Tomorrow’s world
03 Oct 2019
How far has asset servicing come in reaching its full potential in utilising the technologies available to it? Various industry experts explain their thoughts
Image: Shutterstock
Advancements in technology, especially artificial intelligence (AI) is unprecedented, it’s changing the world at a fast and furious pace, from flying drones and driverless cars, automated checkouts and robot dogs.
But when we apply this to the context of the back-office, is asset servicing truly where it needs to be to meet the demands and operational challenges of today’s world, while remaining competitive in the 21st Century market?
One panellist at this year’s FundForum International Conference in Denmark suggested that other parts of the financial services industry see the asset servicing sector as “dinosaurs” when it discusses technology.
He said: “People want customisation, their own services and we have to adapt–the one size fits all notion is over.”
So what can the back-office really do to tackle this problem, if there even is one, and is the automation in the back-office really seen as Jurassic and out of date? The views certainly differ.
Kevin O’Neill, global head of buy-side at Fenergo, says: “Many traditional asset servicing and asset management firms are challenged with manual and outdated processes, procedures and systems, in addition to poor governance and oversight.”
He adds: “The drive towards digital transformation is led in equal parts by the need to tackle operational challenges, as well as the need to deliver digital client journeys that make for more satisfied customers. As more and more asset management and servicing firms realise the benefits, adoption will gather pace.”
Stephen Bayly, chief information officer at HSBC Securities Services highlights in quantitative terms how asset servicing is currently transforming the financial services industry.
He says: “The current high rates of over 90 percent straight-through processing for mandatory events—which is over 85 percent of overall volumes—tends to highlight that the industry as a whole has done good work in automating asset servicing.”
Building on legacy systems
So is the trend moving toward building on legacy systems or starting again, effectively, from scratch? Are legacy systems in the autumn of their years and to what extent is artificial intelligence and/or machine learning really taking over?
As Paul Ferreira, senior ICT architect at Maitland, highlights: “Large institutions do not have a choice in most cases, but the new standards for robotics and open application programming interfaces allows businesses to create an efficient interface to these legacy platforms.”
Meanwhile, Brian Collings, CEO of Torstone, says the trend has moved from legacy systems more toward cloud-based systems. Collings explains that firms are using technology that has the capacity to support AI, machine learning and new technologies.
He outlines: “A crucial shift is into cloud-based systems that can be upgraded easily without a need for on-premise deployment, and which have a massive capacity for data processing. AI must be trained using very large data sets and so cloud-based technology will become a prerequisite.”
However, O’Neill cites that in some cases there are those in the industry who are really in a quandary about what to do.
He suggests: “Some asset management firms are stuck in a tangled web of legacy technology architecture and are making it worse by stacking solutions on top of the legacy plumbing rather than integrating. This creates a domino effect of solutions that don’t interact and forms bottlenecks.”
Josh Sutton, CEO of Agorai, says that businesses want to maximise the value received from legacy systems before sunsetting them and that is natural.
Sutton adds: “If you’ve spent millions of dollars implementing a rules-based compliance system, you’re going to be loathed to completely retire that system in favour of a machine learning solution that may not be fully tested across all asset classes and jurisdictional regulatory regimes.”
“Incrementally deploying the new, AI solution while retiring aspects of the legacy system make perfect sense from a risk management perspective.”
Also weighing in is John Mizzi, chief strategy officer for Bond.One, who says the industry is at an “inflection point” right now.
Mizzi explains: “Established asset servicing firms recognise they do not have nimble capabilities to optimally capitalise on emerging technology trends and are now more inclined to look outside to third parties to introduce latest technologies.”
AI and robotics
How much are AI and robotics changing the industry, and at what kind of pace? Allen Cohen, digital officer at BNY Mellon asset servicing, cites that the prime focus has been on turning manual processes into automated ones, and this continues apace.
Sutton adds that AI, like the internet, electricity, and steam power before it, “is on a path to ubiquity”.
He says: “It’s not a question of whether or not businesses will adopt AI, it’s about what particular aspects they will use and how they’ll go about it. Every industry segment will have leaders that will lead to the adoption of AI-based tools.”
“Those first movers will reap the lion’s share of benefits and force followers and laggards to become AI-enabled purely from a survival perspective. Instead of being forced into this situation, businesses of all sizes should be reviewing their business and data strategies with AI in mind.”
Demi Derem, general manager of investor communications solutions at Broadridge, indicates that in a recent Broadridge AI Outlook Survey, where respondents ranked their top motivations or desired outcomes for investing in AI, nearly half of respondents, 46 percent, cited legacy technology as their top challenge.
Derem adds: “Well managed boards make it part of the agenda to discuss investments in innovation. They also monitor the threat of disruptive start-ups, whom some believe are also driving the investment in AI by financial services companies.”
Under pressure?
But, considering the aforementioned, do businesses run the risk of overusing technology, just to keep up with the trend–almost for the sake of it?
Ferreira indicates that not making any movements in the technology space will “leave you behind”, however, “you do not have to attempt solving all problems now with ‘new tech’.”
Kirkeby comments: “There will always be a certain level of lip service being paid to emerging trends such as blockchain, AI, machine learning and robotic process automation. But firms need to take the necessary time to assess the business benefits before reacting to hype.”
Bayly surmises the pressure is almost a good thing–a catalyst for change. He says: “The deemed pressure, and market hype, acts as a catalyst to start open discussions and experiments to evaluate the art-of-the-possible which would otherwise not take place, however, continued investment is always backed by a solid business case.”
Collings mirrors that the industry is aware of what it is doing with taking advantage of technological advancements. He says: “Companies are under pressure to keep up, but not at the cost of being impetuous. They are assessing the viability of legacy systems, which is decreasing by the day, and asking if their technology infrastructure can be improved in such a way that allows them to incorporate AI and ML technology in the future.”
The future
So what is earmarked for the future in terms of trends and the changes that we will see from technology, what will it provide custodians and the back-office, specifically?
Mizzi predicts that banks will continue to look more like technology companies, “with an emphasis on recruiting the best and brightest engineers to power the technical engines that will create competitive differentiation among the large financial services firms”.
Derem indicates that there is still a “huge shortage” of skills in AI and data science.
He explains that as the tools needed to develop AI improves and the broader workforce learns and adapts to this technology, “we will see an acceleration in adoption”.
Although the industry is slowly moving towards AI and blockchain-driven solutions, and with the movement in market infrastructure space in Australia, Hong Kong, Singapore and Switzerland, to name but a few, Bayley says: “We are pretty confident that asset servicing will become even more driven by technology and there is a very high possibility of having industry utilities being created in this space.”
Cohen concludes: “We are only at the beginning of the journey for the potential of AI and data analytics. So far, the industry has gained perhaps 5 percent of the potential. The velocity of today’s technical innovation is something I’ve not previously witnessed during my 30 years in this industry.”
But when we apply this to the context of the back-office, is asset servicing truly where it needs to be to meet the demands and operational challenges of today’s world, while remaining competitive in the 21st Century market?
One panellist at this year’s FundForum International Conference in Denmark suggested that other parts of the financial services industry see the asset servicing sector as “dinosaurs” when it discusses technology.
He said: “People want customisation, their own services and we have to adapt–the one size fits all notion is over.”
So what can the back-office really do to tackle this problem, if there even is one, and is the automation in the back-office really seen as Jurassic and out of date? The views certainly differ.
Kevin O’Neill, global head of buy-side at Fenergo, says: “Many traditional asset servicing and asset management firms are challenged with manual and outdated processes, procedures and systems, in addition to poor governance and oversight.”
He adds: “The drive towards digital transformation is led in equal parts by the need to tackle operational challenges, as well as the need to deliver digital client journeys that make for more satisfied customers. As more and more asset management and servicing firms realise the benefits, adoption will gather pace.”
Stephen Bayly, chief information officer at HSBC Securities Services highlights in quantitative terms how asset servicing is currently transforming the financial services industry.
He says: “The current high rates of over 90 percent straight-through processing for mandatory events—which is over 85 percent of overall volumes—tends to highlight that the industry as a whole has done good work in automating asset servicing.”
Building on legacy systems
So is the trend moving toward building on legacy systems or starting again, effectively, from scratch? Are legacy systems in the autumn of their years and to what extent is artificial intelligence and/or machine learning really taking over?
As Paul Ferreira, senior ICT architect at Maitland, highlights: “Large institutions do not have a choice in most cases, but the new standards for robotics and open application programming interfaces allows businesses to create an efficient interface to these legacy platforms.”
Meanwhile, Brian Collings, CEO of Torstone, says the trend has moved from legacy systems more toward cloud-based systems. Collings explains that firms are using technology that has the capacity to support AI, machine learning and new technologies.
He outlines: “A crucial shift is into cloud-based systems that can be upgraded easily without a need for on-premise deployment, and which have a massive capacity for data processing. AI must be trained using very large data sets and so cloud-based technology will become a prerequisite.”
However, O’Neill cites that in some cases there are those in the industry who are really in a quandary about what to do.
He suggests: “Some asset management firms are stuck in a tangled web of legacy technology architecture and are making it worse by stacking solutions on top of the legacy plumbing rather than integrating. This creates a domino effect of solutions that don’t interact and forms bottlenecks.”
Josh Sutton, CEO of Agorai, says that businesses want to maximise the value received from legacy systems before sunsetting them and that is natural.
Sutton adds: “If you’ve spent millions of dollars implementing a rules-based compliance system, you’re going to be loathed to completely retire that system in favour of a machine learning solution that may not be fully tested across all asset classes and jurisdictional regulatory regimes.”
“Incrementally deploying the new, AI solution while retiring aspects of the legacy system make perfect sense from a risk management perspective.”
Also weighing in is John Mizzi, chief strategy officer for Bond.One, who says the industry is at an “inflection point” right now.
Mizzi explains: “Established asset servicing firms recognise they do not have nimble capabilities to optimally capitalise on emerging technology trends and are now more inclined to look outside to third parties to introduce latest technologies.”
AI and robotics
How much are AI and robotics changing the industry, and at what kind of pace? Allen Cohen, digital officer at BNY Mellon asset servicing, cites that the prime focus has been on turning manual processes into automated ones, and this continues apace.
Sutton adds that AI, like the internet, electricity, and steam power before it, “is on a path to ubiquity”.
He says: “It’s not a question of whether or not businesses will adopt AI, it’s about what particular aspects they will use and how they’ll go about it. Every industry segment will have leaders that will lead to the adoption of AI-based tools.”
“Those first movers will reap the lion’s share of benefits and force followers and laggards to become AI-enabled purely from a survival perspective. Instead of being forced into this situation, businesses of all sizes should be reviewing their business and data strategies with AI in mind.”
Demi Derem, general manager of investor communications solutions at Broadridge, indicates that in a recent Broadridge AI Outlook Survey, where respondents ranked their top motivations or desired outcomes for investing in AI, nearly half of respondents, 46 percent, cited legacy technology as their top challenge.
Derem adds: “Well managed boards make it part of the agenda to discuss investments in innovation. They also monitor the threat of disruptive start-ups, whom some believe are also driving the investment in AI by financial services companies.”
Under pressure?
But, considering the aforementioned, do businesses run the risk of overusing technology, just to keep up with the trend–almost for the sake of it?
Ferreira indicates that not making any movements in the technology space will “leave you behind”, however, “you do not have to attempt solving all problems now with ‘new tech’.”
Kirkeby comments: “There will always be a certain level of lip service being paid to emerging trends such as blockchain, AI, machine learning and robotic process automation. But firms need to take the necessary time to assess the business benefits before reacting to hype.”
Bayly surmises the pressure is almost a good thing–a catalyst for change. He says: “The deemed pressure, and market hype, acts as a catalyst to start open discussions and experiments to evaluate the art-of-the-possible which would otherwise not take place, however, continued investment is always backed by a solid business case.”
Collings mirrors that the industry is aware of what it is doing with taking advantage of technological advancements. He says: “Companies are under pressure to keep up, but not at the cost of being impetuous. They are assessing the viability of legacy systems, which is decreasing by the day, and asking if their technology infrastructure can be improved in such a way that allows them to incorporate AI and ML technology in the future.”
The future
So what is earmarked for the future in terms of trends and the changes that we will see from technology, what will it provide custodians and the back-office, specifically?
Mizzi predicts that banks will continue to look more like technology companies, “with an emphasis on recruiting the best and brightest engineers to power the technical engines that will create competitive differentiation among the large financial services firms”.
Derem indicates that there is still a “huge shortage” of skills in AI and data science.
He explains that as the tools needed to develop AI improves and the broader workforce learns and adapts to this technology, “we will see an acceleration in adoption”.
Although the industry is slowly moving towards AI and blockchain-driven solutions, and with the movement in market infrastructure space in Australia, Hong Kong, Singapore and Switzerland, to name but a few, Bayley says: “We are pretty confident that asset servicing will become even more driven by technology and there is a very high possibility of having industry utilities being created in this space.”
Cohen concludes: “We are only at the beginning of the journey for the potential of AI and data analytics. So far, the industry has gained perhaps 5 percent of the potential. The velocity of today’s technical innovation is something I’ve not previously witnessed during my 30 years in this industry.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
