A wave of partnerships among sub-custodians could be on the horizon as tier two organisations look to overcome industry headwinds, according to Commerzbank’s head of market services.
Rob Scott – a new inductee to GC Legends – says collaboration between sub-custodians could grow volumes, spur cost efficiencies and provide multiple benefits through complimentary business models teaming up.
Regulatory pressures and competition have driven talk of sub-custodians exiting various markets, which has concerned global custodians.
Scott believes that increased revenue opportunities await those sub-custodians who can team up and leverage each other’s strengths.
“A trend which is beginning to emerge amongst tier twos is partnering with each other in different markets to see if that leads to a more fruitful business relationship,” said Scott.
“This could drive up volumes in both the front office as well as cost efficiencies in post-trade services.”
The viability of the sub-custodian model was called into question by panellists at this year’s Nema.
Andrew Osborne, senior VP, head of worldwide network management at Northern Trust, said the global custodian was looking at alternative operating models including disintermediating the sub-custodians out of the service chain, due to the risks of exits.
Brown Brother Harriman’s also added that custodians have been looking at various exit strategies in markets that might be a bit more tenuous.
Scott believes there is still a place for the subs with local expertise but added that they need to be be creative.
“If you look at tier two organisations and analyse their business models they are usually very regional and specifically try to service particular asset classes and client groupings, what you tend to find is that they lack innovation investment on the front office and have cost challenges on the back-end processing,” he said.
“So the question is: can you find other tier two organisations where you can complement each other from a front office perspective and leverage off of each other’s relative strengths?”
Scott is the latest GC Legend inductee. To read his full interview and biography click here.