As Asia enjoys a technology and financial boom, Singapore’s advanced technological infrastructure has been a strength and the city-state remains in a prime position to increase in Asia’s custody market.
Reflecting on the past few years, Singapore has evolved somewhat and is now seen as a strong financial hub for Southeast Asia and globally. This evolution has been driven by a number of factors. Robert Tabet, head of client relations in the Asia Pacific, the Middle East and Africa, at Clearstream, attributed the evolution in the industry to several reasons, including the strong growth of the wealth and private banking business.
Tabet also noted that investors are becoming more sophisticated in their investments looking for yield and new asset classes like structured products, as well as mutual and hedge funds.
Another important topic, Tabet continued, is that the introduction of collateral management and especially optimisation are opening doors for few custodians with the proper engines. For Yen Leng Ong, country head for Singapore and head of South East Asia of Northern Trust, technology and data play a significant role in the asset servicing industry globally.
“Safekeeping–a key role of any custodian—is the most fundamental service provision in the asset servicing industry”, Leng Ong said.
“However, the emphasis of an asset servicer has shifted from safekeeping and securities processing to delivering quality and reliable data and its analytics through technology, while the traditional role (safekeeping and securities processing) remains.”
The increases in Singapore’s fund management assets were outlined by the Monetary Authority of Singapore, which revealed that there was an 18 percent increase year-over-year in Singapore’s fund management assets.
Assets breached the SGD $3 trillion (US $2.2 trillion) mark for the first time and assets under management (AUM) increased by an average of 12.7 percent per year over 2016 and 2017.
Rohan Singh, head of asset servicing, Asia Pacific at BNY Mellon, highlighted that in Singapore, clients are looking at custodians that come with a strong global franchise and the ability to connect and service their assets across the world.
“They are also looking towards service providers who are able to provide a centralised platform to create, trade, manage, service, distribute or restructure to meet their increasingly complex investment needs.”
He added: “Clients are asking about local presence signalling a trend on the need for global custodians to invest in the region to provide local support and expertise to service their growing requirements.”
Commenting on types of assets driving this growth, Diana Senanayake CEO at BNP Paribas Securities Services, said: “We saw traditional asset classes and some interesting trends in equities but we also see an interesting and important trend in the alternative space.”
“In an effort to remain competitive and to offer additional value-added services to investors, the Singapore Exchange (SGX) has implemented a number of new initiatives to revamp its post-trade systems (PTS), or post-trade infrastructure.”
Senanayake continued: “In 2017, the new ISO 20022 standard for clearing and settlement was introduced. The implementation of this new technology coincides with similar moves by other market infrastructure providers across the Asia Pacific region, and is part of the ambition to strengthen Singapore’s position as a gateway to Southeast Asia.”
Technology: is automation of back-office operations a necessity or a luxury?
While some industry participants are eager to embrace change and the emerging technologies, others are reluctant and find it to be disrupting thus making it a fascinating topic.
Indeed, technology is affecting the custody industry in a number of ways, and automation of back-office operations can be considered as either a necessity or a luxury.
Senanayake commented: “Solutions that enable clients to address their business challenges are a necessity to remain competitive.”
She added: “This is the only way to provide accurate, cost-effective, and timely client solutions and those custodians investing heavily in new technologies will be the long-term winners.”
Agreeing on this point, Tabet explained: “Automation is becoming a necessity and not a luxury in the industry to contain cost and income ratios knowing that margins are tightening and investments in technology and cybersecurity are reaching new highs.”
“Introduction of robotics to streamline some processes is one of the things that are becoming more common in the industry, not to mention the testing of blockchain technology by many banks to bring down cost and improve efficiency.”
Indeed, necessity seems to be the common denominator for back-office operations, Singh said that as technology marches on, the automation of back-office operations is no longer a luxury but a necessity driven by changing client expectations.
From a business perspective, Singh said that automation is all about the client experience and how agile you can be to continually improve the experience.
He added: “Driven by a relentless focus on being leaner, bolder, and more agile, BNY Mellon invests in technology for the future and fosters innovation from the incremental to the disruptive.”
“The bank’s institutional clients are embracing technology. When clients choose a provider, they now prioritise ease of use of technology, with ease of technology integration a close second.”
“For example, BNY Mellon has nine Global Innovation Centres focused on developing breakthrough financial services technologies, three of which are in the Asia Pacific.”
“Each location has a specific focus area. The Singapore Innovation Centre, which opened in November 2016, focuses on evidence-based data management solutions. It is designed to facilitate collaboration with fintechs and clients in Asia for the creation of data-driven market solutions. Our design thinking methodology is highly consultative, with a client-centric approach that ensures successful execution.”
Singh continued: “Breaking down walls between the business and tech teams, our Innovation Centres promote new ways of working and collaboration. We do this through an innovation culture, internal competitions to drive new solutions, and hackathons to build strategic partnerships and trust.”
Leng Ong said: “Northern Trust will continue to make an investment in distributed ledger technology (DLT), robotics, artificial intelligence (AI) and machine learning, to optimise our asset servicing delivery and quality, and permitting clients to focus what really matters to them.”
It can be gleaned from this that technology is an area where many companies are looking to heavily invest in.
Senanayake outlined that in 2017, the BNP Paribas group committed to investing €3 billion in digital transformation over the next three years.
Comply, adapt, regulate, repeat
The aftermath of the financial crisis has provoked an abundance of regulations, which has proved to be a challenge for many industry participants.
For Senanayake, there is not a specific single regulation which has been the biggest challenge, and she noted that the industry has come to the stage where incorporating new regulation has become part of the industry’s day-to-day life.
This means that the industry has a number of mechanisms in place to manage the impact of those regulations, Senanayake explained.
Senanayake continued: “For Singapore specifically, the local regulation requires that a Singaporean entity must be used to solicit business from Singaporean clients, which is an important point to consider for entities reviewing their operating model and entity structure, to ensure that they are still able to work with the same client base.”
Meanwhile, Tabet said: “Singapore being the most advanced and sophisticated private banking and wealth management hub in Asia increases flows through the Lion City and with it comes to the risks of abusing the system like all big financial centres.”
“This has been the biggest challenge in the last couple of years. From one side, custodians and financial institutions want to do everything possible to ensure they meet the regulators’ requirements, set standards for best practice and avoid reputational risk but at the same time, they have to balance that with costs and remaining competitive.”
He added: “Investing in compliance tools and expertise has taken the lion’s share in the last couple of years.”
Singh commented: “At BNY Mellon, our focus is on harnessing technology to simplify financial institutions’ regulatory compliance and we also see regulators increasingly engaging with fintechs and looking to encourage innovation particularly in the area of regulations and compliance.”
Looking to the future
Leng Ong believes that DLT and AI will continue to mature in the asset servicing industry.
“I believe Singapore is best positioned to adapt to the innovative technological landscape in financial services, where the city-state will continue to leverage digitalisation and automation through AI to drive productivity output”, Leng Ong stated.
Tabet said that his expectations for the next five years would be that custodians will gather more assets and get bigger.
He added: “Custodians will be more involved in initial margin segregation, collateral management–an area that is still in its infancy stage in Singapore–and definitely in the repo space.”
Senanayake expects trends towards alternatives to continue to grow, she said: “To remain relevant to industry trends, there are a number of areas where we see Singapore adopting new practices to within the league of leading financial centres and increase investment flows into the market.”
According to Senanayake, this includes competitive post-trade central securities depository fees to encourage cash inflows and transaction volume, promoting remote trading membership to give more choices to investors and guaranteeing best execution.
Predicting what the custody landscape will look like within the next five years, Singh said: “Clients’ knowledge on digital solutions, the rapid development of disruptive technology coupled with a strong Singaporean government support will be key drivers that will transform the custody landscape in Singapore.”
“We expect new custody solutions to be developed and test bedded in Singapore with Singaporean clients being the first adopter to these solutions.”
“These tested solutions will, in turn, be adapted and applied globally.”
He concluded: “With MAS’s continuing ambition to establish a vibrant innovation ecosystem, the influx of leading-edge technology disruptors and clients’ savviness in harnessing technology to increase yields and drive efficiency, Singapore is poised to be the hub to create, disrupt, and accelerate.”
