NeMa 2014: What Must the Custody Industry do to Adapt to the New Environment?

The global custody industry needs to innovate and revolutionize the current business models in order to suit the new environment.
By Janet Du Chenne(59204)
The global custody industry needs to innovate and revolutionize the current business models in order to suit the new environment.

The second and final day at NeMa 2014 began with a panel debate on the future of global custody given the challenges it faces.

An audience poll revealed differing attitudes to the problems facing the industry. Twenty-nine percent viewed these problems as cyclical, 45% viewed them as strategic and 26% viewed them as existential.

However, the crisis facing the industry is fixable as long as it innovates, said a custodian panelist. “In the post crisis world there was a realization of what was being paid for, including intraday liquidity and risk. Those who have the systems and offshore will benefit: models must be adapted and integrated with the investment bank.”

Another custodian said the problem is existential. “We’ve been looking back to what it was like 10 years ago: to pricing, regulations and interest rates. Those years won’t come again. Those who reengineer and revolutionize their business models and operating models will survive.”

An investment banker panelist commented that the industry is letting regulation drive the agenda. “We’ve got to come up with better solutions and look to other parts of the banking sector and other industries (e.g. automotive) to adapt because competition was intense.

“I’m happy to pay for collateral and credit but not settlement and custody. What I want is innovative service including credit and liquidity. I don’t want to pay high margins for custody.”

In a poll on revenue opportunities that offer the global custody industry the best prospects of rapid and sustained growth, 47% of the audience replied collateral management, 27% replied emerging markets, 11% replied outsourcing by wealth managers, 8% replied fund platforms and 7% replied asset and transaction data mining / analysis.

The investment banker added that he would pay for tri-party collateral management from a custodian. “We are always looking for ways to optimize our collateral management,” he said.

In a final poll on what the industry would like to see provided by custodians, 38% replied direct buy-side links to market infrastructures, 21% global custodians that have in-house sub-custody on a global scale, 17% replied fewer but larger global custodians, 15% replied smaller but more numerous global custodians and 8% said replacement by disruptive technology-based companies.

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