How is custody using technological innovation and enhanced automation to provide clients with the same positive retail experiences they are used to in their personal lives? flow reports on the main themes from The Network Forum Americas meeting 2018
Through the touch screen of a portable smart device, consumers can purchase any number of goods and services; obtain information in real-time from an unquantifiable range of sources; and manage their own personal lives through embedded, user-friendly apps. In a recent article – “Dashboard dynamics” – Deutsche Bank’s Securities Services team paid tribute to some of these digital advancements which have been made in the business-to-consumer world.
The same article highlighted that Deutsche Bank– through technological innovation and enhanced automation - was looking to replicate the positive retail experiences in a B2B environment for institutional and corporate clients. Mike Clarke, product management, Securities Services EMEA at Deutsche Bank, reinforced this message at the Network Forum Americas Conference in New York.
Data and digitalisation in the custody industry
Custodians drive forward with data products
The delivery of information to clients in real-time facilitated through robotics and application programming interfaces (APIs) brings about enhanced customer experiences and helps end users realise efficiencies, highlighted Clarke. However, custodians are going one step further now, aggregating the big data and client metrics held across their businesses and using artificial intelligence (AI) contraptions and machine learning techniques to untangle the unstructured information and provide analysis off it.
This allows providers to spot undiscovered trends, which can then be shared with clients, allowing them to make material improvements to their operating model. “Data insights are very powerful tools and can add value throughout the custody chain. Deutsche Bank is using big data analytics to identify why some customers suffer from settlement fails, the findings of which we then share, enabling clients to fix the problem, and avoid penalties under the EU’s Central Securities Depository Regulation (CSDR), for example,” he said.
Custodians look to expand AI
Revolutionising the end-to-end experience through Blockchain
Blockchain or DLT has the potential to reinvigorate the custody lifecycle, condensing the number of manual processes throughout the intermediary chain. Proof of concepts (POCs) are in full throttle, as providers pilot the technology in fields such as proxy voting, corporate actions, settlements and collateral management. “The custody industry has demonstrated a remarkable innovative streak with Blockchain. We believe the technology could reduce costs, enhance transparency, strengthen security, and augment traceability,” said Clarke.
Blockchain’s success will be heavily dependent on the ability and willingness of competing stakeholders to cooperate with each other, along with regulators to ensure the technology can interoperate off multiple platforms and systems. A failure to collaborate meaningfully could result in different Blockchains developing in isolated silos across organisations, many of which may operate using their own unique standardisation protocols. Such an outcome would be counterintuitive, increasing inefficiencies and inflating costs in securities markets.
Nonetheless, Blockchain progress is being made. In 2016, Digital Asset was selected by the Australian Securities Exchange (ASX) to develop a working prototype of a post-trade platform for the cash equity market using DLT, in what would replace the current CHESS system 2. The transition away from the CHESS post-trade platform onto the DLT-enabled infrastructure is expected to take place between 2020 and 2021, and will allow ASX to maintain a real-time, secure immutable record of transactions and settlements.
A framework for successful innovation
Agility and flexibility will be essential if custodians are to properly future-proof themselves and preserve client loyalty. “Focusing on small projects that provide incremental benefits, which can be easily delivered, will be key, and instrumental in helping the industry move forward,” said Clarke. Furthermore, custodians need to begin producing tangible solutions to client problems on expedited timeframes to avoid disintermediation. “The industry needs to speed up service delivery. Positive market changes such as Target2-Securities (T2S) took ten years to shape, but we do not have this luxury of time anymore,” he concluded.
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