Looking back on 2023
13 Dec 2023
As the year comes to a close, market participants share their thoughts on 2023
Image: boule1301/stock.adobe.com
Over 2023, the financial world has had its fair share of ups and downs. Asset Servicing Times spoke to industry experts who reflected on what the last 12 months has had to offer.
According to Satu Kiiski, consulting director for global banking at CGI, alternative asset classes have gained traction over 2023. “Investors are leaning into alternative investments, such as private equity, direct lending and real estate.”
By diversifying their portfolios, investors can potentially increase their profits and safeguard against inflation. However, they also tend to be more volatile and complex than traditional assets, and have limited liquidity. While interest in alternative assets may be up, exchange-traded funds and “traditional asset classes like stocks, fixed interest, mutual funds and savings accounts have stayed strong,” Kiiski confirms.
“We’ve seen significant interest from financial institutions, particularly buy-side, operating in credit and private debt markets,” says Josh Monroe, chief revenue officer at Xceptor. He reports a “notable growth” here, with “a corresponding need for data transformation and improved workflows”.
A major talking point over the last few years, and a prominent element of 2022’s year in review, has been crypto assets. This year, though, “the major boom has passed”, says Kiiski. While crypto “remains crucial for some investors”, the volatility and risks of the market have once again made headlines outside of financial circles. The much-publicised trial of FTX’s Sam Bankman-Fried, and Binance CEO Changpeng Zhao’s departure from the company after pleading guilty to anti-money laundering and sanctions violations, have further taken the sheen off of an innovation that many thought would revolutionise the financial world.
Time goes by
It goes without saying that T+1 has been on the industry’s mind this past year. In Asset Servicing Times’ reflection piece last year, market participants drew attention to the barriers in place around a shortened settlement cycle, with many raising concerns about an overall lack of preparedness across the industry. This concern was addressed in further detail in our T+1 panel discussion, held at Sibos in Toronto, published in Asset Servicing Times Issue 326. With less than six months before T+1 goes live in Canada and the US, 2023 has seen preparations, and potentially panic, ramp up as the 27-28 May 2024 implementation dates loom closer.
“T+1 has undoubtedly been the most significant regulatory focus for us and our clients this year,” shares Brian Collings, CEO of Torstone Technology, affirming it to be a “seismic shift in market infrastructure and post-trade processing”.
A compressed settlement cycle “intensifies the need for accuracy and speed in processing transactions”, reducing tolerance for errors and the margin for delay. Two main hurdles are being highlighted by the industry’s preparations for the shift, Collings says: “The rigidity of existing legacy systems, and the readiness of operational workflows to adapt to a faster settlement regime”.
“Meeting regulators’ criteria for faster settlement will require firms to have a better handle on their data,” says Xceptor’s Monroe, “ensuring it is accurate and validated”. He adds that workflow automation will also be key for the transition, “enabling firms’ experts to be freed up for more complex, nuanced work.
Expanding on Torstone’s approach to clients’ challenges in this area, Collings states that “we see these as opportunities to innovate and streamline processes.” The problems cropping up as the industry prepares for the shift “underscore the criticality of investing in new technologies and talent development”, he says, a sentiment that goes far beyond the remit of a shortened settlement cycle. “The push for T+1 is serving as a catalyst for the industry to revamp its approach to operations, and that’s an opportunity that, if seized correctly, can lead to significant long-term benefits,” he confirms.
An overall reevaluation of operational processes and underpinning technologies has also been prompted by firms’ work around T+1, with Collings noting “significant strides in enhancing middle-office processing solutions”. Torstone has focused on “real-time, straight-through processing capabilities”, he says, allowing clients to manage and settle trades with greater efficiency and less risk.
It’s rare to hear about T+1 without T+0 being mentioned. While industry opinion may be split on the feasibility of instantaneous settlement — as proven by several heated panel discussions over the year — Collings suggests that organisations are already thinking about how to futureproof their operations and infrastructures, going beyond the current regulatory requirements in their preparations.
AI acceleration
Each year brings a new technology for the financial services sector to bill as an industry game changer. Whether the latest innovation will stand the test of time is never certain, but market participants are optimistic and confident about the future of 2023’s hottest topic — generative AI (GenAI).
“Leveraging artificial intelligence is now imperative for maintaining competitiveness in terms of effectiveness and customer experience,” says CGI’s Kiiski. “Everyone is seeking a use case for GenAI.”
The most advanced asset servicing companies have already utilised AI successfully in their daily lives”, Kiiski adds, while others are finding new use cases and beginning to implement GenAI initiatives into their operations.
Although enthusiasm towards innovation is always welcome, there’s a danger of GenAI being over-applied and shoehorned into use cases where existing or alternative solutions would be more appropriate. These concerns, and others, were raised in Asset Servicing Times’ Issue 328 feature on the topic, in which industry participants considered the pros, cons and questions around the quickly evolving technology.
For financial institutions, the primary use cases for GenAI relate to efficiency gains and customer experience, Kiiski says. At Linedata, Timothée Raymond, head of innovation, shares that the firm is working on GenAI use cases around data access and document crunching, helping users to save time and improve efficiency.
Kiiski adds that “huge benefits can also be reached in the risk and compliance field”, aiding fraud detection operations, and the IT development space. This is “a significant cost for financial institutions and can become more efficient by using GenAI to generate code or test material”.
However, any new technology comes with its drawbacks. “The main hurdles are bias, hallucination, cyber threats, intellectual property issues and regulatory compliance”, Kiiski notes, concerning issues that have been discussed at length both during panels and behind closed doors.
AI has come on in leaps and bounds during 2023. For the technology to be truly effective and beneficial, “excellent data governance and robust safeguards” must be put in place, says Xceptor’s Monroe. As this year has proven, the industry is dedicated to working on these measures; as frameworks around AI continue to grow, “the potential is vast”.
Essential automation
Closely linked to AI is automation, another space that has seen considerable development over 2023. “This year has marked a pivotal point in the adoption of automation and the removal of manual processes,” states Torstone’s Collings. “There’s a collective understanding that in the ever-evolving financial markets, modernisation is not just beneficial — it’s imperative.”
Automation improves the timeliness and accuracy of data, he adds, which in turn facilitates “better decision making at all levels of the business”.
With data quality and availability a persistent issue in the financial services world, embracing automation can considerably improve long-standing problems within individual firms and the broader industry alike.
A need for automation has been made particularly clear amid preparations for T+1, as businesses have realised that their current operations just aren’t fast enough for what’s to come. Beyond the imminent arrival of T+1 in North America, other jurisdictions are expected to follow suit, accentuating the need for faster and more efficient operations.
Firms need to be “better equipped to handle the increased volume and velocity of transactions that come with a shortened settlement cycle”, Collings says, and should be using automation to “lay the groundwork for future settlement models which may operate on even tighter settlement horizons”.
A significant number of new and emerging challenges like this cannot be solved by increasing headcount — an approach that has its own hurdles, as hiring practices continue to adapt to a post-Covid-19 world. To keep the financial industry as resilient and agile as possible, automation has been proven as an essential investment to “reduce the cost of operations and help to mitigate risks”, Collings states.
“Without automation firms cannot cope with volumes, nor can they manage the increasing complexity of their data and processes”, Xceptor’s Monroe affirms. “They’re also less able to respond to market changes or implement new ways to generate revenue.” Automation has been a key priority over 2023, and will continue to be so as time goes on.
Up in the cloud
The past year has also seen changes in the motivation to transition to the cloud, an approach that firms have been adopting at varying paces for several years. “A few years back, the main drivers for moving to cloud were cost reductions and capacity optimisation,” Kiiski says. Now, however, “cloud is viewed as a strategic tool for meeting business goals such as real-time operations, access to real-time data and faster IT development to address rapidly evolving customer needs”. It has also gone from being perceived, particularly by banks, as risk-heavy to being considered “the best option for risk management”, ensuring continuity and efficiency as firms adapt to changing, and changeable, times.
Speaking to Asset Servicing Times earlier this year, Andy Schmidt, vice president and global industry lead for banking at CGI, advocated for the use of ‘dual cloud deployment’. Having two cloud providers on hand makes it far easier to stay up and running when something goes wrong, with a backup ready to go in the event of any outages. Cloud technology isn’t anything new, but attitudes towards and applications around it continue to mature as understanding and trust develop.
Staying sustainable
Although conversations about ESG have somewhat fallen down the priority list on a number of conference agendas, regulatory efforts behind the scenes have continued at pace — although their implementation leaves something to be desired. “The entire financial industry is significantly impacted by sustainable finance regulations”, says CGI’s Kiiski, all of which are at different stages, ascribe to varied definitions and standards and often bring reporting complications.
This is a challenge for investors at every level. While financial institutions are now, for the most part, aware of the importance of engaging with sustainable finance initiatives, finding an effective way to do so remains challenging. “Both regulatory and voluntary goals require extensive reporting”, Kiiski explains, something made challenging not only by the issues we have discussed but also the ongoing lack of data availability in the space.
On the investor side, the sustainability credentials of a particular fund can be close to incomprehensible. Sustainable investing continues to be on the rise, Kiiski notes, “especially among environmentally conscious young people”; but how much impact can really be made if the space remains so unclear? To date, an efficient regulatory solution remains evasive.
Takeaways
Reflecting on 12 months of technology developments, Collings believes that 2023 has seen the industry begin to “set a new standard for efficiency and reliability in post-trade services”. While regulation implementation will never be ‘finished’, this year has seen significant progress in the development of new regulations and the fine-tuning of those already in place. This year has been “all about automation at scale”, says Xceptor’s Monroe, with the market “extraordinarily aware that a lack of automation is likely to negatively impact operations, particularly in the context of T+1 settlement times”. Those that have not yet embraced automation, or will not have done so by May 2024, risk regulatory fines, operational risks, inaccurate book of records and, crucially, reputational damage.
When it comes to new technology, Kiiski stresses that “the key to succeeding in the asset servicing industry is to always consider that the services are simple and easy to use for the client”. Firms should consider the real benefits of bringing in the shiniest new innovation, and must ensure that they are solving problems and maintaining security rather than creating complexities.
“The asset servicing industry has had a truly interesting and busy year dealing with a lot of uncertainty worldwide”, Kiiski concludes. High interest rates, inflation, the continual impact of climate change, international tensions, wars and political uncertainty are just some of the events that have been weathered during 2023. Although it seems bleak, these are issues that the industry, and the world at large, will have to deal with for the foreseeable future.
Over the past few years, the word ‘unprecedented’ has been used with increasing frequency — it would have been difficult to predict many of the events that have occurred this year. That being said, the asset servicing world has seen much innovation and achievement in 2023. As we reach the end of the year, and begin looking towards the next, the industry must prepare for a new set of challenges — and continue to work on solutions for those that persist.
According to Satu Kiiski, consulting director for global banking at CGI, alternative asset classes have gained traction over 2023. “Investors are leaning into alternative investments, such as private equity, direct lending and real estate.”
By diversifying their portfolios, investors can potentially increase their profits and safeguard against inflation. However, they also tend to be more volatile and complex than traditional assets, and have limited liquidity. While interest in alternative assets may be up, exchange-traded funds and “traditional asset classes like stocks, fixed interest, mutual funds and savings accounts have stayed strong,” Kiiski confirms.
“We’ve seen significant interest from financial institutions, particularly buy-side, operating in credit and private debt markets,” says Josh Monroe, chief revenue officer at Xceptor. He reports a “notable growth” here, with “a corresponding need for data transformation and improved workflows”.
A major talking point over the last few years, and a prominent element of 2022’s year in review, has been crypto assets. This year, though, “the major boom has passed”, says Kiiski. While crypto “remains crucial for some investors”, the volatility and risks of the market have once again made headlines outside of financial circles. The much-publicised trial of FTX’s Sam Bankman-Fried, and Binance CEO Changpeng Zhao’s departure from the company after pleading guilty to anti-money laundering and sanctions violations, have further taken the sheen off of an innovation that many thought would revolutionise the financial world.
Time goes by
It goes without saying that T+1 has been on the industry’s mind this past year. In Asset Servicing Times’ reflection piece last year, market participants drew attention to the barriers in place around a shortened settlement cycle, with many raising concerns about an overall lack of preparedness across the industry. This concern was addressed in further detail in our T+1 panel discussion, held at Sibos in Toronto, published in Asset Servicing Times Issue 326. With less than six months before T+1 goes live in Canada and the US, 2023 has seen preparations, and potentially panic, ramp up as the 27-28 May 2024 implementation dates loom closer.
“T+1 has undoubtedly been the most significant regulatory focus for us and our clients this year,” shares Brian Collings, CEO of Torstone Technology, affirming it to be a “seismic shift in market infrastructure and post-trade processing”.
A compressed settlement cycle “intensifies the need for accuracy and speed in processing transactions”, reducing tolerance for errors and the margin for delay. Two main hurdles are being highlighted by the industry’s preparations for the shift, Collings says: “The rigidity of existing legacy systems, and the readiness of operational workflows to adapt to a faster settlement regime”.
“Meeting regulators’ criteria for faster settlement will require firms to have a better handle on their data,” says Xceptor’s Monroe, “ensuring it is accurate and validated”. He adds that workflow automation will also be key for the transition, “enabling firms’ experts to be freed up for more complex, nuanced work.
Expanding on Torstone’s approach to clients’ challenges in this area, Collings states that “we see these as opportunities to innovate and streamline processes.” The problems cropping up as the industry prepares for the shift “underscore the criticality of investing in new technologies and talent development”, he says, a sentiment that goes far beyond the remit of a shortened settlement cycle. “The push for T+1 is serving as a catalyst for the industry to revamp its approach to operations, and that’s an opportunity that, if seized correctly, can lead to significant long-term benefits,” he confirms.
An overall reevaluation of operational processes and underpinning technologies has also been prompted by firms’ work around T+1, with Collings noting “significant strides in enhancing middle-office processing solutions”. Torstone has focused on “real-time, straight-through processing capabilities”, he says, allowing clients to manage and settle trades with greater efficiency and less risk.
It’s rare to hear about T+1 without T+0 being mentioned. While industry opinion may be split on the feasibility of instantaneous settlement — as proven by several heated panel discussions over the year — Collings suggests that organisations are already thinking about how to futureproof their operations and infrastructures, going beyond the current regulatory requirements in their preparations.
AI acceleration
Each year brings a new technology for the financial services sector to bill as an industry game changer. Whether the latest innovation will stand the test of time is never certain, but market participants are optimistic and confident about the future of 2023’s hottest topic — generative AI (GenAI).
“Leveraging artificial intelligence is now imperative for maintaining competitiveness in terms of effectiveness and customer experience,” says CGI’s Kiiski. “Everyone is seeking a use case for GenAI.”
The most advanced asset servicing companies have already utilised AI successfully in their daily lives”, Kiiski adds, while others are finding new use cases and beginning to implement GenAI initiatives into their operations.
Although enthusiasm towards innovation is always welcome, there’s a danger of GenAI being over-applied and shoehorned into use cases where existing or alternative solutions would be more appropriate. These concerns, and others, were raised in Asset Servicing Times’ Issue 328 feature on the topic, in which industry participants considered the pros, cons and questions around the quickly evolving technology.
For financial institutions, the primary use cases for GenAI relate to efficiency gains and customer experience, Kiiski says. At Linedata, Timothée Raymond, head of innovation, shares that the firm is working on GenAI use cases around data access and document crunching, helping users to save time and improve efficiency.
Kiiski adds that “huge benefits can also be reached in the risk and compliance field”, aiding fraud detection operations, and the IT development space. This is “a significant cost for financial institutions and can become more efficient by using GenAI to generate code or test material”.
However, any new technology comes with its drawbacks. “The main hurdles are bias, hallucination, cyber threats, intellectual property issues and regulatory compliance”, Kiiski notes, concerning issues that have been discussed at length both during panels and behind closed doors.
AI has come on in leaps and bounds during 2023. For the technology to be truly effective and beneficial, “excellent data governance and robust safeguards” must be put in place, says Xceptor’s Monroe. As this year has proven, the industry is dedicated to working on these measures; as frameworks around AI continue to grow, “the potential is vast”.
Essential automation
Closely linked to AI is automation, another space that has seen considerable development over 2023. “This year has marked a pivotal point in the adoption of automation and the removal of manual processes,” states Torstone’s Collings. “There’s a collective understanding that in the ever-evolving financial markets, modernisation is not just beneficial — it’s imperative.”
Automation improves the timeliness and accuracy of data, he adds, which in turn facilitates “better decision making at all levels of the business”.
With data quality and availability a persistent issue in the financial services world, embracing automation can considerably improve long-standing problems within individual firms and the broader industry alike.
A need for automation has been made particularly clear amid preparations for T+1, as businesses have realised that their current operations just aren’t fast enough for what’s to come. Beyond the imminent arrival of T+1 in North America, other jurisdictions are expected to follow suit, accentuating the need for faster and more efficient operations.
Firms need to be “better equipped to handle the increased volume and velocity of transactions that come with a shortened settlement cycle”, Collings says, and should be using automation to “lay the groundwork for future settlement models which may operate on even tighter settlement horizons”.
A significant number of new and emerging challenges like this cannot be solved by increasing headcount — an approach that has its own hurdles, as hiring practices continue to adapt to a post-Covid-19 world. To keep the financial industry as resilient and agile as possible, automation has been proven as an essential investment to “reduce the cost of operations and help to mitigate risks”, Collings states.
“Without automation firms cannot cope with volumes, nor can they manage the increasing complexity of their data and processes”, Xceptor’s Monroe affirms. “They’re also less able to respond to market changes or implement new ways to generate revenue.” Automation has been a key priority over 2023, and will continue to be so as time goes on.
Up in the cloud
The past year has also seen changes in the motivation to transition to the cloud, an approach that firms have been adopting at varying paces for several years. “A few years back, the main drivers for moving to cloud were cost reductions and capacity optimisation,” Kiiski says. Now, however, “cloud is viewed as a strategic tool for meeting business goals such as real-time operations, access to real-time data and faster IT development to address rapidly evolving customer needs”. It has also gone from being perceived, particularly by banks, as risk-heavy to being considered “the best option for risk management”, ensuring continuity and efficiency as firms adapt to changing, and changeable, times.
Speaking to Asset Servicing Times earlier this year, Andy Schmidt, vice president and global industry lead for banking at CGI, advocated for the use of ‘dual cloud deployment’. Having two cloud providers on hand makes it far easier to stay up and running when something goes wrong, with a backup ready to go in the event of any outages. Cloud technology isn’t anything new, but attitudes towards and applications around it continue to mature as understanding and trust develop.
Staying sustainable
Although conversations about ESG have somewhat fallen down the priority list on a number of conference agendas, regulatory efforts behind the scenes have continued at pace — although their implementation leaves something to be desired. “The entire financial industry is significantly impacted by sustainable finance regulations”, says CGI’s Kiiski, all of which are at different stages, ascribe to varied definitions and standards and often bring reporting complications.
This is a challenge for investors at every level. While financial institutions are now, for the most part, aware of the importance of engaging with sustainable finance initiatives, finding an effective way to do so remains challenging. “Both regulatory and voluntary goals require extensive reporting”, Kiiski explains, something made challenging not only by the issues we have discussed but also the ongoing lack of data availability in the space.
On the investor side, the sustainability credentials of a particular fund can be close to incomprehensible. Sustainable investing continues to be on the rise, Kiiski notes, “especially among environmentally conscious young people”; but how much impact can really be made if the space remains so unclear? To date, an efficient regulatory solution remains evasive.
Takeaways
Reflecting on 12 months of technology developments, Collings believes that 2023 has seen the industry begin to “set a new standard for efficiency and reliability in post-trade services”. While regulation implementation will never be ‘finished’, this year has seen significant progress in the development of new regulations and the fine-tuning of those already in place. This year has been “all about automation at scale”, says Xceptor’s Monroe, with the market “extraordinarily aware that a lack of automation is likely to negatively impact operations, particularly in the context of T+1 settlement times”. Those that have not yet embraced automation, or will not have done so by May 2024, risk regulatory fines, operational risks, inaccurate book of records and, crucially, reputational damage.
When it comes to new technology, Kiiski stresses that “the key to succeeding in the asset servicing industry is to always consider that the services are simple and easy to use for the client”. Firms should consider the real benefits of bringing in the shiniest new innovation, and must ensure that they are solving problems and maintaining security rather than creating complexities.
“The asset servicing industry has had a truly interesting and busy year dealing with a lot of uncertainty worldwide”, Kiiski concludes. High interest rates, inflation, the continual impact of climate change, international tensions, wars and political uncertainty are just some of the events that have been weathered during 2023. Although it seems bleak, these are issues that the industry, and the world at large, will have to deal with for the foreseeable future.
Over the past few years, the word ‘unprecedented’ has been used with increasing frequency — it would have been difficult to predict many of the events that have occurred this year. That being said, the asset servicing world has seen much innovation and achievement in 2023. As we reach the end of the year, and begin looking towards the next, the industry must prepare for a new set of challenges — and continue to work on solutions for those that persist.
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