Insomnia, trouble sleeping, or tossing and turning, what is keeping institutional banks asset servicers awake at night?
Financial services have met many challenges, particularly since the 2008 Financial Crisis, whether it be navigating the second Markets in Financial Instruments Directive, or keeping up with data compliance with the General Data Protection Regulation. The regulatory framework for financial services dramatically changed in the wake of the 2008 crisis. But what has kept the big financial institutions counting sheep these past few months, in particular? Is it keeping up with its competitors when it comes to technology or maybe its more to do with getting to grips with upcoming central securities depositories rulings?
Keeping up with the competition
A running theme is keeping up with the latest trends and keeping up with the competition, with budgets and revenues constantly stretched and under pressure. Eric Derobert, group head of communications and public affairs at CACEIS, says that it’s the “anticipation of guessing future trends can keep this industry awake at night”.
Derobert notes: “If they are sleeping well, they’ll go on working with us and will ask for more products from us. Our customers want processes to be seamless and easy, while not being too expensive.”
He adds: “We have to be abreast of what is coming, it’s not easy to predict the trends of five to ten years from now, but we need to know the next route and invest a lot. We need to make sure that our customers aren’t awake at night worrying about whether we understand what they asked us to do and what they count on us to do.”
Daron Pearce, CEO, Europe, the Middle East and Africa, asset servicing at BNY Mellon, explains: “Clients and markets rely on BNY Mellon’s critical business services. That’s a major responsibility and the expectations from both inside and outside BNY Mellon are extremely high.”
He suggests that competition is tough and with revenues and budgets under continual pressure, clients are demanding more for less from their service providers.
Pearce states: “To remain successful, we have to look constantly for ways to be more efficient as well as help clients become more efficient and effective themselves.”
What has changed since 10 years ago then? In what areas do the most worries stem from?
Mike Tae, senior vice president, corporate strategy, at Broadridge Financial Solutions, explains that the days of asking operations and technology for another 10 percent budget reduction and the tactical changes are “nearing their end”.
Tae says: “Increasingly, firms recognise that enterprise-level changes are required and this is a real concern for many practitioners.”
SRD II
One regulation creeping up on the asset servicing industry is the updated Shareholder Rights Directive (SRD II). The directive represents the biggest shift in European corporate governance standards and processes for many years. Throughout the investor communication chain, the directive aims to increase the transparency of communications and drive shareholder engagement levels, while also aligning to the wider trend of investors seeking to take a more active stewardship role in the companies in which they invest.
As the deadline of September 2020 fast approaches, Tae outlines the three primary challenges that Broadridge has identified through conversations with clients.
One of those challenges includes transmitting event notification to clients—including retail investors—on a same-day basis, requiring near real-time calculation of entitlements, which needs to incorporate not only same-day trades but securities lending activity as well.
Tae also revealed that same day notification also raises the bar on client communications, which increasingly need to be executed in the communication channel of choice for each investor and in their local language.
He also explains that SRD II provides issuers with the right to request detailed disclosure of their shareholders on the same day.
Tae says: “This disclosure also has specific electronic transmittal requirements plus the added panic of effectively safeguarding sensitive client data.”
He adds: “As legacy platforms are challenged in the pursuit of agile product development, more and more firms are turning to vendors both to mutualise the cost of compliance and to make the strategic leap to modern technology.”
“Critical in the selection for SRD II is finding a partner that can not only assist in meeting next September’s deadline but also one that can lay the foundation to global solutions which eliminate the current redundancies of having multiple platforms for each geographical region or business line.”
Rest easy
With all this in mind, what can the industry do to reach for the hot cocoa at night, instead of a strong espresso? What can make life easier and allow customers and clients more peace of mind?
Pearce suggests that through sustained investment in resiliency and automation, “BNY Mellon is dedicated to providing the highest standards for the robustness of our systems and processes. It is as an aspect of our business for which we have to remain ever vigilant.”
Over 20 years ago, the industry used to just be bonds, funds, equities, but Derobert explains that now the industry works across so many more facets, such as private equity and real estate.
Derobert says: “Now our clients, the asset managers, they consider us as partners. They ask us to work with them, to anticipate their future needs. The market expects us to offer a full range of services, you just can’t tell your customer: ‘we don’t offer that’.”
He explains that the mindset towards the back-office has changed: “We don’t simply respond to customer’s needs, but we try to anticipate them, finding joint solutions.”
He adds: “What keeps us awake is the need to be creative and to anticipate needs and anticipate what our future products need to be. Our customers depend on us to fulfil their obligations and to help grow their businesses.”
