South Africa
20 Feb 2019
South Africa holds its own among many financial hubs within the African continent. But how can automation further extend South Africa’s capabilities on to more of a global level?
Image: Shutterstock
Sitting at the tip of the African continent, South Africa has welcomed the growth of its asset servicing in the last 20 to 30 years and is now an established market, with the ability for more growth.
Though there are some concerns, the custody market, in particular has become somewhat saturated and the future may bring cost pressures within the South African banking infrastructure.
But for now, at least, South Africa offers a global custody service. As Jacquelynne Anderson, director and regional executive of sub-Saharan Africa at BNY Mellon, says: “South Africa has a very well developed local and global custody service offering compared to the rest of Africa.”
She adds: “The model is typically one of the partnerships between a local bank and a global one. African custody banks tend to offer local custody, and again will either partner with their ‘head office’ bank or a well-known global custodian in order to offer a complete service to clients.”
Rajesh Ramsundhar, head of investor services at Standard Bank South Africa, says: “South Africa has a well-developed and sizeable financial market with an abundance of local and foreign investor activity. From an infrastructure, technology, product suite and expertise perspective, asset services in South Africa compare well to providers in global markets.”
But for many years it was reasonably siloed, there was one exchange and one central securities depositories (CSD) for the whole South African market. As Anderson affirms: “This has already started to change with new exchange and CSD licences being issued and one of the newer exchanges, A2X, making significant in-roads.”
A2X, a leading stock exchange in the South African market-place, is licensed and regulated by the Financial Sector Conduct Authority (formerly FSB) and the Prudential Authority (SARB).
In the first quarter of this year, SARB published a policy paper on how providers of e-wallet and other services around crypto-currencies could be required to register with the government.
The initiative is intended to help protect investors and users of cryptocurrencies but, according to SARB, will also make it easier to enforce tax and other laws.
So it seems South Africa’s asset and technology are undergoing an evolution. But how does this evolution apply to funds and custody, if at all?
Funds and custody
Ramsundhar highlights: “The South Africa custody and clearing markets have remained flat to marginally up in the past two years, despite market changes.”
“The market is saturated in terms of custody providers and one could argue that there are probably one or two providers too many.”
Though this may be the case for custody and clearing, Anderson indicates BNY Mellon is seeing “many new frontiers and emerging market funds open up, utilising the allocation to Africa.”
For one, Benguela Global Fund Managers has selected Prescient Ireland for UCITS ManCo and fund administration services.
Benguela Global Fund Managers was established in 2013 and manages South African and global equity mandates out of Johannesburg.
Elsewhere, Asba Group is to acquire Societe Generale’s custody, trustee and derivatives clearing services, also operated in Johannesburg.
Absa Group, a financial service provider, offers personal and business banking, credit cards, corporate and investment banking, wealth and investment management.
According to Societe Generale, Asba agreed to acquire the related activities conducted by Societe Generale’s in South Africa, notably its client portfolio, IT systems and all the employees dedicated to these activities.
The transaction is subject to the approvals of the relevant authorities, which are anticipated to be obtained before the end of 2019.
In addition, Coronation Fund Managers, an independent asset manager in South Africa, has gone live on IHS Markit’s enterprise data management managed service.
Coronation has invested in the new data management platform to provide a solid foundation for the firm’s global client base.
Technology
Ramsundhar states: “In terms of technology, South African providers have leading and robust custody technology solutions that cater for high volume and high-value activity.”
He adds: “Due to the scale of the market, asset services in South Africa tend to have more automation and straight-through processes in their asset servicing operations versus providers in other African markets. In addition, South African providers have extended their product suite beyond custody and have built skills and expertise that are fairly advanced and comparable to developed markets.”
Though, Jon Hugill, group information systems head for Maitland, says: “When it comes to automation, the industry, is certainly facing a few challenges. However, it’s all about turning these perceived obstacles into opportunities.”
He adds: “Providing academies and internship programmes can re-skill many people to become either robotic process automation (RPA) analysts or developers, creating new capability sets, and perhaps even a new industry—imagine Cape Town, or South Africa, as a global centre of excellence for RPA.”
“An important shift is required within ICT teams to recognise that RPA, while a form of automation, sits in a very different niche to the legacy automation tools. In fact, RPA can be a brilliant way for the business and ICT to come together.”
And, as Ramsundhar mirrors: “Technology advancements including automation, artificial intelligence and machine learning, can only be seen as an opportunity to advance the capital market and the value chain that supports the market.”
He adds: “An asset services provider has to embrace and see these technology advancements as a mechanism to shift resources away from conventional processing and mundane tasks to more value add activities such as insights and information.”
“Processing is a given in asset servicing, it’s a ticket to the game, the value you add beyond processing and the insight you provide is what will sustain the business going forward.”
The future
South Africa’s automation and robotics may indeed grow, as we move toward the next decade, provided it is underpinned by attention and value. But Ramsundhar indicates other challenges the country faces, including cost pressures and regulation.
He says: “It’s difficult to see the foreign players continue in a market with sub-scale businesses, given the overall cost pressure in the banking industry and the regulatory requirements.”
He adds: “While we do see the asset servicing business growing on the back of positive economic and market developments, foreign asset services will have the challenge to grow beyond a point and this is largely driven by policy and practice by local asset owners in South Africa to appoint indigenous providers.”
But what else can South Africa expect concerning collateral management, settlement and the emerging use of cryptocurrencies globally?
Anderson affirms: “I believe we will continue to see our market infrastructure development, with a central counterparty and alternate avenues for collateral management, and along with this, cheaper costs to trade, clear and settle.”
Ramsundhar remarks: “Looking ahead, asset servicing will not be about processing and settlements, it will be about risk management and liquidity, insights and information.”
Hugill states: “At Maitland, we believe that blockchain will be a significant disruptor in the funds trading and custody sectors, bringing together large aspects of the industry.”
He adds: “The challenge for all will be to become leaner and meaner, with RPA being a key tool in achieving this.”
Though there are some concerns, the custody market, in particular has become somewhat saturated and the future may bring cost pressures within the South African banking infrastructure.
But for now, at least, South Africa offers a global custody service. As Jacquelynne Anderson, director and regional executive of sub-Saharan Africa at BNY Mellon, says: “South Africa has a very well developed local and global custody service offering compared to the rest of Africa.”
She adds: “The model is typically one of the partnerships between a local bank and a global one. African custody banks tend to offer local custody, and again will either partner with their ‘head office’ bank or a well-known global custodian in order to offer a complete service to clients.”
Rajesh Ramsundhar, head of investor services at Standard Bank South Africa, says: “South Africa has a well-developed and sizeable financial market with an abundance of local and foreign investor activity. From an infrastructure, technology, product suite and expertise perspective, asset services in South Africa compare well to providers in global markets.”
But for many years it was reasonably siloed, there was one exchange and one central securities depositories (CSD) for the whole South African market. As Anderson affirms: “This has already started to change with new exchange and CSD licences being issued and one of the newer exchanges, A2X, making significant in-roads.”
A2X, a leading stock exchange in the South African market-place, is licensed and regulated by the Financial Sector Conduct Authority (formerly FSB) and the Prudential Authority (SARB).
In the first quarter of this year, SARB published a policy paper on how providers of e-wallet and other services around crypto-currencies could be required to register with the government.
The initiative is intended to help protect investors and users of cryptocurrencies but, according to SARB, will also make it easier to enforce tax and other laws.
So it seems South Africa’s asset and technology are undergoing an evolution. But how does this evolution apply to funds and custody, if at all?
Funds and custody
Ramsundhar highlights: “The South Africa custody and clearing markets have remained flat to marginally up in the past two years, despite market changes.”
“The market is saturated in terms of custody providers and one could argue that there are probably one or two providers too many.”
Though this may be the case for custody and clearing, Anderson indicates BNY Mellon is seeing “many new frontiers and emerging market funds open up, utilising the allocation to Africa.”
For one, Benguela Global Fund Managers has selected Prescient Ireland for UCITS ManCo and fund administration services.
Benguela Global Fund Managers was established in 2013 and manages South African and global equity mandates out of Johannesburg.
Elsewhere, Asba Group is to acquire Societe Generale’s custody, trustee and derivatives clearing services, also operated in Johannesburg.
Absa Group, a financial service provider, offers personal and business banking, credit cards, corporate and investment banking, wealth and investment management.
According to Societe Generale, Asba agreed to acquire the related activities conducted by Societe Generale’s in South Africa, notably its client portfolio, IT systems and all the employees dedicated to these activities.
The transaction is subject to the approvals of the relevant authorities, which are anticipated to be obtained before the end of 2019.
In addition, Coronation Fund Managers, an independent asset manager in South Africa, has gone live on IHS Markit’s enterprise data management managed service.
Coronation has invested in the new data management platform to provide a solid foundation for the firm’s global client base.
Technology
Ramsundhar states: “In terms of technology, South African providers have leading and robust custody technology solutions that cater for high volume and high-value activity.”
He adds: “Due to the scale of the market, asset services in South Africa tend to have more automation and straight-through processes in their asset servicing operations versus providers in other African markets. In addition, South African providers have extended their product suite beyond custody and have built skills and expertise that are fairly advanced and comparable to developed markets.”
Though, Jon Hugill, group information systems head for Maitland, says: “When it comes to automation, the industry, is certainly facing a few challenges. However, it’s all about turning these perceived obstacles into opportunities.”
He adds: “Providing academies and internship programmes can re-skill many people to become either robotic process automation (RPA) analysts or developers, creating new capability sets, and perhaps even a new industry—imagine Cape Town, or South Africa, as a global centre of excellence for RPA.”
“An important shift is required within ICT teams to recognise that RPA, while a form of automation, sits in a very different niche to the legacy automation tools. In fact, RPA can be a brilliant way for the business and ICT to come together.”
And, as Ramsundhar mirrors: “Technology advancements including automation, artificial intelligence and machine learning, can only be seen as an opportunity to advance the capital market and the value chain that supports the market.”
He adds: “An asset services provider has to embrace and see these technology advancements as a mechanism to shift resources away from conventional processing and mundane tasks to more value add activities such as insights and information.”
“Processing is a given in asset servicing, it’s a ticket to the game, the value you add beyond processing and the insight you provide is what will sustain the business going forward.”
The future
South Africa’s automation and robotics may indeed grow, as we move toward the next decade, provided it is underpinned by attention and value. But Ramsundhar indicates other challenges the country faces, including cost pressures and regulation.
He says: “It’s difficult to see the foreign players continue in a market with sub-scale businesses, given the overall cost pressure in the banking industry and the regulatory requirements.”
He adds: “While we do see the asset servicing business growing on the back of positive economic and market developments, foreign asset services will have the challenge to grow beyond a point and this is largely driven by policy and practice by local asset owners in South Africa to appoint indigenous providers.”
But what else can South Africa expect concerning collateral management, settlement and the emerging use of cryptocurrencies globally?
Anderson affirms: “I believe we will continue to see our market infrastructure development, with a central counterparty and alternate avenues for collateral management, and along with this, cheaper costs to trade, clear and settle.”
Ramsundhar remarks: “Looking ahead, asset servicing will not be about processing and settlements, it will be about risk management and liquidity, insights and information.”
Hugill states: “At Maitland, we believe that blockchain will be a significant disruptor in the funds trading and custody sectors, bringing together large aspects of the industry.”
He adds: “The challenge for all will be to become leaner and meaner, with RPA being a key tool in achieving this.”
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