Custodians are seeking greater automation, in terms of data processing for their institutional clients because most of the manual processing is opening up more possibility of operational risk, says the head of market standards at mutual funds service provider Calastone.
“The custodian pain that we hear about is regarding the provision of custody services to their institutional clients,” says Dan Llewellyn, Head of Market Standards at Calastone. “Times have changed – a lot of their clients are fund managers with fund of funds, and they are becoming buyers of funds themselves. In many cases, the fund managers communications to their custodians on what trades have been transacted is a manual process, opening up all parties to operational risk.”
“Our custodian clients are looking for greater automation in part of the trading and settlement process, especially as mutual funds, as an asset class, become more widely used. They are anticipating increased volume, which has meant a renewed proactiveness to be able to be ready for that challenge,” adds Llewellyn.
In light of the various globally sweeping regulation changes being installed over the next two years, which includes the Dodd-Frank Bill, UCITS IV, MiFID II and Solvency II, Llewllyn says that cross-border connectivity and preparation is the key for custodians.
“What we do is more for the long-term and it is both domestic and cross-border focused,” says Llewellyn. “So, any solution we provide can actually be passported into different domiciles. The custodians know regulatory changes are coming, and there needs to be more of a standardized process to meet these demands. In terms of settlements, payments and transfers, extra links in the chain like ClearStream and Fundsettle come with extra costs and many custodians are looking for something more cost effective, which gives them operational ability to trade and settle direct with the TA or fund manager.”
(LB)