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Em Conversa South America Wealthtech

Em Conversa: Supporting Cross Border and Local Market Connectivity With Calastone

As of April 2023, there were 1,000 active fintechs in Latin America (LatAm) with a vast majority focusing on financial inclusion, tackling the issue of 70 per cent of the population not having access to formal financial services. Em Conversa looks to uncover what the future of fintech could look like in the region, following a $2.1billion valuation in 2022.

For a company to capitalise on the region’s growth, the right people need to be at the helm. In April 2024, Calastone, the global funds network made a change to ensure this was the case and announced the appointment of Nelson Eduardo Pinto Pereira as head of Brazil. The move looked to complement and advance the company as it accelerates its offering in the country.

We sat down with Pereira to learn about how he is settling into the new role and how Calastone is accelerating communications avenues in the Brazilian investment sector.

Can you tell me more about the company and your role within it?

Calastone is the world’s largest fund transaction network, connecting 4,000+ financial institutions, across 55 countries and carrying nearly $4trillion a year. My background is in asset servicing at global financial institutions such as Citi; the Brazilian exchange B3; and I was the first head of SWIFT in Brazil – so I immediately saw the potential of a network business like Calastone in Brazil.

After a period of consulting with the company, I have now joined to lead building out our network in Brazil.

Calastone’s network connects fund managers, fund distributors and fund administrators through electronic message translation, enabling the seamless trading of mutual funds. We integrate with each counterparty using the technology and file format of their choice – usually an API or SFTP integration – so each client only sends and receives information as they would like to.

What this means is that you achieve data normalisation across the mutual funds market in Brazil without banks and fund distributors having to make any changes to their technology, bringing increased efficiency to the market.

Calastone has been meeting with potential players in Brazil for the past year and we recently announced that J.P. Morgan Asset Management in Brazil is now connected to our network for investment funds processing. We have already spoken to over 40 financial institutions in the market and have determined that Calastone’s technology is the digital solution that will help the growing industry in Brazil continue to scale.

What are some digital investment trends we’re seeing in Brazil?

Brazil has some of the world’s leading digital banks and open banking regulatory frameworks and we see this only accelerating. Recent legislation, such as CVM Resolution 175, is bringing the wealth and asset management regulatory frameworks more aligned to the European model.

The industry has been going through a transition from a closed architecture model – banks distributing their own products – to an open architecture model where you have seen the growth of fund platforms offering multiple third-party funds in addition to the firm’s own.

It is also making it easier for Brazilians to invest their money directly offshore; and for foreign investors to come directly to Brazil. We anticipate that the opportunities for retail investors to access offshore investments will continue to grow.

What is Calastone doing to improve the digital investment sector in Brazil and LatAm?

Data normalisation and visibility. Because Brazilian fund platforms and administrators will be able to send and receive information to multiple fund counterparts using only one integration, they will also be able to see real-time the status of all of their subscriptions and redemptions. The asset managers will also be able to see this same information. We are allowing flexible and efficient communications amongst the fund service providers.

This will make the fund order lifecycle both more efficient and significantly cheaper to operate, as firms will not have to build and maintain integrations to multiple counterparts.

At present, I can also reveal that Calastone has partnered with BRITech for domestic transactions. In essence, through a single connection to Calastone, over 200 wealth managers and asset managers, who are clients of BRITech, can transmit orders to their respective fund administrators.

How does the Brazilian digital investment sector compare to that of the rest of the world?

Brazil has some of the most forward-thinking client engagement offerings in the world; but like many firms in the US, Europe and Asia, struggles with friction between newer client interfaces and legacy back office systems. This is the value Calastone brings, enabling translation between, for example, the latest APIs and legacy file based integrations.

What are some unique challenges associated with the region/country in the digital investment space?

In Brazil especially you often see ‘Mirror Funds’ which cause the duplication or triplication of processes; and you also have the come-cotas (tax mechanism) process twice a year which causes significant friction as huge volumes of redemptions take place for every unit holder.

There is also significant regulatory overhead from the introduction of CVM 175, which is changing the relationship between the fund administrators and the fund managers. The new regulation enhances the need for transparency and data sharing between asset managers and distributors, aiming to foster better-informed investment decisions and bolster investor trust.

It also necessitates a balance of responsibilities and calls for a more efficient communication flow between providers. Previously, the fund administrator primarily handled these tasks, but now, order flow must be efficiently managed among the distributor, asset manager, and fund administrator alike.

CVM 175 also enables cross-border fund distribution for the first time in Brazil, significantly enhancing the prospects for all participants in the local funds market.

Via Calastone’s unique global fund network, which makes the entire trading process digital and transparent and supports local market connectivity, Calastone enables Brazilian firms to comply with the regulation and connect to the rest of the international funds market. Digitalising operations, automating processes, and enhancing data transparency across the value chain will ultimately lead to more efficient, faster, and lower-cost transactions.

Plans for the future (roadmap and growth plan)

We are 100 per cent focused on growing our local network in Brazil, enabling the Brazilian funds industry to improve transparency and visibility; as well as reducing the cost and risk across the fund order lifecycle. We have established a local entity and we have goals to grow our local headcount in the market

Final thoughts

Brazil is one of the largest and most important global players in the funds market with industry AuM (assets under management) of over BRL 8 trillion, with less than 5% allocated internationally. The rising trend of M&A activity in the market signals significant interest, indicating that we are likely to witness further growth in this area. The way the industry has been set up means the old technology solutions are no longer fit for purpose. The market needs new technology solutions that enable the industry to scale.

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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