Clients demand innovation in custody
22 June 2017 New York
Image: Shutterstock
Custodians must embrace new technologies if they’re to survive in the digital age, according to a survey of sell-side executives by BNP Paribas Securities Services and TABB Group.
A survey of sell-side senior executives at mid-size US banks and brokers found that 80 percent expect there to be fewer custodians in the market in three years’ time. The remaining 20 percent said they expect the numbers to remain the same.
The survey report put this down to “the aggressive automation and adoption of innovative technology that the sell-side anticipates occurring at their custodian banks”.
It added: “[Respondents] have provided a clear blueprint for what they think banks need to do to survive.”
When respondents were asked about their most important technology initiatives, cybersecurity and client-driven user interface emerged on top, each considered a top priority by 19 percent.
The report suggested that these are both “non-discretionary developments”, particularly highlighting cybercrime as a “real threat” and suggesting that upcoming regulations and recent cyber breaches may have led to a new awareness and focus on addressing this.
With regards to the focus on user interface, the report suggested that this is aimed at improving user experience. It said: “Many are trying to create new offerings for their clients that are in step with technology changes, giving them a more graphic and interactive look and feel.”
The most important non-technology initiatives in the sell side emerged as regulatory compliance, named by 22 percent, operational efficiency, highlighted by 20 percent, and data quality, named by 15 percent.
When asked what kind of technology they think will improve their operational efficiency over the next year, blockchain, or distributed ledger technology, came out on top, named by 33 percent of respondents, while regtech was a close second, selected by 27 percent.
Looking ahead over five years, however, blockchain, regtech and big data analytics are all expected to have an effect on efficiency, receiving 33 percent of the vote apiece.
Technology priorities when selecting a custodian did not necessarily reflect this, with the top priority emerging as cloud computing or storage, followed by digital identity and then distributed ledger technology.
The report said: “With their budgets declining, [respondents] are looking for new operating models that provide the prospect to reduce costs and feel that there are opportunities for their banks to provide services utilising cloud distribution.”
When asked which aspects of securities services they would most like to see change over the next three years, 33 percent of respondents highlighted regulation, while 27 percent said would like to see more automation of manual processing.
Capital constraints were noted as a concern by 17 percent, while 13 percent said they would like to see change in collateral optimisation.
However, when selecting a new custodian, the sell-side is still focused on customer service, with 18 percent saying this is the most important aspect for them.
This was followed by value for fees and operational expertise, while innovative technology offerings came in fourth place, named as the most important aspect by 14 percent.
Dayle Scher, TABB Group senior analyst and author of the report, added: “We found that the custody industry is set for transformation in terms of the technology they use, while the focus on customer service reigns supreme.”
He added: “Adoption of automation for remaining manual processes, combined with better data analysis, are critical enablers of the high-touch coverage the sell-side so covets.”
Bruno Campenon, head of the financial intermediaries and corporates client line at BNP Paribas Securities Services, added: “The survey results validate that the advanced technologies we are already developing globally, such as distributed ledger technology and artificial intelligence, position us well to help our clients succeed in a changing digital landscape.”
The report summed up: “The old perception of pillared institutions vaulting securities, collecting income and calculating net asset values for funds belies the custodian of today who more resembles a technology provider than stodgy bank.”
“In this era of cyber threats, regulatory changes, disruptive technology and commoditized custody services, custodian banks must adopt and even develop their own innovative means of attracting and retaining assets, or risk submitting to the perception.”
A survey of sell-side senior executives at mid-size US banks and brokers found that 80 percent expect there to be fewer custodians in the market in three years’ time. The remaining 20 percent said they expect the numbers to remain the same.
The survey report put this down to “the aggressive automation and adoption of innovative technology that the sell-side anticipates occurring at their custodian banks”.
It added: “[Respondents] have provided a clear blueprint for what they think banks need to do to survive.”
When respondents were asked about their most important technology initiatives, cybersecurity and client-driven user interface emerged on top, each considered a top priority by 19 percent.
The report suggested that these are both “non-discretionary developments”, particularly highlighting cybercrime as a “real threat” and suggesting that upcoming regulations and recent cyber breaches may have led to a new awareness and focus on addressing this.
With regards to the focus on user interface, the report suggested that this is aimed at improving user experience. It said: “Many are trying to create new offerings for their clients that are in step with technology changes, giving them a more graphic and interactive look and feel.”
The most important non-technology initiatives in the sell side emerged as regulatory compliance, named by 22 percent, operational efficiency, highlighted by 20 percent, and data quality, named by 15 percent.
When asked what kind of technology they think will improve their operational efficiency over the next year, blockchain, or distributed ledger technology, came out on top, named by 33 percent of respondents, while regtech was a close second, selected by 27 percent.
Looking ahead over five years, however, blockchain, regtech and big data analytics are all expected to have an effect on efficiency, receiving 33 percent of the vote apiece.
Technology priorities when selecting a custodian did not necessarily reflect this, with the top priority emerging as cloud computing or storage, followed by digital identity and then distributed ledger technology.
The report said: “With their budgets declining, [respondents] are looking for new operating models that provide the prospect to reduce costs and feel that there are opportunities for their banks to provide services utilising cloud distribution.”
When asked which aspects of securities services they would most like to see change over the next three years, 33 percent of respondents highlighted regulation, while 27 percent said would like to see more automation of manual processing.
Capital constraints were noted as a concern by 17 percent, while 13 percent said they would like to see change in collateral optimisation.
However, when selecting a new custodian, the sell-side is still focused on customer service, with 18 percent saying this is the most important aspect for them.
This was followed by value for fees and operational expertise, while innovative technology offerings came in fourth place, named as the most important aspect by 14 percent.
Dayle Scher, TABB Group senior analyst and author of the report, added: “We found that the custody industry is set for transformation in terms of the technology they use, while the focus on customer service reigns supreme.”
He added: “Adoption of automation for remaining manual processes, combined with better data analysis, are critical enablers of the high-touch coverage the sell-side so covets.”
Bruno Campenon, head of the financial intermediaries and corporates client line at BNP Paribas Securities Services, added: “The survey results validate that the advanced technologies we are already developing globally, such as distributed ledger technology and artificial intelligence, position us well to help our clients succeed in a changing digital landscape.”
The report summed up: “The old perception of pillared institutions vaulting securities, collecting income and calculating net asset values for funds belies the custodian of today who more resembles a technology provider than stodgy bank.”
“In this era of cyber threats, regulatory changes, disruptive technology and commoditized custody services, custodian banks must adopt and even develop their own innovative means of attracting and retaining assets, or risk submitting to the perception.”
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