Sub-custody: two steps forward, three more needed

An overview of the first documentary launched during Leaders in Custody Week as sub-custodians discuss a shifting landscape, plus find out more about our Innovation Award winners and the newest GC Legend.

By Editors

Access the Leaders in Custody Week event by clicking the image above.

Global Custodian’s Leaders in Custody Week kicked off today with the first of its daily anchor broadcasts: a documentary on the shifting landscape of sub-custody. The industry is to be congratulated for its resilience in adapting to the constraints of the COVID-19 pandemic over the past 18 months, said Camille Papillard, head of clearing and settlement products and sell-side solutions, BNP Paribas Securities Services.

To access the Leaders in Custody Week event click here.

As a practical example of this, Feriz Hasani, head of relationship management, global custody financial institutions, and executive director at UBS, pointed to the speed with which wet signatures were adopted as a temporary measure early in lockdown, though he noted that a permanent solution would require the engagement of industry bodies. This view was also endorsed by Colin Parry, CEO of the International Securities Services Association (ISSA), who stressed that standards across organisations would help efficiency in multiple areas.

The impact of several developments prior to the pandemic is still to play out. Richard Anton, chief operating officer (COO), CIBC Mellon, highlighted an emphasis on new product development over the past few years, aiming for the practical deployment of new technologies in the Canadian market. In a similar vein, Paul Maley, global head of securities services at Deutsche Bank, noted that TARGET2 Securities (T2S), the pan-Euro securities settlement platform, has certainly enabled a range of promising market developments, but their impact is yet to be felt across the EU as a whole.

In addition, not all changes spurred by the pandemic would necessarily survive a return to whatever form ‘normal’ takes. Stephan Hänseler, head of SIX-SIS, said that many of the advantages of virtual communication would be retained, but that on occasion, the need to look into a counterpart’s eyes in a commercial discussion will remain a part of business life.

Several interviewees acknowledged the need for further progress in multiple key areas. Ross Whitehill, CEO, Thomas Murray, identified five trends encountered in the firm’s work with the industry that, if they hadn’t already done so, would prompt a rethink in approach by sub-custodians: asset segregation, the handling of cash, cybersecurity, ESG and digital capabilities. Papillard agreed that ESG was near the top of the list, with investors needing more sophisticated and reliable data and analytics.

Shifts in priority are reflected at least partially in Global Custodian’s annual agent bank surveys. Beenish Hussain, client relationship manager, Global Custodian, explained that the information sought by the surveys, as well as the way they are conducted, has changed significantly over 30 years. Nevertheless, Richard Schwartz, head of research at Global Custodian, suggested that not all judgements of performance against the challenges identified by industry observers could be quantified. He recommended a combination of due diligence processes and survey participation to arrive at a fair assessment of sub-custodian performance.

In addition, Global Custodian published the first three winners of its annual Innovation Awards, celebrating the pioneers of the securities services industry. In one interview, BNY Mellon discussed the client contractual process where it worked with artificial intelligence (AI) platform, Evisort, to remove pain points for its global custody clients. “This is an example of the business, operations, technology and our legal organisation embracing advanced technologies,” said Noam Tasche, global head of digital partnerships at BNY Mellon.

“They are coming in and adopting an intelligent contract management platform that will expedite the contract lifecycle, negotiations and support a piece of the world-class onboarding experience that we are looking to deliver to clients.”

Meanwhile, IHS Markit was recognised for its Innovation in Post-Trade Digitalisation, after the technology vendor transformed its post-trade digital portal this year to help firms in their digital journey where legacy technology continues to hamper transformation programmes. Richard Wilson, director, corporate actions and securities processing discusses the solution, client reaction and how IHS Markit has used application programming interfaces (APIs) in the offering.

“The ability to retire these legacy applications might not be an option. A lot of that is due to a focus on regulatory compliance and the day-to-day operational efficiencies they have to achieve,” said IHS Markit’s Wilson. “What we’ve done is transformed our securities services post-trade digital portal and put digitalisation at the core, and we see this as a core component in any firm’s post-trade digital journey.”

Maples Group rounded off the three videos with Global Custodian commending its tailored AML records management system, Alpha, through an innovation award. Alpha centralises KYC workflows and investor data, to fulfil AML obligations on behalf of fund manager clients.

“Anti-money laundering regulations worldwide are becoming more stringent – and that’s a good thing – but with new requirements comes the need for more involvement from investment funds and their investors,” said Tyler Kim, global head of fund services, Maples Group.

“Alpha plugs a hole in the market…we’ve worked on multiple transfer agency platforms and none of them do a good job of storing and tracking KYC for AML, they are all too generic. We needed something purpose built for tracking and gathering KYC on different types of investors, and we needed something that could classify them properly and track workflow.”

Finally, the first GC Legend of the week to be inducted into our Hall of Fame was revealed as Reto Faber, head of direct clearing and custody for EMEA at Citi. In a podcast interview, Faber discussed his 30 years with the world’s largest sub-custodian and some of the achievements and milestones along the way.

“It’s great honour to join this illustrious club, I’ve seen many legends created over the years, so I’m truly pleased to be honour in this fashion,” said Faber.