Thinking outside the box
26 Jun 2019
While AI was the main talking point of The Network Forum, collaboration and open source development were also a big hit
Image: Shutterstock
Maddie Saghir reports
This year’s Network Forum took place in Athens where more than 450 custody and post-trade members discussed a number of topics including consolidation and collaboration, data, and technologies such as artificial intelligence (AI) and machine learning (ML).
AI was a particularly hot topic and was discussed in several panels, however, during a presentation Virginie O’Shea, research director, Aite Group, argued that while the industry has been talking about AI, it should really be discussing topics such as open source development.
O’Shea explained: “Looking at the maturity of open source adoption, it is just as important to the industry as any other technology words that we have been talking about.”
She advised the industry to look at and think about what is going on in this space and noted that many in the market are consuming open source but not necessarily giving it back.
According to O’Shea, open source and the community are helping firms to find and attract experienced technology talent “uber engineers”.
She said: “To be really effective, digital transformation has to be really boring—small problems need to be solved. It is about innovation but with a defiant change agenda and trying to push through change. It is assumed that technology will change problems but, unfortunately, it doesn’t solve much at all.”
The topic of governance was also discussed, and O’Shea explained that, without proper governance, management level visibility of the benefits and hence buy-in to projects beyond limited areas can be hard to attain. Additionally, a lack of consistency in approach across business units can mean wasted resources and efforts as a result of lack of proper governance management level visibility.
In addition, the operational risk and legal risk around intellectual property can be increased. She also noted that technology due diligence work requires specialist understanding and metrics to measure success and prove to clients and business stakeholders is currently missing.
Later during the conference, a poll asking delegates which technology is being deployed the most found that just 12 percent are deploying AI over other technologies. Findings from the survey suggested that some 14 percent are deploying ML the most, 11 percent were unsure what their organisations are deploying, while some 61 percent are deploying robotic process automation (RPA) the most.
Ralph Achkar, managing director, State Street, commented: “RPA doesn’t necessarily fix broken processes and it is not always intelligent. ML is about computers learning from the data, while cognitive computing is a form of AI exhibiting human behaviour.”
He continued: “We, like other participants in this industry, have legacy systems today leading to silos of databases and processes requiring manual intervention; this is an area where we have leveraged RPA to bring all this information together.”
“There is a significant investment going into AI. We are working on components to accelerate additional AI cases, there is a large focus to obtain a unified data set and a having flexible architecture across the organisation. Beyond technology, we are also focusing on a second pillar, which is talent.”
Commenting on how AI remains fit for purpose over time, one panellist said the industry needs to make sure that there is an environment for AI and we need to understand what it is and what it isn’t, and what its capabilities are.
Edwin De Pauw, head of data services and innovation, Euroclear, commented: “When we use AI to optimise existing processes, we aim for a return on investment of maximum 12 months. If not, we prefer to focus on re-designing the end-to-end process.”
Another panellist added: “We [the industry] need to make sure that there is an in-house talent. There needs to be governance around AI or it will only exaggerate problems that we already have. You always need to keep the client impact in mind.”
In agreement, Achkar explained: “We need to keep some sort of control to ensure proper governance and watch out for situations where computers are managing computers. The industry has enough talent but the question is how do we attract them to the financial industry and then how do you attract them to your organisation? This is where culture becomes super important within organisations. You can find talent anywhere the trick is attracting them. And after you get them on board you need to think about how you will retain them.”
AI continued to be discussed in another panel which focused on data and digital solutions. In terms of how technologies such as AI and ML can help with coping with the abundance of data, one panellist highlighted they are both “completely useless” without good data and the quality of the data is what is really important.
This was echoed by another speaker on the panel who noted that AI doesn’t require knowing or understanding the data, it just requires the data to be knowable.
Meanwhile, during a separate panel, speakers discussed regulation with one panellist, Ryan Marsh, director, customer and clearing global product development manager, Citi, noting that regulation is both a help and a hindrance.
The moderator asked the panel if regulation could be looked at as a double-edged sword, and in response, Marsh said: “New regulation tends to bring opportunities and challenges. Looking back on the first Financial Instruments Directive (MiFID I) for example it fostered competition and created a huge—mostly positive—change through trading and clearing and the associated business.”
Marsh explained: “Regulators needs to keep up with new trends as the industry evolves. While regulation is always well intended—at times it can also slow down the adoption of new trends and changes that are much needed for the industry’s future.”
Mike Clarke, director, Deutsche Bank, affirmed: “Not only does regulation need to keep up, but we also need to keep up. The combination of regulation which limits the number of providers that can create a ledger is quite a costly piece.”
“Also adapting a market to this change is an incredibly hard thing to do in a short time. The drivers are very common and they include efficiency and enhanced client experience. That is what we have to do right now and we can’t wait. We need to deliver things in a more Amazon-like way, it needs to be quick so that we are not waiting two days to deliver securities.”
Clarke continued: “We are in a world where we are under constant cost pressures. The pressure on fees is on all of us but there is still an expectation that risk coverage is there and people need to be prepared to change how we price and how we change the cost model to the end investors. People are willing to pay for quality and value.”
The panel also talked about collaboration in the industry and Clarke cited: “We should collaborate on commodity and compete on value-added services. Across the value chain, we are competitors and it is sometimes difficult to take that collaboration and put it into execution. It’s about solving the right problems and delivering them in the right way.”
He added: “You have to be focused on value for clients. We focus on making sure we can deliver today, which includes making our systems more robust, training our people, and making sure that we’re aware of the risks going on in our markets.”
Regulation was also a topic of interest at the event. An audience poll found that more than 70 percent of participants said they do not yet completely understand the impacts on their business and also feel unprepared to respect the closest deadlines of the Central Securities Depositories Regulation (CSDR) compliance.
One panellist stated: “The industry has around one to five years to comply with the settlement discipline regime. Given the number of matters that need to be implemented, and that the authorities are still working on the final details in the form of a Q&A, this time is a scarce resource. CSD participants need to quickly catch up with their understanding of requirements and start implementing as soon as possible.”
Meanwhile, another panellist discussed consolidation within the industry. A survey, taken at the conference, found that only 5 percent could see the consolidation of custodians as inevitable within the next 12 months.
Some 12 percent of the audience at the conference said they thought that the consolidation of custodians was unlikely to happen. However, 39 percent said within the next 12 months to five years there would be consolidation, while 44 percent said it would happen within the next five years to 10 years.
One speaker suggested the word ‘consolidation’ is “fearful” and the industry should use words such as collaboration and partnership to see a greater change.
Additionally, the audience was asked where they would like to see more consolidation.
Over half of those surveyed wanted to see more collaboration in market infrastructure.
Other areas included custodians (9 percent) and vendors (8 percent), while 17 percent said no more consolidation was needed.Commenting on the results, one panellist said: “Last year we saw that consolidation was ongoing.
This is because we are constantly talking about topics like regional providers, choosing a new provider, risk management, know your customer, etc. There are so many things that need to be considered, which is why consolidation is ongoing.
Banks try not to have too many relationships as it is getting more complicated all around.”
This year’s Network Forum took place in Athens where more than 450 custody and post-trade members discussed a number of topics including consolidation and collaboration, data, and technologies such as artificial intelligence (AI) and machine learning (ML).
AI was a particularly hot topic and was discussed in several panels, however, during a presentation Virginie O’Shea, research director, Aite Group, argued that while the industry has been talking about AI, it should really be discussing topics such as open source development.
O’Shea explained: “Looking at the maturity of open source adoption, it is just as important to the industry as any other technology words that we have been talking about.”
She advised the industry to look at and think about what is going on in this space and noted that many in the market are consuming open source but not necessarily giving it back.
According to O’Shea, open source and the community are helping firms to find and attract experienced technology talent “uber engineers”.
She said: “To be really effective, digital transformation has to be really boring—small problems need to be solved. It is about innovation but with a defiant change agenda and trying to push through change. It is assumed that technology will change problems but, unfortunately, it doesn’t solve much at all.”
The topic of governance was also discussed, and O’Shea explained that, without proper governance, management level visibility of the benefits and hence buy-in to projects beyond limited areas can be hard to attain. Additionally, a lack of consistency in approach across business units can mean wasted resources and efforts as a result of lack of proper governance management level visibility.
In addition, the operational risk and legal risk around intellectual property can be increased. She also noted that technology due diligence work requires specialist understanding and metrics to measure success and prove to clients and business stakeholders is currently missing.
Later during the conference, a poll asking delegates which technology is being deployed the most found that just 12 percent are deploying AI over other technologies. Findings from the survey suggested that some 14 percent are deploying ML the most, 11 percent were unsure what their organisations are deploying, while some 61 percent are deploying robotic process automation (RPA) the most.
Ralph Achkar, managing director, State Street, commented: “RPA doesn’t necessarily fix broken processes and it is not always intelligent. ML is about computers learning from the data, while cognitive computing is a form of AI exhibiting human behaviour.”
He continued: “We, like other participants in this industry, have legacy systems today leading to silos of databases and processes requiring manual intervention; this is an area where we have leveraged RPA to bring all this information together.”
“There is a significant investment going into AI. We are working on components to accelerate additional AI cases, there is a large focus to obtain a unified data set and a having flexible architecture across the organisation. Beyond technology, we are also focusing on a second pillar, which is talent.”
Commenting on how AI remains fit for purpose over time, one panellist said the industry needs to make sure that there is an environment for AI and we need to understand what it is and what it isn’t, and what its capabilities are.
Edwin De Pauw, head of data services and innovation, Euroclear, commented: “When we use AI to optimise existing processes, we aim for a return on investment of maximum 12 months. If not, we prefer to focus on re-designing the end-to-end process.”
Another panellist added: “We [the industry] need to make sure that there is an in-house talent. There needs to be governance around AI or it will only exaggerate problems that we already have. You always need to keep the client impact in mind.”
In agreement, Achkar explained: “We need to keep some sort of control to ensure proper governance and watch out for situations where computers are managing computers. The industry has enough talent but the question is how do we attract them to the financial industry and then how do you attract them to your organisation? This is where culture becomes super important within organisations. You can find talent anywhere the trick is attracting them. And after you get them on board you need to think about how you will retain them.”
AI continued to be discussed in another panel which focused on data and digital solutions. In terms of how technologies such as AI and ML can help with coping with the abundance of data, one panellist highlighted they are both “completely useless” without good data and the quality of the data is what is really important.
This was echoed by another speaker on the panel who noted that AI doesn’t require knowing or understanding the data, it just requires the data to be knowable.
Meanwhile, during a separate panel, speakers discussed regulation with one panellist, Ryan Marsh, director, customer and clearing global product development manager, Citi, noting that regulation is both a help and a hindrance.
The moderator asked the panel if regulation could be looked at as a double-edged sword, and in response, Marsh said: “New regulation tends to bring opportunities and challenges. Looking back on the first Financial Instruments Directive (MiFID I) for example it fostered competition and created a huge—mostly positive—change through trading and clearing and the associated business.”
Marsh explained: “Regulators needs to keep up with new trends as the industry evolves. While regulation is always well intended—at times it can also slow down the adoption of new trends and changes that are much needed for the industry’s future.”
Mike Clarke, director, Deutsche Bank, affirmed: “Not only does regulation need to keep up, but we also need to keep up. The combination of regulation which limits the number of providers that can create a ledger is quite a costly piece.”
“Also adapting a market to this change is an incredibly hard thing to do in a short time. The drivers are very common and they include efficiency and enhanced client experience. That is what we have to do right now and we can’t wait. We need to deliver things in a more Amazon-like way, it needs to be quick so that we are not waiting two days to deliver securities.”
Clarke continued: “We are in a world where we are under constant cost pressures. The pressure on fees is on all of us but there is still an expectation that risk coverage is there and people need to be prepared to change how we price and how we change the cost model to the end investors. People are willing to pay for quality and value.”
The panel also talked about collaboration in the industry and Clarke cited: “We should collaborate on commodity and compete on value-added services. Across the value chain, we are competitors and it is sometimes difficult to take that collaboration and put it into execution. It’s about solving the right problems and delivering them in the right way.”
He added: “You have to be focused on value for clients. We focus on making sure we can deliver today, which includes making our systems more robust, training our people, and making sure that we’re aware of the risks going on in our markets.”
Regulation was also a topic of interest at the event. An audience poll found that more than 70 percent of participants said they do not yet completely understand the impacts on their business and also feel unprepared to respect the closest deadlines of the Central Securities Depositories Regulation (CSDR) compliance.
One panellist stated: “The industry has around one to five years to comply with the settlement discipline regime. Given the number of matters that need to be implemented, and that the authorities are still working on the final details in the form of a Q&A, this time is a scarce resource. CSD participants need to quickly catch up with their understanding of requirements and start implementing as soon as possible.”
Meanwhile, another panellist discussed consolidation within the industry. A survey, taken at the conference, found that only 5 percent could see the consolidation of custodians as inevitable within the next 12 months.
Some 12 percent of the audience at the conference said they thought that the consolidation of custodians was unlikely to happen. However, 39 percent said within the next 12 months to five years there would be consolidation, while 44 percent said it would happen within the next five years to 10 years.
One speaker suggested the word ‘consolidation’ is “fearful” and the industry should use words such as collaboration and partnership to see a greater change.
Additionally, the audience was asked where they would like to see more consolidation.
Over half of those surveyed wanted to see more collaboration in market infrastructure.
Other areas included custodians (9 percent) and vendors (8 percent), while 17 percent said no more consolidation was needed.Commenting on the results, one panellist said: “Last year we saw that consolidation was ongoing.
This is because we are constantly talking about topics like regional providers, choosing a new provider, risk management, know your customer, etc. There are so many things that need to be considered, which is why consolidation is ongoing.
Banks try not to have too many relationships as it is getting more complicated all around.”
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