July 2017

Janet Du Chenne reports from the Network Forum on five key themes that will drive change in securities services

The recent Network Forum Annual Meeting in Warsaw brought together industry players across banks, broker dealers and financial intermediaries. The event covered the familiar alphabet soup of post-trade topics, including regulatory change, infrastructure initiatives and technology change. However, on filtering through the various thought provoking discussions, the ‘ABC’ themes of Applicability, Brexit and Collaboration emerged, providing the essential ingredients to move towards ‘D&E’, which is the Digitalisation and Empowerment within securities services.

Applicability

An increasingly uncertain macro-economic and geopolitical environment and squeezed margins are impacting the industry’s profitability. A low interest rate environment and incumbent technology providers have also re-focused service providers to review their business operating models. At the same time, as clients face the new post-trade landscape, the value of services they require from their service providers have also changed.

On one panel, custodians discussed the next radical change that will help secure growth in the custody business. Deutsche Bank’s Graham Ray expressed that the industry needs to get better at articulating the value add it provides to get back to profitability. To highlight this point, he explained how Deutsche Bank decomponentised its custody offering after assessing the drivers of change in post-trade and the value added services that clients increasingly require following those changes. He also emphasised the need to leverage data to better understand how people and technology come together to focus on the process, as well as the platforms, to be able to demonstrate the full value of those new custody models. “This transparency should help us secure future growth with our clients,” said Ray.

The forum also reflected on the standardisation and harmonisation of EU market infrastructures and financial institutions that have set the recent priorities on investment in the industry. These include infrastructure initiatives such as TARGET2-Securities (T2S), providing markets with a harmonised European securities settlement engine; and the Central Securities Depository Regulation (CSDR), creating uniform standards for CSDs and implementing T+2 settlement in European markets. These initiatives were carried out under a far-reaching goal designed to further align standards and processes across EU member states.

Brexit

Britain’s vote a year ago to leave the European Union is resetting the focus for many organisations, from re-examining how they access the European and UK markets, reacting to the impacts on business processes. For example, questions remain over whether regulators will fragment the regional over-the-counter (OTC) clearing market. Any fragmentation may deliver the opposite effect that centralised pools of liquidity at central counterparties create, including controlled clearing costs through netting and margin offsets on collateral.

Collaboration

Collaboration among industry players was a key topic at the forum, with discussion focussing on how this has already yielded collateral and liquidity benefits. Client user cases demonstrated how they have used the harmonisation and standardisation achieved in Europe thus far to revise their business models and outsource asset servicing and settlement to third party providers within new partnership account models.

Further momentum is now required in order to overcome the wider challenges that are present and future challenges that the industry will face. This means bringing people together across organisations front to back, leveraging technology with an openness to collaborate to deliver new partnership services to current and future industry players.

This momentum relies on collaboration between custodians, infrastructure partners and Fintechs to review the end to end processes in the custody chain and find optimum ways to continue to deliver new products and services, and ultimately, value to clients, said Ray.

Digital and data

The Network Forum explored many potential benefits of evolving technologies, including the use of artificial intelligence in tackling repetitive manual tasks and APIs to enable new products and services. However, it was distributed ledger technology (DLT) that took centre stage at the event. While the industry is eagerly awaiting a tangible example of how the technology can be leveraged to make things more efficient and reduce costs, the key take-away was that change is inevitable. This was explained in various DLT panel discussions, concluding that it is critical that the industry has to evolve.  

Digital change means empowering the client with new technologies and data is at the heart of that evolution. Given the amount of data they hold, securities service providers are strongly positioned to create transparency to ensure compliance with regulations and provide further services that add value and insight to the client. Transparent data and digital technologies can enable providers to focus on the process as well as the platforms, to collectively reduce costs and add value and price accordingly.

Empowering the client

The future of digitalisation and client empowerment depends on data being delivered in conjunction with front to back collaboration across the industry to deliver the transparency, insights and services that clients will continue to require going forward. 

At the end of the day, after the Network Forum concluded, the key longer term question that remains and that each participant should ask themselves is this: what is my institution’s role in collectively moving the industry forward and how should I adjust processes and culture to achieve a digital future that ensures our clients remain at the heart of the services we provide?

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