The aim of the paper is to imagine what changes could be coming to the securities services industry, what the big trends are, and more detailed forces over the next 10 years as well as thinking about how firms need to respond.
The working group analysis, research by Oliver Wyman and a survey of ISSA member institutions showed that changes in investor behaviour, as well as changes in technology and technology-enabled competition, are likely to have the biggest impact on the industry.
Other trends that were identified included cost pressure to the core, new growth paths, industry disruption and early lessons learned from the COVID-19 pandemic.
ISSA suggested that the most challenging forces for the securities services industry revolve around changes in investor behaviour such as a shift to passive and environment, social and corporate governance; digital and alternative assets; and the globalisation of asset flows.
Other challenges include changes in technology and technology-enabled competition, for example, the adoption of new technologies and industry disruption by big tech.
The paper showed that the securities services industry has generated relatively stable revenues driven by the accumulation of assets under custody (AUC) or administration (AUA) and underlying trading volumes, even during substantial market swings witnessed over the last decade.
However, the report showed that the last cycle has also seen continued fee compression and decreasing net interest margins at the core of the industry.
It explained that even the introduction of value-adding adjacent services has not sustainably offset fee pressure on core business models, since new services have typically been included in existing service offerings and have thus become subject to the same pricing challenges.
ISSA analysis suggested that developments in the broader capital markets ecosystem will “create continued top-line pressure for the current securities services industry, which will make it difficult for some players to fund required investments and fend off the threat of potential disruption”.
For firms that can afford the required investment, ISSA said there is a “significant future growth opportunity arising” from the servicing of new (digital) asset classes and leveraging of new technologies within capital markets, with higher margin for associated products and services.
Global geopolitical uncertainties increase the risk that the global securities services industry becomes regionally fractured.
“This might disadvantage firms that consequentially need to scale back their global business models,” the association noted.
As a counterpoint, ISSA’s research showed, the firms that manage to retain global business models or which have a deep regional franchise in growing markets, may be able to increase their business.
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