

Our work in data also gathered pace and despite the Covid-19 pandemic, saw moderate growth. We delivered new, enhanced market insight and analysis through data services, including a collaboration with SIGTech’s multi-asset systematic analytics platform to provide tailored, quantitative research and the causaLens AI platform to provide insight into market behavior.

The value of our settlement services and our data analysis is becoming widely recognized across the globe. This year CLS won ‘Best Trading Infrastructure Provider’ at the Waters Technology American Financial Technology Awards, and ‘Best FX Settlement and Risk Mitigation Solution’ and ‘Best FX Market Data Provider’ at the FX Markets Asia 2020 Awards.

Investment program

In my interim message, I highlighted the importance of investing in our infrastructure, resilience and controls framework. Convergence remains front and center, and following its implementation we will have one of the most sophisticated and flexible post-trade technology infrastructures in the industry. We have prioritized safety and resilience in rolling out this technology. Following revisions to the plan early in 2020, our testing program with settlement members and vendors is well underway and we are on track to meet our go live deadline between late Q2 and early Q3 2021, subject to regulatory approval.

We are also making significant headway with enhancements to our controls functions, particularly in risk management and governance as we completed our foundational work in three lines of defense. We continue to make this a priority in 2021, and these investments remain fundamental to our long-term success.

The cost of Convergence, ongoing investments in our technology infrastructure and the separation of our CLSNet infrastructure from settlement will continue to have an adverse impact on our medium-term financials for some time, driven by the investment itself and the accelerated amortization charges associated with the CLSSettlement platform. However, our capital reserves remain well in excess of regulatory requirements.

The Covid-19 pandemic has also caused us to reassess the needs of colleagues and our longer-term technology infrastructure as we continue to work remotely. The likelihood of a return to previous working practices is small and as such, we have established a working group that is actively assessing and implementing revised business practices and technology that will support a new long-term hybrid working model.

Looking to the future

My first full year at CLS has been one of much learning and an appreciation for the dynamics and complexities that come with running a global FMI. I have been very impressed by the dedication and sense of duty that colleagues across this organization demonstrate in their day-to-day roles. Throughout this year, the team remained committed to providing market stability and delivering excellence to the FX ecosystem, while ensuring we met our commitments on what remains a very large change agenda. I have also spent some time reviewing our organizational structure and made some changes to ensure we are well positioned to deliver on our strategy.

The pandemic has also led to a collective recognition that we can and must do more to deliver a comprehensive environment, social and governance (ESG) program. We have made great progress this year, in particular with our diversity and inclusion agenda. Treating all colleagues with consideration and respect has been central to our approach to leading people through the pandemic and into new ways of working. This became particularly evident at several key moments throughout the year, perhaps most notably during the Listening Session in which a number of Black colleagues, against a backdrop of very distressing external events, shared insight into their own life experiences. This was a highly impactful learning experience and helped inspire discussion about what more we can do to support one another, to make CLS an even better place to work and to be a force for good in the wider community.

Building on this, we have mobilized a team to deliver an exciting program in 2021 and beyond. Deborah provides further detail in her ESG report.

As we go into 2021, our investment in product development, infrastructure, and governance and controls remains of critical and strategic importance, but will continue to have an impact on our financials. However, our capital position remains strong and we look forward to continuing to deliver on our strategy. I extend my thanks to the whole team who have worked tirelessly through the year to deliver on our priorities.

 

Marc Bayle de Jessé
Chief Executive Officer

2020 Annual report and consolidated accounts