VIDEO | Like a large part of the industry, investor services are going through a transformation. At the PostTrade 360° Nordic 2024 conference, a panel of experts attempted to dissect the drivers of change in the sector in the session titled “Current trends in investor services”. Perhaps unsurprisingly, T+1 and geopolitical influences were mentioned – but the topic that truly dominated the conversation was technology.
“The advancement of technology has outpaced the industry for the last 15, 20 years,” said Adam West, global head of commercial product – custody at BNY Mellon.
The consensus across the panel was that within technology, data and artificial intelligence (AI) are the biggest disruptors at the moment. Data has become important, said Gary O’Brien, head of bank and broker segment strategy at BNP Paribas, and “gen AI (generative AI) is taking it a step further to bring much more insights and information that is usable for clients out of the information (provided by data)”.
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The client-centric perspective
West is of the same opinion. “Data can’t prevent issues, but it can inform,” he added. With the ability to inform, comes the need for trust. He pointed out that to build trust in data, it is paramount to understand the profile and needs of the user. Someone in a transfer agency, for example, would require a very different set of data from someone in performance measurement risk analytics.
“Going through the canonical data models and understanding how that data is being used is hugely important… When you layer the new technologies on top of that, then you can start talking about how to drive value proposition and change for clients.”
Isa Ribeiro, regional director at Clearstream Banking Luxembourg is with West on the need to offer clients a value proposition. “The goal cannot be just to cut costs, be more efficient, or work less…If you wanna be really the disruptor kid on the block, you have to bring something to the stage,” she said. “Keep in mind that it’s all about the clients and the value you bring to them, not about the technology itself.”
Pick and choose
Speaking of clients, Johan Lindberg, managing director and head of regional coverage Nordics and Baltics and Caceis wondered if “there is a big gap between what clients, be it asset owners or asset managers or the man on the street, think about automation and what they envisage for the future and how it’s actually going to be implemented”. The right question to ask, he said, is not, “Which technology is it?” but “How do we leverage the new technology?”
“Which technology is it?” certainly isn’t the question West is asking either. “I don’t think there’s one technology that’s going to fundamentally change the industry,” he said. “Mainframe applications are pretty good at what they do if you let them do what they’re supposed to do. If you try and layer an API (application programming interface) infrastructure on top, then it gets a little complex. So how do you look at your technology stack, whether you’re on the buy side or sell side, a custodian or an intermediary, and pick the right places to invest in the technology that ultimately delivers value to the clients?”
Indeed, what to upgrade – and whether to even upgrade – is a top-of-mind issue among industry players in recent years. “A lot of focus organisations have had over the last 10 years is on the digitisation of the client-facing layer, but beneath that, you’re still on mainframe, you’re still on old technologies,” O’Brien shared. “There is the question of, do you then upgrade, do you continue with what you have and find ways to solve around it, or do you end up outsourcing because it’s too much of a mess to fix up in the long run?”
The dilemma of standardisation
Very often, the end goal of technological applications appear to be automation and efficiency, which implies standardisation. For O’Brien, this presents a dilemma. “Individual clients want different things,” he pointed out. “They want things to be agile and available to them at their own need.”
“One of the concepts people talk about is how, when I order on Amazon, I can get my parcel the same day – and the important word here is ‘can’. It’s not ‘must’. When we talk about financial markets, we are building a market where everybody must do the same thing. That’s not what investors want. Investors want what makes sense to them, because every investor is different.”
“Building the individual client focused element into a market that is built around standardisation is a key dilemma that we will have for the next few years,” he said.
West acknowledges the dilemma, but believes that there will soon be a solution. “I think in the provider landscape, there is going to be a rationalisation of strategic partners that can do multiple things for a client across the investment lifecycle, all the way from issuance to back office processing.”
Do as you wish
O’Brien foresees that a specific platform model will become increasingly popular as the industry moves towards 2030: one where investor service providers create frameworks that connect to fintechs, feeding into a larger framework that is agile enough for clients to pick and choose the right functions for their particular needs.
The vision, he shared, was of a “depot bank of platforms, where custodian-type entities can be the controller of the platform of providers that is used by a client”. The custodian-type entities would be “given an extra responsibility to ensure the security and safety of that platform in the same way that they have for traditional assets today”.
West concluded, “What we are all saying to the collective here is that it’s our job to create a digital ecosystem that allows clients to interoperate with whoever they choose.” As the industry “rationalises and consolidates technology partners across the ecosystem”, the key is to ensure that there is “data lineage and connectivity” between all the different applications so that “it all comes together seamlessly”.
Panellists:
Johan Lindberg, Managing Director, Head of Regional Coverage Nordics and Baltics, CACEIS
Gary O’Brien, Head of Bank and Broker Segment Strategy, BNP Paribas
Isa Ribeiro, Regional Director, Clearstream Banking Luxembourg
Adam Watson, Global Head Commercial Product- Custody, BNY
Moderator:
Virginie O’Shea, Founder and CEO, Firebrand Research
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