It’s Valentine’s Day, which means we had two options for a thematic piece. Firstly, we could have gone down the route of Valentine’s-related custody card slogans for you to send your loved ones such as ‘we’re like two BNPeas in a pod’ or ‘you’ll always BNmY heart’ (okay that one didn’t work quite as well), but the second option was to explore the perfect matches in the securities space.
When I first joined Global Custodian in 2016, I found collaboration to be the most intolerable buzzword around. It was like hitting the emergency panic button on trends when there was no more optimism left. But in the past few years, we’ve seen custodians open their hearts – and doors – to real partnerships and collaboration.
Now of course there’s been plenty of heartache – State Street and BBH, DTCC and Euroclear (remember GlobalCollateral?), ASX and Digital Asset (though this could just be a bump in the road) – but these certainly aren’t a deterrent from a swathe of partnerships we are now seeing across the industry.
Last week, Global Custodian announced the shortlists for our annual Leaders in Custody awards, and under Asset Servicing Partnership of the Year, the range of collaboration styles is fascinating. Custodian and fintech (State Street – FundGuard), custodian and market infrastructure (HSBC – Clearstream), and even two asset servicers in BNP Paribas and CACEIS for their issuer services joint venture.
The 2030 vision for most custodians includes the exploration of new services and updates, such as digital asset services, offering front-office services and significant technology upgrades, all of which are journeys best undertaken with a partner.
A few years ago, we saw the likes of BlackRock Aladdin, SimCorp and Amundi partnering with multiple custodians to become the front-office component of their front-to-back offerings, and while these represented significant investments (especially Aladdin), they were ultimately worth the investment and a necessary step for the top tier providers. The whole ‘agnostic front-office’ approach within securities services is now a consistent message which even State Street – owner of Charles River – has in their DNA.
Meanwhile, we’ve covered the trend of fintech partnerships and investments frequently on Global Custodian, but it’s certainly worth mentioning again. The balance of external investments with internal innovation labs and schemes is bearing fruit in 2023 as the likes of Proxymity, HQLAx and AccessFintech – to name a few – are bringing tangible efficiencies and savings to the industry. These firms and their team have not only become fantastic partners for the industry, but are also cementing themselves within the asset servicing community as part of the furniture.
On the digital asset side, the partnerships have been equally as clever and beneficial. The attitude seems to have been ‘let’s position ourselves as being ready for this sector without betting the house on it’ and the best way to do that has been through leveraging partnerships with the likes of Fireblocks, METACO and Copper (again, just to name a few). The blend of traditional custody expertise with budding fintechs in the space is a match made in heaven – so long as due diligence has been done – this is a nascent sector, but not one that needs immediate solutions. Eventually, incumbent custodians will be major players in the development of institutional involvement in crypto – or a tokenised future – and having these partners will allow them to occupy that integral role while also continuing to focus on traditional capabilities and offerings as well.
Finally, we have the emergence of partnerships between custodians and cloud technology providers, something shaping the future of the industry. The likes of State Street and BNY Mellon striking deals with the Microsofts and AWSs of the world is a critical step in the evolution of data and technology for the top tier asset service providers of the industry.
In a world where data and analytics are more important than ever before, these partnerships will benefit both the custodian and client through state-of-the-art platforms that can upgrade technology and meet the increasing demand for speedy and vast volumes of data.
Partnerships in this fashion are not necessarily new, but the sheer breadth of them across the custody and fund services space has escalated at an astonishing pace in recent years.
We haven’t even mentioned partnerships around the ETF servicing space, regulations like CSDR and UMR, or regional partnerships like BNP Paribas and Riyad Capital or BNY Mellon and NCB Capital – both in Saudi Arabia. I could probably dig deeper and find even more.
So, as you can see, partnerships are not only a component of asset servicing in 2023, but one of the defining features of the industry. It’s the perfect way to expand into new offerings, keep pace with technology developments and even counter against rising headwinds of squeezed margins, fee pressures and commoditisation of some services.
But for now, let me leave you with one more suggestion for a back-office Valentine’s message.
Roses are red,
Violets are blue,
So let’s just stay at T+2