Asset Managers Demand Technology Move For Custodians

Speaking at the Global Custody Forum conference on Tuesday, delegates from the some of the world’s largest asset managers are calling for global custodian banks to increase their investment in technology to meet the new regulatory environment.
By Joe Parsons(2147488729)
Speaking at the Global Custody Forum conference on Tuesday, delegates from the some of the world’s largest asset managers are calling for global custodian banks to increase their investment in technology to meet the new regulatory environment.

As traditional sources of revenue continue to deplete, it is now becoming more important than ever for custodians to revamp business models and adapt to the emerging digital age in the securities services industry.

“Custodians really have to get their act together, especially the big ones,” says Murray Preston, director, global provider strategy, BlackRock.

“They need to do the technology investment seriously… What we have seen with AIFMD (Alternative Investment Fund Managers Directive), and with UCITS V and FATCA (Foreign Account Tax Compliance Act) coming up, controlled responsibilities functions are increasingly changing.”

According to Preston, global custodians are naturally sitting on a mountain of data that can now be commoditized to meet asset manager’s regulatory demands.

“They have the equities, bonds, derivatives pricing and corporate event information on their platforms, so they are sitting on a mass amount of data,” he adds.

This includes trade quality analysis reports, data mining and aggregation, and also new products to enhance risk management techniques.

“What we are discussing with custodians, and what I think is their future, is helping us mining, visualizing and sharing data,” adds Marcus Ruetimann, COO, Schroders.

“The visualization of the data is the most critical one, it doesn’t help us just to mine the data and store it. The real value of the data is not in storage… but to help us make decisions.

“The custodian of the future for Schroders will have to provide service to help us overcome the unpredictable.”

According to a poll of delegates attending the conference, 33.8% of respondents said the digital revolution would materially change their relationship with their custodian.

The panel also said if custodians do in fact monetize data provision, they will also have to find ways to develop enhanced information security provisions. Cyber security has become a major concern for asset managers, following the hacking of 60 million accounts held at J.P. Morgan.

“We are very concerned about this recent data breaches. At Schroders we get attacked as well; the threat internal and external is increasing… and those entities that can also provide not only the service and the talent that leads to trust will also have to have very good information security capabilities,” adds Ruetimann.

Preston adds what he sees as the key differentiator in choosing which custodian to use is speed-to-market.

“What we have seen with T+2 this year, and with the upcoming T2S (TARGET2-Securities), we are seeing much quicker execution in the market. And so we have got to keep up and sometimes drag the partners that we have with us,” says Preston.

In addition, regulation is resulting in asset managers readdressing their risk and operating models. However, for certain providers that are venturing into these new services, establishing the relationship with the asset manager could take some time.

“Broadening relationships with these parties that aren’t used to operating in our industry…is a big risk and to sort that out will take quite a bit of time,” says Marco di Palma, global vendor management, J.P. Morgan Asset Management.

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