Data will hold the key
21 Aug 2019
Daron Pearce of BNY Mellon discusses the latest European and North American back-office trends and how data will be the main point of competition for the industry
Image: Shutterstock
What European trends are you seeing that the middle- and back-office should be aware of right now?
There are three big trends, the first of which concerns resiliency and regulators’ demand for a higher level of recoverability, turnaround times and critical economic functions.
These factors are critical to the health of the financial services environment. You have to be able to demonstrate that we are investing in those areas and developing cyber-secure technology.
In addition, clients are expecting digital outputs from the services we provide. There is an increasing demand for daily available dashboard information on performance, calculations and reporting.
The third trend is data, which has been a hot topic of discussion at FundForum this year. The industry is experiencing an insatiable thirst for data. With our scale, we have enormous amounts of data within our architecture; the mission we are on is to make it more available, then bring insight using that data.
All three of these trends set our priorities, and, as a service provider to the asset management community, we are finding that clients are very much interested in outsourcing middle-office functions to pass on their pressures and avoid costs.
We are seeing an ever-increasing demand for outsourced services, so we have developed a modular model rather than doing giant lift-outs that promise a lot and typically deliver very little.
We categorise and pick out components that we believe we have the scale, expertise and technology to deliver on.
How is ESG driving change in the industry? To what degree is it changing asset servicing?
In the last few months, environmental, social and corporate governance (ESG) has gone from being a secondary conversation to a mainstream topic. Just about every one of our clients, whether they are an asset owner or manager, is looking to demonstrate that they are engaged in the ESG agenda and many have appointed managers focused on ESG.
As a service provider to both asset owners and asset managers, we have partnered with Arabesque, who offer an ESG ranking index. Through us, clients can put a portfolio into that system and it will tell them their ESG score. We’re proud of being ahead of the curve on that, as it’s now front and centre of every client conversation.
What impact are the increased compliance and regulatory hurdles having on you and your clients?
As a systemically important financial institution, we are held to a high standard by our global regulators. We have to comply with the highest standard of all regulations and we must have a very high standard of capital adequacy.
We are a complex organisation, operating actively in 35 countries, so compliance continues to be an ongoing burden that we must maintain. But it’s also a hygiene factor—it is hard to differentiate ourselves on compliance and regulation; we simply have to stay on top of it, even though it is a big investment of capital and technology expenditure. While it does feel like a never-ending set of requirements for us, it is an essential part of doing business. It does create some opportunities for us if clients see that a regulatory burden may be too much for them, especially if they are a smaller firm that lacks capital and technology investment.
Do you think the level of regulation in recent years has enabled the industry to have a reset or refresh?
Regulation over the last decade has been a good thing, particularly in the funds industry. The endgame is investor protection, it’s not about the regulators trying to cripple asset servicers and prevent the industry from doing good business.
They are just driving standards to ensure that client assets are where they should be, so in the event of a failure, clients can get their assets back. All of the measures we have seen have been for the protection or improved transparency for the people entrusting us with their money.
How is BNY Mellon taking advantage of developments in technological innovations around artificial intelligence (AI), automation and data analytics? How has it aided the asset servicing industry?
From an operational perspective, we have adopted a great number of bots in our core operation centres that run routines which people used to do manually. That has freed up people to bring their energy and intellect to more valuable work, which is terrific.
Data is focused around insight and helping asset managers, in particular, to extract more value from the data we carry for them, for example, analysis of how and where their funds are being acquired.
In the US, we have a product that enables clients to really understand what is going on with their buying community: our distribution analytics service. We are building a whole new data capability set, along with products of custody, transfer agency and accounting.
What is your outlook on the asset servicing industry, what do you expect in the next five to 10 years from both a European and an American perspective?
I think we will see fewer players, as I expect further consolidation. To stay relevant to our clients requires massive and continuous investment.
In 10 years’ time, I think the industry will be unrecognisable. I don’t think we will compete with one another on the same things we compete on today, such as custody, income collection and deadlines.
I think data will be the main point of competition, in terms of data management tools, open architecture, and the quality and reliability of the data itself. The organisations that can create that golden copy of data that is relevant to every person in a client organisation will be the winners.
In terms of the US versus Europe, in my experience, the US is always five to 10 years ahead, especially if you look at what has gone on in the US with the degrees of automation through settlement, the over-the-counter cut off times, and overall commoditisation. That gets exported from the US to Europe across five years, starting with the UK, then makes its way across another five years to the rest of the continent. That is typically how it goes.
We are actively working on this to expand our footprint so that we can provide regional solutions for our clients, rather than it being fragmented, as we have seen the market in recent years. We provide services for some countries that are not accessible to our full client base. I think you will see firms like us complete that footprint expansion.
There are three big trends, the first of which concerns resiliency and regulators’ demand for a higher level of recoverability, turnaround times and critical economic functions.
These factors are critical to the health of the financial services environment. You have to be able to demonstrate that we are investing in those areas and developing cyber-secure technology.
In addition, clients are expecting digital outputs from the services we provide. There is an increasing demand for daily available dashboard information on performance, calculations and reporting.
The third trend is data, which has been a hot topic of discussion at FundForum this year. The industry is experiencing an insatiable thirst for data. With our scale, we have enormous amounts of data within our architecture; the mission we are on is to make it more available, then bring insight using that data.
All three of these trends set our priorities, and, as a service provider to the asset management community, we are finding that clients are very much interested in outsourcing middle-office functions to pass on their pressures and avoid costs.
We are seeing an ever-increasing demand for outsourced services, so we have developed a modular model rather than doing giant lift-outs that promise a lot and typically deliver very little.
We categorise and pick out components that we believe we have the scale, expertise and technology to deliver on.
How is ESG driving change in the industry? To what degree is it changing asset servicing?
In the last few months, environmental, social and corporate governance (ESG) has gone from being a secondary conversation to a mainstream topic. Just about every one of our clients, whether they are an asset owner or manager, is looking to demonstrate that they are engaged in the ESG agenda and many have appointed managers focused on ESG.
As a service provider to both asset owners and asset managers, we have partnered with Arabesque, who offer an ESG ranking index. Through us, clients can put a portfolio into that system and it will tell them their ESG score. We’re proud of being ahead of the curve on that, as it’s now front and centre of every client conversation.
What impact are the increased compliance and regulatory hurdles having on you and your clients?
As a systemically important financial institution, we are held to a high standard by our global regulators. We have to comply with the highest standard of all regulations and we must have a very high standard of capital adequacy.
We are a complex organisation, operating actively in 35 countries, so compliance continues to be an ongoing burden that we must maintain. But it’s also a hygiene factor—it is hard to differentiate ourselves on compliance and regulation; we simply have to stay on top of it, even though it is a big investment of capital and technology expenditure. While it does feel like a never-ending set of requirements for us, it is an essential part of doing business. It does create some opportunities for us if clients see that a regulatory burden may be too much for them, especially if they are a smaller firm that lacks capital and technology investment.
Do you think the level of regulation in recent years has enabled the industry to have a reset or refresh?
Regulation over the last decade has been a good thing, particularly in the funds industry. The endgame is investor protection, it’s not about the regulators trying to cripple asset servicers and prevent the industry from doing good business.
They are just driving standards to ensure that client assets are where they should be, so in the event of a failure, clients can get their assets back. All of the measures we have seen have been for the protection or improved transparency for the people entrusting us with their money.
How is BNY Mellon taking advantage of developments in technological innovations around artificial intelligence (AI), automation and data analytics? How has it aided the asset servicing industry?
From an operational perspective, we have adopted a great number of bots in our core operation centres that run routines which people used to do manually. That has freed up people to bring their energy and intellect to more valuable work, which is terrific.
Data is focused around insight and helping asset managers, in particular, to extract more value from the data we carry for them, for example, analysis of how and where their funds are being acquired.
In the US, we have a product that enables clients to really understand what is going on with their buying community: our distribution analytics service. We are building a whole new data capability set, along with products of custody, transfer agency and accounting.
What is your outlook on the asset servicing industry, what do you expect in the next five to 10 years from both a European and an American perspective?
I think we will see fewer players, as I expect further consolidation. To stay relevant to our clients requires massive and continuous investment.
In 10 years’ time, I think the industry will be unrecognisable. I don’t think we will compete with one another on the same things we compete on today, such as custody, income collection and deadlines.
I think data will be the main point of competition, in terms of data management tools, open architecture, and the quality and reliability of the data itself. The organisations that can create that golden copy of data that is relevant to every person in a client organisation will be the winners.
In terms of the US versus Europe, in my experience, the US is always five to 10 years ahead, especially if you look at what has gone on in the US with the degrees of automation through settlement, the over-the-counter cut off times, and overall commoditisation. That gets exported from the US to Europe across five years, starting with the UK, then makes its way across another five years to the rest of the continent. That is typically how it goes.
We are actively working on this to expand our footprint so that we can provide regional solutions for our clients, rather than it being fragmented, as we have seen the market in recent years. We provide services for some countries that are not accessible to our full client base. I think you will see firms like us complete that footprint expansion.
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