In 2019, Hong Kong was ranked the most popular onshore and mid-shore jurisdiction in the world, in a report on the corporate services industry, conducted by Vistra. In the same report, Singapore was ranked as the third most popular.
Vistra found the rise in Chinese companies listing on the Hong Kong Stock Exchange and a growing base of Chinese high net worth individuals have largely contributed to the city’s leading position.
Margaret Harwood-Jones, global head, securities services, transaction banking at Standard Chartered, said: “From a servicing perspective, asset servicers in both markets are mature with well-established system infrastructure, processes which cover multiple asset classes, operating models for different domicile of funds and regulatory regimes and people with relevant expertise and knowledge locally in the market to service these clients. Both Hong Kong and Singapore have traditionally been a focus point/hub for the region in terms of asset servicing, and while we do see an increase in activity in other neighbouring markets, the regulatory structure, generally stable political environment, deep talent pools and established practices in Hong Kong and Singapore, means they are likely to continue as operational hubs for asset servicing.”
Caroline Higgins, head of global fund services, Asia at Northern Trust, cites: “Hong Kong and Singapore are essential components of an asset manager and service provider’s regional and global strategy.
Both markets are home to many of the world’s leading banks, wealth and asset managers, supported by the many service providers that provide the eco-system to ensure thriving economies.
In addition, Hong Kong Exchanges and Clearing (HKEX) is set to further expand its closing auction session (CAS) to cover the trading of all equities and funds on its stock exchange.
CAS was developed as a trading platform by HKEX in July 2016 to increase trading turnover by permitting execution at securities’ closing prices.
The expansion, effective 8 October 2019, will affect all equities, such as depositary receipts, investment companies and stapled securities, and all funds, including exchange-traded funds and real estate investment trusts.
Custody and the automation of technology
Harwood-Jones cites the trend moving towards direct access to investors’ instructions on a real-time basis. She says the roles and responsibility of custodians may shift from receipt of instructions from investors to gain direct access to investors’ instructions from the exchanges or trading platforms.
Harwood-Jones adds: “Technology enhancement may be required in this space for custodians to remain competitive in the market. For fund administrators and trustees, we see similar themes with investors showing greater interest in alternative asset classes and a demand to see fund administration covering more asset types such as crypto-currency.”
Higgins predicts: “The promotion of fintech by Singapore and Hong Kong financial regulators is likely to continue in the next three years, while asset servicing providers will continue to actively seek their competitive edge to innovate in this area and create more buzz in the industry. Fund administration and custodial services will likely be supported by global asset servicers in the Singapore market with an emphasis on leveraging distributed ledger technology.”
But what of machine learning and artificial intelligence in relation to cost?
Jitendra Somani, head of client management for the Asia Pacific, HSBC Securities Services, says: “Automation, adoption of machine learning and AI to drive down costs is no longer a luxury. It’s absolutely an essential tool in the toolbox.”
He adds: “The challenges in the short term are the ability to adapt and drive the efficiencies and automation in line with pressure on fees and to re-skill the workforce. In the medium to long term, the technology transformation and disruption provides an opportunity for the service providers to move into data and analytics-powered insights-driven business model.”
Higgins indicates: “Automation rates in back offices in Hong Kong and Singapore have increased dramatically in the last five years, with on reducing operational risk and cost. Client behaviour and expectations, accelerating technological developments, the rise of disrupters and mounting industry requirements are evolving like never before. Today, technology is no longer transforming the way we do business; technology is the way we do business. Singapore and Hong Kong are active markets for fintech innovation and collaboration opportunities. As such, they are important markets to innovate in fund administration and custody services through collaboration.”
ESG
Environmental, social and governance (ESG) seem to be the buzzwords across the world at the moment. Arguably, a matter of most prominence right now is the ‘E’ aspect of the initiatives–the environmental—and what the financial industry can actually do about it.
In the last few years, the tide has turned and the growing concern for the planet is beginning to infiltrate into the asset management world, changing attitudes and outlooks, quite radically.
The growing awareness of plastic pollution in our oceans, the rise in global forest fires and water shortages, environmental matters are starting to climb up the ladder of many financial firm’s priorities. But how are Hong Kong and Singapore approaching it?
Harwood-Jones affirms: “Additionally, as investor priorities shift towards sustainable investments and pressure to adopt ESG criteria increases, there is a greater requirement on asset servicing providers to provide up-to-date services to support these strategies. These services are likely to heavily rely on the ability to procure, analyse, augment and replay real-time data insights.”
The future
As we look towards a brand new decade, what does asset servicing in Singapore and Hong Kong face in the future?
Harwood-Jones states: “Our prediction is that for Hong Kong, the development of asset servicing will continue to be linked to the China market. At the same time, a level of automation will continue as well–for Hong Kong to maintain its status as the leading asset servicing centre in Asia, it is essential for the industry to make investments in automation to enhance efficiency and reduce risk.”
She adds: “The longer-term we predict that technology will disrupt the traditional value chain resulting in the disappearance of some roles, the merging of others, the entrance of new players and the implementation of automation and digitisation across the securities world.”
Higgins predicts: “The promotion of fintech by Singapore and Hong Kong financial regulators is likely to continue in the next three years, while asset servicing providers will continue to actively seek their competitive edge to innovate in this area and create more buzz in the industry.”
How can asset servicing providers offer more? Somani highlights: “Outsourcing is becoming more common with asset managers and asset owners increasingly focusing on their core work and looking to move the middle-office and back-office to asset servicing providers. It is therefore required that asset servicing providers are able to offer all products including transfer agency, middle-office, fund administration and custody across Asia.”
