VIDEO | In 2020, the International Securities Services Association (ISSA) published a paper that identified 10 critical drivers shaping the securities services sector as it moves towards 2030. Now, four years later, the same working group has reconvened for an update to the paper that will be released later this year. In the session titled “The future of securities services (with ISSA)” at the PostTrade 360° Nordic 2024 conference, three of the association’s members gave a hint of what they saw in the crystal ball.

Geopolitical influences; the shortening of the settlement cycle; technological transformation; ESG investing – these are just some of the issues the updated paper will cover. The original paper had accurately predicted some of them, and completely missed others, but its upcoming review will pick up where it left off four years ago.

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T+1

“The biggest change we missed was the move to accelerated settlement,” admitted ISSA’s CEO, Colin Parry. “I feel slightly embarrassed about that because we had seen the early stages of the Indian market thinking about it. Personally, I wasn’t sure they’d be able to execute it quite as efficiently as they had… The likelihood of US moving (to T+1) at that time was not even considered.”

In consolation, Philip Brown, CEO of Clearstream Banking SA said, “We’d only recently, in many markets, moved to T+2, and that had taken a long time. So the idea that we would then move again so soon afterwards was probably not on the cards.”

Geopolitical influences

Another major driver of change that the original paper could not have predicted was the geopolitical upheaval that would hit the continent with the escalation of the Russo-Ukrainian war in 2022.

“There an understanding that our industry can be used as a tool for geopolitical leverage – and I don’t say that with any negative connotation; I’m saying it in a non-emotional way,” Brown shared. “Given that that’s a reality, geopolitical movements will have a profound effect on the way our industry functions going forward. The leaders understand that we are a key foreign policy and military policy tool for them.”

ESG investing

At the time of publication of the original paper, the industry consensus was that ESG investing was “becoming more important”, Parry recalled. Brown revealed that the new paper would single out the “G” (governance) as “being the area where we’ve seen the most traction”.

“What the marketing department says about ESG and what people want to buy and the reality of the retail investor are two very different things,” Brown continued. “Nearly five years since we wrote the report, a lot of the noise back then on ESG has dissipated, somewhat because of greenwashing claims, and people terrified of being caught out by being on the wrong side of it, but also because the retail investor is simply not buying the product.”

He shared a conversation he had with the CEO of a Nordic bank who revealed that millennials are not buying ESG products “unless the yield is better than the non-ESG product”.

Technological transformation

William Hodash, ISSA’s working group coordinator, recalled a period of time “back in 2019” when the industry was worried about big tech buying up banks and the implications that might have for the securities services business.

Fortunately, that never came to pass. Parry believes that it was due to a lack of margins. He claimed that big tech firms are used to margins of 40 to 60 per cent – which is seldom seen in financial services. Considering the regulatory scrutiny and complexities that come with entering the sector, it is “just not worth the pain”.

Instead, big tech firms have taken to partnering with financial services firms. Parry named CME, LSEG, and UBS as three financial firms that have entered into such partnerships. These collaborations allow tech firms to have the best of both worlds – a piece of the financial pie in a low risk manner, and the high margins they are used to selling products or services they have expertise in.

“We’ve always had this fear that we will be disrupted. But the reason I don’t think post trade will be disrupted by technology and why they would rather partner with us is because the real game in financial servcies is the last mile to the customer,” added Brown. According to him, the point where the product gets distributed, is where the money gets made. “Post trade is as far from the last mile to the customer as you can get in financial services. It’s just not interesting from a P&L (profit and loss) point of view.”

Panellists:
Philip Brown, CEO, Clearstream Banking SA
Colin Parry, CEO, International Securities Services Association

Moderator:
William Hodash, Working Group Coordinator, International Securities Services Association

Hosted by International Securities Services Association (ISSA).

• The consolidated PostTrade 360° Nordic conference, in Stockholm on 4–5 September 2024, came to host 1,200+ delegates and featured 70 sessions.
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