Continued consolidation
22 Jan 2025
Jack McRae speaks to members of the asset servicing industry about how 2025 will be an important year for the Australian markets with the trend of consolidation leading developments
Image: daniela_photography/stock.adobe.com
Keeping up with custodians
The global custody market is going through a period of consolidation, but what does that mean for Australia?
“This shows the strength and resilience of the local custody industry,” replies Daniel Cheever, head of securities services for Australia and New Zealand at BNP Paribas. “Clients can find providers in a relatively short period of time, while securely transitioning to a new provider — there is a strong level of competition.”
Cheever considers the impact that scale has had on the custody space in Australia, saying that, “scale has gained importance for custodians as institutional asset owners increasingly adopt master custody, a structure in which they have multiple investment managers but only one custodian.”
However, at the heart of developments in the custody market lies the industry’s digital transformation. Cheever points to the influence of North America’s shift, and Europe’s potential shift, to a T+1 settlement cycle as key drivers of efficiency improvements in the region.
“We are also very interested in what is happening with the Australian Securities Exchange, and their Chess replacement which is targeted for a go-live in 2029,” he says. “We expect T+1 will be tested as part of this deployment to future proof the platform. It’s important for us to be both a global custodian but also a local custodian in many markets, staying close to the market and being able to support clients with these types of changes and initiatives while improving the industry.”
Looking ahead to 2025, Cheever considers the impact that the Prudential Standard CPS 230 regulation, the introduction of standards for operational resilience and business contingency, could have on the industry. Despite its potential impact, he believes that, “certainly amongst the global bank custodian community, we already have very strong frameworks”.
As it has been the case in recent years, ESG will continue to dominate discussions in the industry — both globally and in Australia. Cheever points to the challenges surrounding data constraints that provide difficulties in ESG integration — notably in financial risks threatened by the climate crisis. Yet, he says, “investors are nevertheless incorporating ESG, notably in their portfolio management and investment decisions. It certainly feels like more clients are focused on or accelerating their net zero targets and on reducing their carbon footprint.”
Delivering the digital
Up to 25 per cent of Australians hold crypto, making it one of the highest crypto adoption rates in the world. The appetite for cryptocurrencies Down Under is undeniable and David Ball, managing director for Australia at Zodia Custody, is keen to make the most of the growing demand for digital assets.
“We see this year as critical to the future of digital assets in Australia,” Ball begins. He hopes that the industry can make the most of the opportunities available in the digital asset space, but adds that this can only be achieved with better regulation. Regulation surrounding digital assets will be a key talking point — particularly heading into an election year in Australia.
“From a legislation perspective, we’ve seen the current government — perhaps influenced by the US election — begin talking again about crypto and perhaps looking to use it as an election issue,” Ball explains. In December last year, the Australian Securities and Investments Commission (ASIC) released a draft update to their information sheet INFO225 and opened a consultation period through consultation paper CP381.
“The impact of these updates are the expansion of the regulatory perimeter for digital assets; that is bringing them under ASIC’s purview and likely requiring much of the industry — including Zodia Custody — to get an Australian Financial Services Licence. We are currently in the application process for our AFSL so that we can offer licensed custodial services to the Australian market.”
What does Ball want to see change from a regulatory perspective?
He replies: “I hope to see regulatory clarity through fit-for-purpose legislation for digital assets to make its way through parliament, as well as broader adoption by the TradFi sector — particularly more exploration by superannuation and banks.”
Ball continues to state that, “there will be questions around what form INFO225 ends up being published in, what legislation will end up coming through parliament, and what regulatory burden this will put on different organisations in the industry.”
He suggests that the overhead “may be too high to run sustainable businesses for a lot of operators.” As with the custodians, he expects that there will be a considerable amount of consolidation in the industry in the digital assets space. As well as the regulatory challenges, Ball identifies a potentially larger challenge for the industry in the coming months. He believes that, “our greatest challenge in Australia is in not falling behind other markets from a regulatory and adoption perspective. If the Trump administration achieves what it has proposed, we need to follow quickly or risk missing the boat completely.
“I hold out hope too that the Reserve Bank of Australia can be innovative and act fast to keep Australia competitive on a global front if the US moves how we expect it to.”
Amid these challenges, Ball believes that in 2025, the Australian market will see “a one-time market shift from self-custody through custodial software providers to licensed custody through custodians like ourselves.”
The changing landscape of digital assets would not be possible without the huge uptake in interest in the sector. “We’ve seen the first of the super funds make an allocation into digital assets,” Ball says. “This can’t be understated in its importance and its legitimisation of the sector locally. It has reignited conversations on digital asset adoption that had previously closed and we expect much more institutional adoption over the coming 12 months. Interestingly, I think this time we will see institutional adoption increase faster than retail.”
A growing pot
Australia is unique and ahead of the world when it comes to pension funds. Aaron Knowles, global head of product management and marketing at Bravura, explains that “being some twenty years ahead of the UK in launching our version of auto-enrolment, Australia is seeing the first wave of members with substantial superannuation savings moving into a phase where they can draw down on their savings.”
However, with the scale of this task evident, Knowles believes that the industry “needs to invest in making sure compelling and effective retirement products are available to accelerate and streamline the process.”
He continues to point to the legislative pressure on funds which are demanding improvements in what retirement products they offer, how to offer them at scale and success can be measured.
The superannuation funds space in Australia has grown, Knowles says, “by 11 per cent in the year to March to AU$3.85 trillion — representing roughly one and a half times the country’s GDP.
“This growth in assets is causing shifts in the industry as funds invest deeper in overseas markets and take greater direct ownership in stakes in companies, therefore giving them more influence on issues such as ESG investing.”
Knowles adds that smaller funds are finding it difficult to compete in the market as a result of a period of significant consolidation. Knowles says that consolidation is “something which the Australian Prudential Regulation Authority has encouraged, to strengthen the superannuation system’s resilience and efficiency.”
As funds increase in size, the way in which superannuation funds operate in Australia has changed to provide more opportunities to create valuable efficiencies. Knowles identifies that this has been achieved by “bringing investment and administration tasks inhouse and automating manually intensive processes.”
But, vitally, Knowles insists that Australia will have to move towards a digital-first operating model. “This is a sea change to the way many funds are currently operating,” he says. “[It] means if funds don’t invest in transformation projects, they risk missing material opportunities to reduce their cost to serve members, improve their processing timelines and increase control over operations, as well as investing in the member experience through features such as digital advice.”
But how will technology develop in Australia?
Tech trends
As is the case with all aspects of asset servicing, technology is likely to be the driver of industry change — Australia will be no exception.
“Australia’s financial services sector has historically been a very manual market,” admits Marianne Antonicelli, head of sales for Australia and New Zealand at FINBOURNE Technology. “While significant progress has been made in adopting technology and automation, some entrenched ‘old habits’ persist. The journey to fully embrace digital transformation will take time, and the focus will remain on fostering a culture of innovation and automation while ensuring regulatory alignment.”
The steps to creating that change and cultivating an innovative culture will be gradual, but Antonicelli is identifying growth opportunities in the technology space. In the next year, she expects the development of interoperability of systems and generative AI to take shape.
Antonicelli explains that the Australian financial services had typically had two options when it came to technology: isolated best-of-breed systems or back-to-front solutions. This binary option, she says, “often resulted in inflexible architectures that struggled to deliver a truly holistic view of a company’s complete investment book of record.
“They also fell short in areas like data governance, regulatory reporting, enabling business agility and so on. The trend is now shifting toward ‘best of breed ecosystems,’ where specialised, mission-specific systems can seamlessly interoperate.”
As for generative AI, Antonicelli states that it is becoming “increasingly important” for the Australian markets in enabling non-technical users to extract insights from complex datasets.
“AI helps financial services firms better understand the data they hold, interpret what the data represent, and easily locate where it is stored,” she says.? “It also streamlines data retrieval, allowing users to quickly access information from all data sources through natural language queries.”
One aspect shaping the direction in which technology is developing is regulation. Antonicelli points to the Australian Prudential Regulation Authority’s CPS 230 regulation, coming into force on 1 July 2025, that aims to enhance operational resilience in the region.
She explains: “It will require financial institutions to strengthen operational risk management frameworks and implement robust systems to ensure ongoing compliance with heightened regulatory standards.”
Antonicelli continues to focus on how the expansion of private markets will lead to an intensification of regulatory attention. The key areas of focus will include pricing, valuation, and comprehensive fund monitoring and will, she adds, “likely spur innovation in solutions designed to offer greater transparency and more effective oversight for private assets.”
Above all though, the technology space is no outlier when it comes to consolidation. As was the case with the custody and digital assets space, the trend will only continue through 2025.
Antonicelli concludes: “This trend will create new demands for oversight, integration, and technology solutions that enable seamless operations and enhanced efficiency amidst mergers and acquisitions.”
The global custody market is going through a period of consolidation, but what does that mean for Australia?
“This shows the strength and resilience of the local custody industry,” replies Daniel Cheever, head of securities services for Australia and New Zealand at BNP Paribas. “Clients can find providers in a relatively short period of time, while securely transitioning to a new provider — there is a strong level of competition.”
Cheever considers the impact that scale has had on the custody space in Australia, saying that, “scale has gained importance for custodians as institutional asset owners increasingly adopt master custody, a structure in which they have multiple investment managers but only one custodian.”
However, at the heart of developments in the custody market lies the industry’s digital transformation. Cheever points to the influence of North America’s shift, and Europe’s potential shift, to a T+1 settlement cycle as key drivers of efficiency improvements in the region.
“We are also very interested in what is happening with the Australian Securities Exchange, and their Chess replacement which is targeted for a go-live in 2029,” he says. “We expect T+1 will be tested as part of this deployment to future proof the platform. It’s important for us to be both a global custodian but also a local custodian in many markets, staying close to the market and being able to support clients with these types of changes and initiatives while improving the industry.”
Looking ahead to 2025, Cheever considers the impact that the Prudential Standard CPS 230 regulation, the introduction of standards for operational resilience and business contingency, could have on the industry. Despite its potential impact, he believes that, “certainly amongst the global bank custodian community, we already have very strong frameworks”.
As it has been the case in recent years, ESG will continue to dominate discussions in the industry — both globally and in Australia. Cheever points to the challenges surrounding data constraints that provide difficulties in ESG integration — notably in financial risks threatened by the climate crisis. Yet, he says, “investors are nevertheless incorporating ESG, notably in their portfolio management and investment decisions. It certainly feels like more clients are focused on or accelerating their net zero targets and on reducing their carbon footprint.”
Delivering the digital
Up to 25 per cent of Australians hold crypto, making it one of the highest crypto adoption rates in the world. The appetite for cryptocurrencies Down Under is undeniable and David Ball, managing director for Australia at Zodia Custody, is keen to make the most of the growing demand for digital assets.
“We see this year as critical to the future of digital assets in Australia,” Ball begins. He hopes that the industry can make the most of the opportunities available in the digital asset space, but adds that this can only be achieved with better regulation. Regulation surrounding digital assets will be a key talking point — particularly heading into an election year in Australia.
“From a legislation perspective, we’ve seen the current government — perhaps influenced by the US election — begin talking again about crypto and perhaps looking to use it as an election issue,” Ball explains. In December last year, the Australian Securities and Investments Commission (ASIC) released a draft update to their information sheet INFO225 and opened a consultation period through consultation paper CP381.
“The impact of these updates are the expansion of the regulatory perimeter for digital assets; that is bringing them under ASIC’s purview and likely requiring much of the industry — including Zodia Custody — to get an Australian Financial Services Licence. We are currently in the application process for our AFSL so that we can offer licensed custodial services to the Australian market.”
What does Ball want to see change from a regulatory perspective?
He replies: “I hope to see regulatory clarity through fit-for-purpose legislation for digital assets to make its way through parliament, as well as broader adoption by the TradFi sector — particularly more exploration by superannuation and banks.”
Ball continues to state that, “there will be questions around what form INFO225 ends up being published in, what legislation will end up coming through parliament, and what regulatory burden this will put on different organisations in the industry.”
He suggests that the overhead “may be too high to run sustainable businesses for a lot of operators.” As with the custodians, he expects that there will be a considerable amount of consolidation in the industry in the digital assets space. As well as the regulatory challenges, Ball identifies a potentially larger challenge for the industry in the coming months. He believes that, “our greatest challenge in Australia is in not falling behind other markets from a regulatory and adoption perspective. If the Trump administration achieves what it has proposed, we need to follow quickly or risk missing the boat completely.
“I hold out hope too that the Reserve Bank of Australia can be innovative and act fast to keep Australia competitive on a global front if the US moves how we expect it to.”
Amid these challenges, Ball believes that in 2025, the Australian market will see “a one-time market shift from self-custody through custodial software providers to licensed custody through custodians like ourselves.”
The changing landscape of digital assets would not be possible without the huge uptake in interest in the sector. “We’ve seen the first of the super funds make an allocation into digital assets,” Ball says. “This can’t be understated in its importance and its legitimisation of the sector locally. It has reignited conversations on digital asset adoption that had previously closed and we expect much more institutional adoption over the coming 12 months. Interestingly, I think this time we will see institutional adoption increase faster than retail.”
A growing pot
Australia is unique and ahead of the world when it comes to pension funds. Aaron Knowles, global head of product management and marketing at Bravura, explains that “being some twenty years ahead of the UK in launching our version of auto-enrolment, Australia is seeing the first wave of members with substantial superannuation savings moving into a phase where they can draw down on their savings.”
However, with the scale of this task evident, Knowles believes that the industry “needs to invest in making sure compelling and effective retirement products are available to accelerate and streamline the process.”
He continues to point to the legislative pressure on funds which are demanding improvements in what retirement products they offer, how to offer them at scale and success can be measured.
The superannuation funds space in Australia has grown, Knowles says, “by 11 per cent in the year to March to AU$3.85 trillion — representing roughly one and a half times the country’s GDP.
“This growth in assets is causing shifts in the industry as funds invest deeper in overseas markets and take greater direct ownership in stakes in companies, therefore giving them more influence on issues such as ESG investing.”
Knowles adds that smaller funds are finding it difficult to compete in the market as a result of a period of significant consolidation. Knowles says that consolidation is “something which the Australian Prudential Regulation Authority has encouraged, to strengthen the superannuation system’s resilience and efficiency.”
As funds increase in size, the way in which superannuation funds operate in Australia has changed to provide more opportunities to create valuable efficiencies. Knowles identifies that this has been achieved by “bringing investment and administration tasks inhouse and automating manually intensive processes.”
But, vitally, Knowles insists that Australia will have to move towards a digital-first operating model. “This is a sea change to the way many funds are currently operating,” he says. “[It] means if funds don’t invest in transformation projects, they risk missing material opportunities to reduce their cost to serve members, improve their processing timelines and increase control over operations, as well as investing in the member experience through features such as digital advice.”
But how will technology develop in Australia?
Tech trends
As is the case with all aspects of asset servicing, technology is likely to be the driver of industry change — Australia will be no exception.
“Australia’s financial services sector has historically been a very manual market,” admits Marianne Antonicelli, head of sales for Australia and New Zealand at FINBOURNE Technology. “While significant progress has been made in adopting technology and automation, some entrenched ‘old habits’ persist. The journey to fully embrace digital transformation will take time, and the focus will remain on fostering a culture of innovation and automation while ensuring regulatory alignment.”
The steps to creating that change and cultivating an innovative culture will be gradual, but Antonicelli is identifying growth opportunities in the technology space. In the next year, she expects the development of interoperability of systems and generative AI to take shape.
Antonicelli explains that the Australian financial services had typically had two options when it came to technology: isolated best-of-breed systems or back-to-front solutions. This binary option, she says, “often resulted in inflexible architectures that struggled to deliver a truly holistic view of a company’s complete investment book of record.
“They also fell short in areas like data governance, regulatory reporting, enabling business agility and so on. The trend is now shifting toward ‘best of breed ecosystems,’ where specialised, mission-specific systems can seamlessly interoperate.”
As for generative AI, Antonicelli states that it is becoming “increasingly important” for the Australian markets in enabling non-technical users to extract insights from complex datasets.
“AI helps financial services firms better understand the data they hold, interpret what the data represent, and easily locate where it is stored,” she says.? “It also streamlines data retrieval, allowing users to quickly access information from all data sources through natural language queries.”
One aspect shaping the direction in which technology is developing is regulation. Antonicelli points to the Australian Prudential Regulation Authority’s CPS 230 regulation, coming into force on 1 July 2025, that aims to enhance operational resilience in the region.
She explains: “It will require financial institutions to strengthen operational risk management frameworks and implement robust systems to ensure ongoing compliance with heightened regulatory standards.”
Antonicelli continues to focus on how the expansion of private markets will lead to an intensification of regulatory attention. The key areas of focus will include pricing, valuation, and comprehensive fund monitoring and will, she adds, “likely spur innovation in solutions designed to offer greater transparency and more effective oversight for private assets.”
Above all though, the technology space is no outlier when it comes to consolidation. As was the case with the custody and digital assets space, the trend will only continue through 2025.
Antonicelli concludes: “This trend will create new demands for oversight, integration, and technology solutions that enable seamless operations and enhanced efficiency amidst mergers and acquisitions.”
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