Jack McRae speaks to Alan Flanagan, head of global client coverage for Asset Servicing at BNY Mellon, about feeling at home, T+1 and striving to be the best
Alan Flanagan moved with his family to the US to work at BNY Mellon’s office in New York, and has risen to become the company’s head of global client coverage for Asset Servicing. The switch to the Big Apple did come with a period of difficult adjustment.
He remembers: “It’s never easy [moving country] and, I’ll be very honest, it always takes a while. We were very happy, my wife and children in Dublin. It was a bit of upheaval quite frankly, especially for the kids, the eldest was 10 and the youngest was five. [At that age] that’s a lot of change for them too.”
Flanagan is honest about the difficulties, and laughs as he explains: “[It] takes time to get fully settled. Adjusting to simple things, like establishing a financial history as I had no credit history or references. The family is fully adjusted and our children are thriving.”
Having settled into his new home, office and country, Flanagan began to use his perspective of having lived and worked in Europe, in America. It “helps me to have much more of a global view and perspective on things,” he believes.
Flanagan will be prepared for the momentous shift coming.
Positional play
Flanagan and I are speaking a couple of weeks ahead of the transition from T+2 to a T+1 settlement cycle in the US. Leading up to the landmark change, Flanagan says he is at ease, as, he suggests, is BNY Mellon more broadly.
“With T+1 now happening, we are very well positioned,” Flanagan expresses. “We oversee, manage, and keep safe nearly US$50 trillion in assets for our clients.”
Owing to their size as one of the largest custodian banks in the world, Flanagan suggests they will be more prepared for the shift than other players in the industry. He states: “In the position of being the largest custodian, we’re uniquely positioned and have spent an incredible amount of time with clients.”
The size of BNY Mellon also means that they “have an entire team across the firm focused on the transition and fully available for client support. We are confident about the transition but acknowledge the possibility of market shocks or other factors that can affect it.”
Perhaps the most interesting aspect of BNY Mellon’s preparation for T+1 comes in the form of education. Flanagan details the “15,000 hours of education content” that staff have been given in the last six months.
Flanagan is relaxed about the transition: “When you compress the cycle from T+2 to T+1, the risk of delays in instruction processing that could potentially impact FX are taken out because we are the custodian.”
Flanagan argues that BNY Mellon’s size and stature makes them able to absorb any shocks caused by T+1. He says: “Our analysis shows us that for clients where we are both lending agent and custodian, if clients need their shares back to satisfy a sale, 90 per cent of the time we can facilitate that at T+0. Due to our size, scale and having US$48.8 trillion in assets under custody and administration. Given that large inventory unlike any other third-party lender, we don’t need to recall the borrows.”
But what about the rest of the industry?
Flanagan reaffirms his certainty that BNY Mellon will manage the adjustment.
“Like every change, there are those that are going to be more prepared than others,” he admits.
“BNY Mellon is well positioned and confident that our clients have been intimately involved with us throughout the process. After T+1 goes live, it will be interesting on the industry reaction and I am confident with the resiliency within the system and organisations like BNY Mellon, will see us through.”
The key to success
One of the major concerns with the industry’s preparedness for shorter settlement cycles is regarding the capacity for legacy systems and manual processing to be able to cope with the increased pressure.
For Flanagan, there is a clear solution for this. He explains: “Digitisation and automation are the key to take out more of the manual processes.”
These manual processes, he notes, “ultimately lead to breaks and friction in daily transitions. They reduce efficiency, they reduce time to market, time to execute, and ultimately result in a cost”.
Flanagan explains how BNY Mellon has heavily invested in improving the technology which will limit any potential headaches — a focus he urges the industry should also be taking.
“More investment in technology automation, and what AI can bring to the industry, will ultimately bring us to the straight through processing nirvana that everybody is chasing, no matter what asset class they are in.”
That quest for improved technology is one BNY Mellon has been on for a long time. Flanagan tells how “digitisation and automation are our key. It’s a transformation journey that we’ve certainly been on for, for the last number of years. Our industry and its scale [mean we have had to] focus on digitisation.”
ETF Fever
One of the intriguing growth opportunities for Flanagan and BNY Mellon comes in the form of exchange traded funds (ETFs).
This is an opportunity that is only going to grow.
“In terms of assets under administration in the ETF space, we have gone over US$2 trillion now. It’s really exploding, and it’s only continuing to grow.”
Flanagan continues: “Several of our existing clients have filed for ETFs as a share class. We do anticipate more mutual fund to ETF conversions, but also, we’re seeing separately managed account (SMA) to ETF conversions. Now there is potential to hang an ETF class off a mutual fund as an absolute trend.”
The growth of crypto currency has also enabled this growth, and will only continue to help propel it forward. “We’ve also been servicing a lot of new bitcoin ETFs from our asset manager clients and we’re seeing strong growth in that space as well,” Flanagan says.
The exponential growth of the ETF space is one where BNY Mellon is set on seizing an advantage.
Flanagan comments: “We’re fortunate because it’s an area where some very large ETF issuers have been moving business to. We’re on a winning streak there, and we’ve invested significantly in our ETF services platform over the last few years. We’re very connected to the ecosystem, the market makers, and the authorised participants.”
Striding forward
“Alternatives are near and dear to my heart,” Flanagan explains. He previously worked as global head of alternative investment services at BNY Mellon and still holds the field close to him.
He continues: “We are a trusted provider to both public and private markets, and we have both the fund servicing capabilities as well as the asset servicing capability. We have a corporate trust fund administration, cash, liquidity management, all of those services to support the asset all the way flowing through into the fund.”
BNY Mellon may be an incredibly vast firm, but they are still required to be flexible.
One of the developing trends in the industry has been the increase of outsourcing. Flanagan details how they remain adaptable to the industry:
“Front-to-back outsourcing is continuing to evolve. What we’re seeing is the ability to be more flexible and modular as a path to success in this space.”
Flanagan says: “Our model is one of flexibility. We’re calling it OMS agnostic — we have our own capabilities and yet we partner with some of the major providers out there.
“I can see outsourcing continuing to evolve because, at the end of the day, managers want to focus more on portfolio and alpha, and leave the operational alpha to the outsource providers.”
Part of the capabilities of BNY Mellon come in the form of its data and analytics division, which, according to Flanagan, is central to every success that the bank has.
He says: “We have an entire business in growth ventures focusing on data and analytics, which unsurprisingly, underpins just about everything.”
Flanagan makes clear that he, and BNY Mellon, are intent on being the best across every sector in the industry.
He concludes: “We focus on providing an autonomous access to clean, quality audit data — and we ultimately want that across every asset class.”
