Increasing regulations and low interest rates and are challenging the economies of custodians and could force them to pass on costs to their clients, according to a Morgan Stanley blue paper.
The paper suggests that these factors are also causing issues for custodians around collateral types and management.
Entitled ‘Learning to live with less liquidity’, the paper written by Morgan Stanley and Oliver Wyman said that all the additional costs will be pushed on to clients and the liquidity ratio will make operational deposits expensive for custodians to maintain at a time when many are being pressured to maintain a hold on cash.
Custodians are being forced to reassess their business models in light of increasing regulation, in order to grow and keep up with client demands.
Speaking at SIBOS in Singapore towards the end of 2015, Deutsche Bank’s global head of institutional cash and securities services, Satvinder Singh said that ‘the days of selling a simple custody solution are long gone’, while other panellists spoke of how they were looking at ways of meeting clients demands while still on the profitability quest.
In spite of a predicted challenging environment the paper suggests that custodians can still have the chance to succeed in data services by leveraging their access to static data.
This can only be achieved, according to the paper, if custodians act quickly as their historical role as a stable and trusted institutions is no longer seen as an essential part of the process in light of new innovators and start-ups.
Clients can expect rising custody costs, says blue paper
Increasing regulations and low interest rates and are challenging the economies of custodians and could force them to pass on costs to their clients, according to a Morgan Stanley blue paper.