Deutsche Bank delves into COVID-19 impact on network managers
01 July 2020 London
Image: AndriiYalanskyi/Shutterstock
Despite some short-term logistical challenges in certain markets, network managers acknowledge that banks and financial market infrastructures are performing well from an operational resiliency perspective during the COVID-19 crisis, according to a new Deutsche Bank report.
The new report surveys several network managers at global custodians, broker-dealers and financial market infrastructures to understand exactly how they have adapted to COVID-19.
One London-based network manager said: “All of the custodians in our network have held up so far to the extent that we would not have even known their staff were working from home if we had not been advised.”
“Despite the disruption, we did not experience any major settlement issues whatsoever. That said, our business was dealing with its own issues during the initial stages of the crisis so it is entirely possible that some – perhaps minor – operational shortcomings could have occurred in our network that I was not fully aware of.”
Elsewhere, the report identified that most requests for proposals are currently on hold, although network managers will conduct virtual due diligence as a last resort if the crisis is prolonged.
If virtual due diligences are successful, then these will prevail if cost pressures continue, according to the report.
Meanwhile, if deficiencies are discovered in some markets post-COVID-19, then the pressure on network managers to increase individual market visits could grow.
Additionally, the report stipulated that the future of the Association for Financial Markets in Europe Due Diligence Questionnaire is uncertain. While some network managers believe that the questions on business continuity plans should be tightened, others feel this is not the core function or skillset of a network manager.
The report also noted that there a greater emphasis on real-time risk monitoring is expected post-COVID-19.
The report cited that although network managers can monitor sub-custodians’ credit default swap spreads as and when they choose, some industry figures believe that operational
risks need to be scrutinised more regularly.
Commenting on this, Derek Duggan, global head of sales at Thomas Murray, said: “Although network managers do conduct on-site reviews of their sub-custodians, the timings of these assessments are prescriptive meaning global custodians and brokers do not always have up to date information about their service providers.”
It explained that technology could potentially play a critical role in improving real-time risk management.
“A greater focus on real-time risk monitoring would be an improvement. This could be facilitated through new technologies,” said a network manager.
The report affirmed that a number of securities services institutions are embracing big data analytics, application programming interfaces, artificial intelligence and blockchain.
According to Deutsche Bank’s report, some of these digitalisation initiatives could have a meaningful impact by enabling network managers to perform more comprehensive, real-time risk monitoring.
To read the full report, click here.
The new report surveys several network managers at global custodians, broker-dealers and financial market infrastructures to understand exactly how they have adapted to COVID-19.
One London-based network manager said: “All of the custodians in our network have held up so far to the extent that we would not have even known their staff were working from home if we had not been advised.”
“Despite the disruption, we did not experience any major settlement issues whatsoever. That said, our business was dealing with its own issues during the initial stages of the crisis so it is entirely possible that some – perhaps minor – operational shortcomings could have occurred in our network that I was not fully aware of.”
Elsewhere, the report identified that most requests for proposals are currently on hold, although network managers will conduct virtual due diligence as a last resort if the crisis is prolonged.
If virtual due diligences are successful, then these will prevail if cost pressures continue, according to the report.
Meanwhile, if deficiencies are discovered in some markets post-COVID-19, then the pressure on network managers to increase individual market visits could grow.
Additionally, the report stipulated that the future of the Association for Financial Markets in Europe Due Diligence Questionnaire is uncertain. While some network managers believe that the questions on business continuity plans should be tightened, others feel this is not the core function or skillset of a network manager.
The report also noted that there a greater emphasis on real-time risk monitoring is expected post-COVID-19.
The report cited that although network managers can monitor sub-custodians’ credit default swap spreads as and when they choose, some industry figures believe that operational
risks need to be scrutinised more regularly.
Commenting on this, Derek Duggan, global head of sales at Thomas Murray, said: “Although network managers do conduct on-site reviews of their sub-custodians, the timings of these assessments are prescriptive meaning global custodians and brokers do not always have up to date information about their service providers.”
It explained that technology could potentially play a critical role in improving real-time risk management.
“A greater focus on real-time risk monitoring would be an improvement. This could be facilitated through new technologies,” said a network manager.
The report affirmed that a number of securities services institutions are embracing big data analytics, application programming interfaces, artificial intelligence and blockchain.
According to Deutsche Bank’s report, some of these digitalisation initiatives could have a meaningful impact by enabling network managers to perform more comprehensive, real-time risk monitoring.
To read the full report, click here.
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