Custody not a commodity
28 June 2017 Warsaw
Image: Shutterstock
Viewing custody and clearing as a commoditised industry could be putting pressure on pricing and threatening the industry, according to speakers at The Network Forum.
Reto Faber, head of direct custody and clearing for Europe, the Middle East and Africa at Citi, suggested that providers will always be incentivised to price as competitively as possible, however he suggested that the industry is “self-defined as a commoditised industry”.
This means investing in getting the cost-base down, in becoming more efficient, and in sustaining that.
He argued, however, that custody is not a commoditised industry at all, pointing to liquidity, risk management, compliance management, asset safety and change management services, as well as market information and consultancy.
There is a lot of value in the industry that “unfortunately is intangible to a large extent”, he said. “And unfortunately we have electively failed to quantify this value.”
Susanna Scheffold, global head of securities services at Unicredit, added that custodians need to really drill down to understand “what pure custody is” and “what is the added value”.
She called price unbundling “inevitable” and said: “We must not underestimate what the impact of unbundled pricing would be to the client.”
In a live poll, audience members were asked what they believe could make the largest contribution to cutting costs.
Results were fairly evenly split, with 37 percent voting for more industry utilities, for example around know-your-client processes and due diligence questionnaires, and 32 percent suggesting that changing the technology paradigm would have the largest impact.
A further 29 percent selected more standardisation—in technologies as well as in messaging—as offering a way to potentially cut costs.
Faber suggested that technology will have to be one of the next areas for the industry to “really home in on and leverage to extract efficiencies”.
These efficiencies can often be realised very quickly, he said, and are an area where the industry can “step-up” collectively.
Scheffold added that cost savings will be achieved in a combination of ways, including through more standardisation as “the starting point for more industry agility”.
She said: “The more harmonisation we can gain, the more standardisation we can gain, the more [we] can also gain the cross-country scale that is definitely necessary to reach critical mass to really get these efficiencies realised.”
However, Scheffold went on to advise attendees to differentiate between the commoditised parts of the industry and the differentiating parts.
For the former “standardisation is extremely important”, she said, but when it comes to the differentiating part “labour is the essence of the service differentiator”.
Scheffold said: “Here we have the quality of the people, here we have the knowledge, the expertise, the know-how of the market.”
She added: “This is in essence the added value to our clients.”
Reto Faber, head of direct custody and clearing for Europe, the Middle East and Africa at Citi, suggested that providers will always be incentivised to price as competitively as possible, however he suggested that the industry is “self-defined as a commoditised industry”.
This means investing in getting the cost-base down, in becoming more efficient, and in sustaining that.
He argued, however, that custody is not a commoditised industry at all, pointing to liquidity, risk management, compliance management, asset safety and change management services, as well as market information and consultancy.
There is a lot of value in the industry that “unfortunately is intangible to a large extent”, he said. “And unfortunately we have electively failed to quantify this value.”
Susanna Scheffold, global head of securities services at Unicredit, added that custodians need to really drill down to understand “what pure custody is” and “what is the added value”.
She called price unbundling “inevitable” and said: “We must not underestimate what the impact of unbundled pricing would be to the client.”
In a live poll, audience members were asked what they believe could make the largest contribution to cutting costs.
Results were fairly evenly split, with 37 percent voting for more industry utilities, for example around know-your-client processes and due diligence questionnaires, and 32 percent suggesting that changing the technology paradigm would have the largest impact.
A further 29 percent selected more standardisation—in technologies as well as in messaging—as offering a way to potentially cut costs.
Faber suggested that technology will have to be one of the next areas for the industry to “really home in on and leverage to extract efficiencies”.
These efficiencies can often be realised very quickly, he said, and are an area where the industry can “step-up” collectively.
Scheffold added that cost savings will be achieved in a combination of ways, including through more standardisation as “the starting point for more industry agility”.
She said: “The more harmonisation we can gain, the more standardisation we can gain, the more [we] can also gain the cross-country scale that is definitely necessary to reach critical mass to really get these efficiencies realised.”
However, Scheffold went on to advise attendees to differentiate between the commoditised parts of the industry and the differentiating parts.
For the former “standardisation is extremely important”, she said, but when it comes to the differentiating part “labour is the essence of the service differentiator”.
Scheffold said: “Here we have the quality of the people, here we have the knowledge, the expertise, the know-how of the market.”
She added: “This is in essence the added value to our clients.”
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