What are some specific themes that the securities industry is concerned with currently?
Firstly, the entire framework of the industry infrastructure in the banks is a significant area of review. A lot of service providers and banks are looking at operational efficiency gains through the creation of a utility, or shared utilities, in the industry.
This conversation is gaining a lot of momentum and we have seen a lot of discussion around the ability to pull both a value-add, and a commoditised operation in your back office, together.
For institutions, great examples of duplication are in know your customer utilities and global market data. They aren’t that differentiated at the end of the day, but again, the ability to pull them together is what really matters. This reduction in duplication reduces investment costs, standardises process and allows service providers to focus more on the value-add services that clients are demanding.
Many of these conversations are lot more advanced then they used to be. Clients, such as asset managers and other banks, can leverage your technology, investment and staff in order to create an operational efficiency. Aligning your infrastructure investment and talent programmes to your core client’s strategy is critically important.
The second big theme is definitely around regulation, specifically, the change in regulation; the securitisation of assets; the change in collateral flows and the optimisation of that collateral; and the general security of assets as a whole.
We cannot just focus on the costs associated with this new level of regulation that we will all have to bear, but must understand and appreciate the opportunity that comes with it.
Regarding the optimisation of collateral, the industry wants to put in place a proper transformation process, but service providers still have much to do in terms of their collateral management solutions. There are good solutions and services out there, but the top level of optimisation expected by managers’ may be some time away.
How is HSBC Securities Services going forward with its order of business?
Regulation will definitely play a big part in our business, and with this will come new product differentiation. The asset servicing industry as a whole has seen revenues reduce, and margin pressure on historic fees will only continue to persist.
Going forward, the focus for our business is to establish more holistic relationships with our clients. We are building a more client-centric approach that values collaboration across product lines to establish client solutions.
With this approach, it is extremely important to understand your core target customers. Focus is the key to growth, and with this comes the necessity to exit certain non-core businesses in order to deliver that to the core client base.
How you are re-defining services?
We are very focused on the facilitation of data management for clients. Even while we develop and build out some of our front-end technology, we know our clients still want data facilitation.
There are a lot of conversations about big data, but there should be some caution around certain financial institutions moving offering cloud-type services for their clients.
Our business would be very cautious in creating any type of ‘cloud technology’ for clients in the securities space. We can certainly offer data connectivity and data provisioning: allowing our clients to leverage institutional capabilities such as broker-dealer outsourcing and middle-office services.
However, housing the end-to-end infrastructure and clouding big data is something we must all understand better. Regulators will require asset owners and asset managers to understand what their disaster recovery plans are, and housing that all in one institution is something the industry should manage closely.
Core products such as agency lending and foreign exchange will take up just as much of our attention—and we must deliver these services better.
We offer an indemnified programme where you have the strength of the balance sheet behind that programme, not just your own collateral. Our securities lending, foreign exchange, cash, and liquidity management businesses are still just as strong.
From a regulatory perspective, the US-Dodd Frank Act and the EU Financial Transaction Tax are concerning. Our usage rates in securities lending are some of the best in the industry from an agency lending perspective. Part of that is simply the size of our book as we are not as large a global custodian as the top three. That said, we have a very strong product proposition and one of the fastest growing inventories with our growth in global custody over the last couple of years.
Why did HSBC Securities Services pull some of its custody provisions out of Bermuda?
We are still offering sub-custody in Bermuda, but we reduced our fund services footprint there. This was to do with structural consolidation within the group, as our CEO and everyone in HSBC is very focused on creating internal efficiencies.
Our operational footprint was too spread out geographically from a global funds services perspective. We have exited various locations from an operational perspective including New York, Bermuda, Malta and others. By hubbing our operations, we can create efficiency and drive standardisation where appropriate. The generation of these sustainable savings allows the group to re-invest in our core businesses while still servicing the same client base. But this doesn’t mean that we do not continue to service this client base.
The only sub-custody market that we recently withdrew from is Malta, and that’s simply because of the size of the market there, and our presence on the ground.
Our focus from a strength of markets perspective remains in the faster growing markets and HSBC’s history. These continue to be centred in Asia, the Middle East and Latin America, which aligns well with our group’s overall strategy. The strength in our network comes from being a part of the larger group’s global footprint and the people we have on the ground.
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