The Office of the Future

Deloitte - foreword

ARUP – Planning for Future Ways of Working

City of London Corporation – The Square Mile: Future City

DWS – A New Office

Julia Cruickshank – Depositary Oversight in a Virtual World

The Office of the Future: Foreword

DELOITTE

Chris Robinson, Director, Real Estate Consulting
Hima Vaghani, Senior Manager, Human Capital Consulting
Patricia Bradley, Director, Tax
Louise Wilson, Partner, Tax
Payal Vasudeva, Partner, Human Capital Consulting
Tony Gaughan, Partner, Investment Management & Wealth Sector Consulting

The Future of Work is a commonly-used term that features in firms’ forward-looking strategies and industry-wide thought pieces. It can mean different things to different people, and range from a slight increase in homeworking to a complete re-wiring of an organisation’s purpose, people and processes.

One thing is for sure: a number of aspects of what many people perceive to be key elements of the Future of Work have been widely adopted during the pandemic – greater employee autonomy, a heavier reliance on technology, and a more flexible and remote workforce.

Deloitte views Future of Work as three deeply integrated dimensions of Work, Workforce and Workplace. Here, we explore some issues that may shape our work and our workplaces in the years to come. We consider the impact on the physical office, our homes and our cities,and also more specific considerations such as the impact on reward and recognition, the challenges of cross-border working, and making progress in diversity and inclusion.

What do these developments mean for the future of the office and our relationship with it, each other and our clients?

Our concept of the ‘office’ has been changing over recent years; advances in technology have encouraged different usage patterns, ways of working, and layout and design. OUT have gone rows of desks, and IN have come informal work settings, collaboration spaces and amenities.The role of the office as more than a place to get your head down is not brand new.

The COVID-19 pandemic has accelerated the pace of change. Firms have been pitched into a year-long pilot scheme of operating entirely without office space. Whilst few would recognise near-100% remote working as optimal, myths about lost productivity have been disproved, and benefits of remote working have led to the view that a complete return to office working would also be sub-optimal. There is an expectation that the positive elements of home working could, or should, become part of the long-term reality.

However, experience has also demonstrated the undoubted benefits that offices can provide that were largely missing during the pandemic – most notably as hubs of creativity, collaboration and social interaction. A small minority of firms have already declared an intention to greatly reduce their reliance on physical office space going forward.The majority have emphasised the need for office space on an ongoing basis to support activities for which remote working seems less well-suited.

As explored in Article 6 of Deloitte’s Real Estate Predictions 2021, the future use of

office space poses a challenge for Corporate Real Estate functions. Before the pandemic, offices were accepted as a fixed cost; with space proportionate to headcount: hire more people; acquire more space. That link is now about to break: the office will be used with greater purpose, to support specific activities, and not simply as the place where all employees go to work every day.

Just how ambitious firms will be in rationalising their real estate portfolios remains to be seen. Most are refraining from making long-term decisions until we reach a more balanced view over the coming months. But it is likely that we shall see some re-shaping and reconfiguration, and an evolution in the activities that the remaining space supports: face-to-face client interaction, cross-business collaboration, team building, and learning and development.

Investment firms are likely to be part of this general trend. Lessons can be learned from the pandemic, and investment firms will need to adapt to new customer and employee preferences, whilst chasing the cost savings opportunities that may exist.

Expect less space and real estate spend, fewer desks for headcount-intensive back office functions, and a larger proportion of space allocated to engage with clients and colleagues. Investment firms are also likely to be part of these trends when it comes to the impact on client interactions, both in building new relationships and strengthening existing ones. Relationships with existing clients may continue to leverage digital interaction, as they have done fairly successfully during the pandemic when there is a foundation of rapport and trust. However, as we return to the office, prospecting for new clients and relationship building efforts might still benefit from face-to-face interaction. When it comes to working with each other, investment firms have embraced digital technology, reducing the need to travel, and this trend is likely to continue with more mindful decision-making around what justifies the need for travel.

Overall, investment firms have embraced hybrid working more easily than might have been expected – many of the changes in the past year or so are here to stay. In the ‘new normal’ it will remain important in any new

hybrid approach to maintain equitable treatment between those in the office and those at home – this will be a battleground for technology solutions and company culture for months and years to come.

How might the changes impact on our cities and our homes?

It doesn’t take a great leap of imagination to see how a reduction in office space could impact our cities. Anyone who visited the City of London in summer 2020, even when retail outlets were open, would have seen swathes of shops and eateries that had optionally closed their doors. Businesses starved of footfall from office workers had no customers to serve.

Of course, this is far from the long-term reality, as businesses recover and re-open and workforces return to the office. But, as noted in Deloitte’s Voice of the Workforce 2020, compared to other countries in Europe, UK employees are the least willing to return to the office. As reported in Deloitte’s Winter Crane Survey 2020, developers expect that new working patterns could shrink office demand on average by 15%.

With homeworking on the rise, there is likely to be growth or regeneration in ’neighbourhood’ services to meet the needs of the workers displaced from central business districts (CBD). The Crane Survey also noted evidence of greater appetite for flexible office space in non-core city areas as occupiers seek alternative locations in commuter towns or city suburbs.

For many years, a role of the Corporate Real Estate function has been to ’tidy up’ the tail of distributed portfolios; closing small offices and consolidating into city centre HQ buildings.Given that the likely trend will be towards a more purposeful use of office space, mainly for supporting group or collaborative activities, a key question is whether all employees need to be in the same office. The opportunity to reduce costs, by movingout of CBD locations, and to have multiple locations instead of one could lead to a reversal of the consolidation trend of the past couple of decades.

This begs the question: what will be done with office space no longer desired by its previous users? The City of London recently announced a plan to change office space into residential

property. This flexible approach to property use will be key to maximising the value that city centres can deliver in the long term.

A reduced office presence and increased home working also have an impact on the home – where it is located and the activities it must support. In the Deloitte Global Millennial Survey 2020, 56% of all respondents said that if they were given the opportunity to work from home, they would choose to live outside major cities where the cost of living is lower.A long commute is clearly less of a deterrent if individuals have to endure it less than five times a week.

Home working is all very well if the workers have the infrastructure to support it. A second or third bedroom for a home office, a desk, table-top or desk-top space for a second screen, an ergonomic chair, and that all-important super-fast broadband. It seems possible that location preferences may change, with the weight of demand seeking housing further out of the city centre, with lower per square foot values and more space to support working from home set-ups.

Firms will have to consider the support they offer employees in the setting up and management of home working environments. During the pandemic firms have often provided staff with funds to purchase equipment that would usually be available in the office (e.g. the aforementioned desk, ergonomic chair, or monitor). From a ‘nice to have’, going forward this may become more of a baseline expectation for many employees.

And what about key employer / employee challenges such as recognition, diversity and inclusion?

With the shift away from office working towards a more flexible model, we see a number of thorny issues for employers to deal with when engaging with their workforce. What limits should be placed on the location of home working? How can performance be managed and rewarded? Which factors should determine pay?

News headlines in summer 2020 announcing ’work from anywhere’ policies in parts of the financial services sector no doubt prompted some employees to consider renting

an Airbnb in the woods or moving to the Mediterranean coast, and brought a whole new meaning to the term ‘work/life balance’. Alas, the myths were swiftly busted, and the truth of the matter is that ’anywhere’ for most FS employers in fact means ’anywhere within your country’s borders’, with perhaps an allowance of a defined set of days overseas.

There is good reason for this caution. Cross-border working can be fraught with complexity for both employer and employee. Working without proper immigration or regulatory permissions tops the list of things to avoid, as often little remediation is possible after the fact. Less immediate, but no less complex, are the employer payroll and registration requirements, corporate tax considerations, and obligations under local labour laws, which can be triggered when employees work outside their country of employment. The costs of getting it wrong can be steep, both financially and reputationally.

With the shift to more flexible ways of working, some employers are likely to assess whether the traditional models of pay

and performance assessment continue to be fit for purpose. The standard salary, benefits and bonus offering may need to be adapted to accommodate new ways of working. Regional differences in pay/allowances, based on the cost of living, commuting and other factors, may no longer be necessary, for example, when employees are spending more time at home. The menu of benefits offered to employees will need to reflect more diverse requirements to accommodate employee needs, in relation to time out of work, childcare, volunteering opportunities and the like. The focus on variable pay awards delivered at the end of the year may give way to more ‘in the moment’ recognition or outcome/milestone-based reward.

From a performance management perspective, prior to the pandemic, some firms were embedding more feedback loops in addition to the usual year-end individual performance assessment processes. The challenges of working predominantly at home during the pandemic have increased the need for managers to ‘check in’ more regularly on the performance, productivity and personal well-being of their team members.

Where employers embrace greater workforce agility going forwards, we expect this trend to continue. Greater flexibility, however, is likely to put more focus on line managers beingenabled with needed capabilitiesto hold quality conversations with their teams about performance, development and pay. Of course, this must also be balanced with meeting the necessary regulatory requirements that govern performance management and reward processes in the investment firms, including the assessment of financial metrics, as well as non-financial factors such as conduct and behaviours.

In some instances, remote working has been a great leveller. Traditional trappings of status and power such as large offices, executive floors, and waiting rooms have been removed, creating more inclusive environments and more equal interactions where everyone has the same-sized ‘’window’’ in virtual meetings.Conversely, the remote working experience has not been the same for everyone. Senior staff in large firms working in an office at home can have a very different experience compared to junior staff in a flat share working at a kitchen table or in a bedroom.

The impact of remote working on employee wellbeing has also been much debated. It has been claimed that the lack of separation between work and life, and back-to-back zoom calls have had a negative impact on health and wellbeing. However, in the Deloitte Global Millennial Survey 2020, two-thirds of respondents said that working remotely gave them a better work/life balance.

A return to the office over the coming months will provide yet more lessons on which to reflect, including crucially how a hybrid approach to working (sometimes in the office, sometimes remote) can operate in practice and so whether it will become a long-term feature. As is often the case, the devil will be in the detail; how to improve and not degrade, diversity and inclusion, and how to promote equitable experiences across firms, in all working locations.

Planning for Future Ways of Working

ARUP

Emily Buddin, Senior Planner
Jeremy Edwards, Director
Martin Reed, Associate

The last year has been characterised by working from home, video calls, and juggling work and non-work tasks, all while formerly buzzing town and city centres have lain dormant.

Certainly, the COVID-19 pandemic has profoundly influenced the ways in which desk-based work is undertaken.

However, many of the effects are not new to us: the recent pandemic has accelerated pre-existing developments in behaviours, technologies, and use of space.

What will the future hold for our ways of working? This article considers the importance of genuinely flexible working environments and the opportunity to create better working experiences together, for the benefit of both employers and employees.

Change in working environments

Some traditional roles of the office, such as providing access to shared infrastructure (e.g. printers), were already becoming less important prior to 2020: people had been ‘WFH’ more often; technology had been improving to allow greater remote access; and employee wellbeing had been a greater priority for many companies.

Office design has increasingly been placing greater focus on social spaces and connectivity, providing space for dynamic, collaborative working within buildings but also creating meaningful connections with the surrounding local area through high-quality public realm.

In numbers

A 2018 survey by Knight Frank of senior executives at 120 global companies found that 44% see flexible space making up a fifth of their office space in the next three years, with 16% seeing it making up half.

The trends in our commercial working environments reflect a greater awareness of environmental and social issues. We are more aware, for instance, of the linkages between wellbeing and productivity, while new building systems, building designs and transport planning have supported a trend towards zero carbon. The necessities of social distancing and lockdown have given many of these concepts critical mass – after all ‘telecommuting’ is not a new concept – and has forced an acceleration of behaviour changes that better align with these values.

Some lessons from the pandemic

Technology has freed us from the necessity to be tied to a permanent office location. Indeed,

from physical to virtual spaces, there are an increasing number of platforms that make up what we consider to be the ‘workplace’. As the environment around us has changed, there has also been a shift in how we utilise and prioritise our time over the course of a working day.

The experience of working from home has affected people in many different ways. For some, it has meant more flexibility, less commuting, greater informality. Local communities, supporting retail, and air quality have all benefited, centred around an increase in walking and cycling and ‘staying local’.

For others with less space or where the home competes with multiple other functions, the situation has felt more challenging. We are only beginning to see how our mental health has been affected by the insular nature of working from home; the full implications will likely be played out for many years.

Absence makes the heart grow fonder, as the saying goes, and

the strengths of working in offices have been re-evaluated as we consider what we have been missing.

For those in the collaborative and creative industries, there is little doubt of the benefit of face-to-face engagement, chance encounters, forming social bonds, and offering senior guidance to younger colleagues. The supporting economy of retail, culture, and leisure – important and enjoyable aspects of life – are also directly reliant on footfall. These elements could spur a return to our offices, but unlikely a return to the pre-pandemic norm, at least for a while.

In numbers

According to a survey of 2,000 office workers conducted by the British Council for Offices, employees at all levels intend or hope to divide their time in future between their homes and their workplaces, with 62% of senior executives and 58% of entry-level workers wanting to alternate. The future of employee preferences continues to be in flux and only time will tell as to how this will translate into action post-lockdown.

What could change look like?

The pandemic has made us all stop and think about the future. Some businesses have pledged to allow employees to work from home full- time, or to commit to a significant reduction in their office portfolios. Others have been supportive of a return to a pre-COVID normality or a hybrid future.

Changes to the workplace present a major opportunity for organisations to place employee wellbeing at the heart of business planning.

We consider the following key issues to be critical for businesses and the government as we emerge from the pandemic:

A greater focus on physical and mental health to support wellbeing, including active travel and improved nutrition;
A better (and less frequent?) commuting experience, with a focus on prioritising sustainable and active modes of transport;

Improved public spaces to encourage active lifestyles and social contact, both near offices and for those at home
Prioritising collaboration and wellbeing as part of daily office life
Future office configurations and locations focused on quality, and connectivity, with access to leisure, culture, and amenities

Use of new technology to improve workplace arrangements through, for instance, smart building operation, enhanced use of sensors to reduce touch, and inclusive meeting platforms
Managing the physical and emotional effects of social distancing on spaces and how we travel

Promoting physical and mental wellbeing at work White Collar Factory rooftop running track © Rob Parrish

Enhanced commuting experience (Herald Square before (top), and after (below) © DOT)

Preparing for the future

The opportunity to redefine the role of the workplace could be transformational. A positive commute and workplace experience is an essential component in a thriving business and workforce. Success in productivity or ‘bottom line’ terms is likely to be tied to how employers and employees work together to achieve a balance during this period of transition.

Any hybrid working arrangement needs to be truly flexible, benefiting both businesses and employees. Reducing office space and enforced hotdesking or remote working may save business overheads, but they also shift costs over to employees. Ironically, these ‘flexible’ options are fundamentally as inflexible as enforcing employees to work in the office five days a week.

Employers should establish a set of guiding principles for the workplace and be willing to experiment with office layouts and workplace arrangements. This will require a collaborative and inclusive approach that is rooted in listening-based, active engagement with employees.

Improved public spaces One Melbourne Quarter © Arup

Focus on collaboration, interaction and end-users Sky Central © Hufton+Crow

We expect that the lasting effects of the pandemic on the workplace will be heavily informed by the nature of investments made to encourage patterns of behaviour.

Businesses will benefit from their investment in employee wellbeing and office quality, and more generally, public sector investment in active and environmentally-based transport strategy and ‘workplacemaking’ will significantly benefit local communities and society as a whole.

Several significant decisions lie ahead, and the future remains uncertain. With government support, an employee-first approach could contribute to a healthier, happier, and more productive workplace. We recommend a collaborative approach between businesses and government to reimagine and enhancing our working experiences .In spite of all the hardship that the pandemic has brought, it has

also presented us with a major opportunity to revitalise our towns and cities, where people will once again be able to interact, collaborate and thrive.

The Square Mile: Future City

City of London Corporation

Giles French, External Affairs Director

When the pandemic began, the working day population of the City of London fell by around 98%. Offices were silent, restaurants and shops closed, and roads were empty. As the long-term custodian of the Square Mile, the City of London Corporation has worked throughout the pandemic to support businesses and to prepare for the economic recovery.

Since last year we have been talking to businesses of all sizes in the City, to understand how the pandemic has impacted their ways of working, how they plan to use their workspaces and technology in the future, what that means for their operating model, and how we can create an environment that gives their employees

and clients the experience they want in the City.

This work has informed our new recovery plans for the City of London, The Square Mile: Future City. Three themes run though the recommendations: innovation, inclusion and sustainability. These reflect the priorities we’ve heard from businesses and stakeholders in the City. They are the qualities they prize and which they believe will continue to make the Square Mile an attractive place to locate and grow business.

Many of the fundamentals remain the same, even if there has been an extraordinary acceleration in the adoption of technology

and flexible working patterns. Both changes are here to stay, but there was an overwhelming commitment to retaining a central London hub.

Businesses told us they value bringing together their teams to develop corporate culture, to train and develop skills, and most importantly of all to innovate.

Innovation is crucial to the City’s continued success and competitiveness. Businesses still want to be located alongside their clients, customers and competitors, and bring together their employees to create the products and services their customers want. The last year has demonstrated the importance of adaptability, resilience and technological adoption. We want to cultivate and nurture high potential businesses to start up, scale up, and adapt. The City is a fantastic place to broker partnerships between incumbents and disruptors: providing an ecosystem for businesses to access talent,

capital, workspace and advice. To be successful, that will need the right actors to participate in this ecosystem and to bring them together, physically or virtually, to create the conditions for business growth.

The importance of being able to recruit and retain a talented workforce was raised at almost every conversation we had with businesses. Talent is the number one priority for businesses, and they want to create an environment that is attractive to their employees and their customers and clients. Businesses large and small said that it was the factor that sets the City apart from international competitors. That means it will still be vital to be able to recruit and bring talented people from around the world to work in the City. However, it is equally important to be widening the domestic talent pool, attracting more people from different backgrounds that have not traditionally seen the City as a place to use their skills and abilities. We will work with public and private sectors to scale the work we do to improve the domestic skills base, tackle issues

inhibiting socio-economically diverse groups progressing within our sector, widen access of under-represented groups into financial and professional services, and making the visa regime as efficient a process as possible.

The strength and attractiveness of the City’s ecosystem was raised repeatedly. We will want to build on its existing strengths, with a focus on encouraging those businesses and technologies that will drive future growth, such as FinTech, LawTech, green finance, AI and the creative industries. Underpinning all of this is data. We want data driven businesses to use the City as their ecosystem to test ideas, develop new products, raise capital and attract talent. Siloes have been broken down during the pandemic and there is an opportunity to attract a wider range of these innovative businesses that don’t currently see the City as an integral part of their ecosystem.

The experience of workers, visitors, residents and others when in the City is crucial to the on-going attractiveness of the Square Mile, as each community is essential to the on-going viability of retail, hospitality and culture.

Businesses can control the environment in the workplace, but expect a high standard of these services for their employees and clients. Many international businesses use their City of London office as an international hub for conferences and employee training. That is in large part due to the overall experience of what being in the City provides.

The City of London Corporation wants to ensure that those living, working and visiting the City want to spend more time here.

If more flexible working patterns mean workers coming into the City for fewer days of the week, we want them to maximise and enjoy the time spent meeting clients, collaborating with colleagues and socialising. The fundamental question our recovery work has sought to answer is: what is it going to take for people to come to the Square Mile? Simply put, it has to be an attractive and engaging place to spend time. If workers want to be there, so too will firms. We envision a City brimming with life.

We will work with partners to animate public space and promote the cultural offer of the City.

The physical infrastructure and public environment are also crucial to the City’s attractiveness. We will work with partners in the property and development sector to provide flexible and adaptable commercial workspace for businesses of all sizes. There is likely to be much more need to have space where people can come together and collaborate, not just work at fixed desks. This will be underpinned by excellent digital infrastructure, renewable energy networks and a sustainable and resilient built environment across the Square Mile. The City Corporation has already announced its ambitious target to make the Square Mile net-zero by 2040. We want the City to lead by example when it comes to sustainability, and to the global leader in helping the rest of the world achieve their climate objectives.

The City’s streets, gardens and public spaces will be attractive places to spend time. We will accelerate our plans to rebalance vehicle use, prioritise walking, enable cycling, improve air quality and provide more public space. The experience of travelling through and spending time in the Square Mile must be world class, for the benefit of residents, visitors and workers alike.

There is no doubt that the pandemic has greatly accelerated new trends in the way we all work. Nor will things just go back to how they were before. However, the fundamentals for what makes a location a great place to do business will remain the same. To attract the best people, you need the right physical infrastructure, good transport, great culture and exciting leisure. At the City of London Corporation, we’re confident about the future. We will work with businesses in the years ahead to ensure the Square Mile is the world’s most innovative, inclusive and sustainable business eco-system, an attractive place to invest, work, live and visit.

A New Office

DWS

Sam Alexander,
UK Chief Operating Officer, DWS

In March 2020, DWS were fortunate to be sitting on an expiring lease when COVID-19 hit. This enabled us to select our new office with the hindsight of 12 months experience of remote working. It has also given us time to consult with our employees on how they want to work in the future and inform our vision for the future of work.

Before COVID-19, a change in working patterns had started to emerge. Many were embracing the greater flexibility we were offering to work from home one or more days a week. While those in the office were predominantly using this time to collaborate together as a team on deals, projects, to meet with clients and investors, and to run due diligence days.

This gave us the opportunity to re-think the type of space we needed to remain fit for the future – and we are convinced that we now have a world-class location at 45 Cannon Street that perfectly aligns with our values.

We will become a prime tenant in the building which will ensure our staff, clients and investors have the best experience, from arriving at the front reception desk through to our high specification floor space. The office is configured appropriately for the latest working practices, with collaborative spaces, several meeting rooms and an impressive meeting area for our clients and investors. All are perfectly suited for running face-to-face due diligence days and investor briefings with both clients and investors when it is safe to return to the office. However, we remain committed to working with and supporting our clients and investors in the way they want to engage with us in the future.

The new building also boasts a number of modern facilities for staff to use and later this year we expect to launch workplace management technology which will enable staff to book office facilities from their mobile phone.

This has all taken place against the backdrop of the COVID-19 pandemic, where the vast majority of our employees have been working from home for over 12 months.

Like many global companies, there was a degree of anxiety around how much disruption this would cause, but we quickly found that technology was allowing us to continue uninterrupted and to thrive as a business.

Much consideration and support has been given to the wellbeing and mental health of our colleagues as we move through these uncharted waters and different flexible working arrangements have been embedded based on a case-by-case basis – particularly where we have working parents who are juggling their work with home schooling their children or caring for elderly family members or relatives.

Equally important was to ensure that all of our colleagues had the necessary equipment they needed to successfully work from home – rather than having to relying on their own personal devices. To do this we set about distributing new laptops, monitors, docking stations, and other office equipment where this was required.

By closely collaborating with our Technology & Operations team, we’ve also been able to embrace new ways of working and we

continue to review and onboard new communications platforms and vendors which offer us a safe, secure and compliant environment to communicate with our clients and investors.This has been particularly important for our business given the opportunity to meet face to face or to travel overseas has no longer been possible. We are now planning what our return to the office will look like. In the early stages of the pandemic last April, we asked our colleagues to tell us about their experiences of working remotely. Many told us that they could be just as productive when working from home as they were in the office and a significant number said that they would like some degree of remote working in the future.

Since then, a “Future of Work” programme has developed high level design principles and plans that will enable the majority of employees to have some kind of long-term remote working arrangement when it is safe to return to the office. As we continue to develop our plans for how this model will work in the UK, we recently reached out to our colleagues again on what they need to be effective and

will use this information to determine our next steps on this important topic. One of the options on the table for us is a hybrid model which will allow our colleagues to determine how they split their time between working from home and working from the office in the future. This takes into account our experience of remote working and the successful use of technology throughout the pandemic.

The results we have experienced have only reinforced our belief that by offering greater flexibility to our colleagues and giving them a choice in how they wish to work, we will see the firm continue to thrive – as has been evidenced over the past 12 months.

As things stand today, we are planning to invite colleagues back to the office towards the end of July, but will continue to be led by the UK Government’s communications – as we have done since the start of the pandemic.

Depositary Oversight in a Virtual World

Julia Cruickshank,

Head of Business & Regulatory Affairs, UK Trust & Depositary, BNY Mellon and Chair of the Depositary & Trustee Association

The views expressed within this material are those of the contributors and not necessarily those of BNY Mellon.

The role of the depositary is critical to investor protection. Through our oversight of the fund manager in its operation of the funds, depositaries ensure that funds are managed in accordance with the regulations and the investment mandate.

On-site due diligence

Whilst, day-to-day, much of a depositary’s oversight is desk-based, a key component of the depositary’s overall oversight programme is its onsite due diligence of the fund manager and, where relevant, their appointed administrators. This is a well-established model, depositaries will visit the fund manager or administrator’s offices on a regular basis, talk to their staff, see and test their processes and controls first-hand.

The disruption and uncertainty caused by the COVID-19 pandemic affected the depositary’s ability to undertake its oversight using traditional means, at a time when the importance of the protection a depositary’s oversight brings to investors was at its most critical.

A key imperative for depositaries has been to maintain the integrity of our oversight despite these constraints, and indeed to enhance it because of them.

This sudden and unexpected shift to virtual oversight visits has come about in stages. In the early weeks of lockdown, the temptation was simply to delay for a month or two. As it became clear that restrictions were not to be transitory, and with the implications of delays for the robustness of the overall oversight programme, and the threat of bottlenecks following the eventual reopening, depositaries had to quickly adapt their programmes to a virtual setting. Remote sample testing had hitherto been a fairly limited practice, and early challenges centred around data security, confidentiality and disclosure concerns. As time has gone on, that early reticence has faded and firms have been more willing to share information electronically.

Whilst we have seen improvements over time, the lack of a common platform and the use by firms of a myriad of systems and tools for conferencing and data sharing, overlayed with individual firms’ own corporate digital and cybersecurity policies, have resulted in a number of practical obstacles. This has been addressed in a variety of ways, including through the use of data rooms or provision of read-only access to portals; increased use of video conferencing and screensharing for walk-throughs and sample testing; and the sending of electronic copies under terms of non-disclosure agreements. There remains scope for improvement in this space, as the technology catches up with the industry or, perhaps more aptly, the industry catches up with the technology.

Whether the willingness to allow electronic sharing of information and sampling will continue on a permanent basis is as yet unclear. Where there is an alternative to electronic sharing by depositaries returning to site, the readiness to accommodate non-traditional means of testing may begin to give over to the concerns we observed at the start. We do anticipate that firms and regulators

will continue to expect some level of onsite testing when it becomes possible again, however the extent of this remains to be seen.

Ultimately, it seems likely that the industry will transition to a hybrid model, with a blend of virtual pre-visit diligence complementing some work onsite. This may well take time to find its balance. Although, at time of writing, lockdown measures have slowly begun to ease in parts of the country, it is likely to be many more months before we see a wider return to offices, and some time after that before firms begin to open their doors to third parties.

With the likely increase in flexible working, depositaries visiting firms’ offices may nevertheless find themselves interacting with staff remotely, where they themselves are working from home.

The ways in which depositaries operate, and how we engage with our fund manager clients and our regulator has changed in other ways too.

The FCA have been supportive of a shift to electronic signing of documentation when submitting application forms. Signing of legal documentation has moved to electronic document signing platforms in a number of cases. There has been a very quick shift to paperless working, a greater challenge for some than others it is fair to say. With the pace of regulatory change, to which there seems to have been no discernible let-up, many of us have adjusted to studying large and detailed papers on-screen, no doubt saving a remarkable amount of paper and printing costs.Whilst, at times, there is no substitute for a face-to-face meeting, both from a relationship perspective, and to support effective depositary challenge, the speed at which virtual meetings can be convened does allow for the very quick discussion of urgent issues.

This is not new, but there is a sense that it has evolved, perhaps due to the increased normalcy of video usage.With the absence of travel to and from meetings, both from a time and cost perspective, firms can speak to and ‘see’ each other far more frequently.

That said, there is a desire to hold on to the interpersonal relationships that have been built up over many years.

The industry has proven that remote working can be effective, indeed very much so, however it can bring with it increased risk of errors, reduced oversight and control, and greater risk of fraud. Conversely, flexible working carries many much-espoused benefits, supporting staff in balancing personal commitments, and for mental health.

Somewhere, in between all of these pros and cons, depositaries are considering the impacts of flexible and home working on the operation of funds.

No longer through the concentrated lens of a global disaster recovery scenario, but considering how some of these changes are embedded into everyday practices and operating models now and in the future.

Depositaries will wish to gain comfort that the fund manager and its service providers are able to maintain the standards of controls and to mitigate the associated risks by adapting their operating models as required.

Depositaries will be asking a number of questions:

Can the fund manager or its administrator cope effectively with dealing cut-off points and associated processes?
Are staff adequately trained and able to work from home with less direct oversight?
Are systems and business continuity plans sufficiently robust?
Is the fund manager’s oversight of its outsourced service providers sufficiently vigorous?
Have there been associated increases in errors and breaches
Is information security a priority with effective controls in place to protect data?

This is likely to manifest itself in the evolution of how depositaries design and carry out their oversight models, not only in terms of whether the oversight itself can be undertaken remotely, but also how oversight can be adapted to account for these novel risks as a result of the ways in which funds are operated in the future.

Where to next?

Whilst the changes triggered by the experiences of the last year were, to a large extent, swift and unplanned, they are certainly not all going to be temporary. These experiences have been a catalyst for new ways of working, and new ways of depositaries conducting their oversight. Much of this is for the better, but much of this introduces new and different risks. As an industry, we must be prepared to identify these risks and to adapt in order to mitigate them. This willingness to change, to innovate and to grow will allow depositaries to continue to serve the interests of our industry and the investors who have entrusted their assets to it, with even greater strength and resilience as we navigate the challenges and opportunities that lie ahead.