Sponsored by Deutsche Bank
Seven weeks into UK lockdown, over one hundred participants logged on to hear Michaela Ludbrook, global head of securities services, Deutsche Bank; Daron Pearce, head of asset servicing strategic growth, BNY Mellon; and Alan Copping, head of market support, SimCorp, address both the challenges of lockdown and its impact on the post-trade industry’s future development. The discussion was moderated by Joe Parsons, deputy editor, Global Custodian.
The conversation began with an online poll asking participants where they felt the effects of the coronavirus pandemic had had the most impact on securities services: operations and technology, sales and marketing, data management, regulatory compliance or relationship management. Ludbrook, admitted that it was tough to choose. “I struggled to pick one individual item, because so much has changed,” she commented, adding that ,“COVID-19 has illuminated certain areas that we want to accelerate: client quality of service, transparency of data and mechanisms to deliver information in a seamless way.”
The digital toolsets the industry has been deploying are not necessarily new in themselves. “Things like electronic signatures, transparency around flows, reporting and data, and lifecycle transparency are all areas that we’ve talked about for a very long time,” said Ludbrook. “Those are key areas as you think about the development of the industry and clearly they’ve become even more important, as we’re all working from various different locations around the world.”
She pointed out that to-date the industry had shown great resilience in tackling the challenges of disruption thrown up by the pandemic, not only in terms of technology, but in the human engagement that it underpins.
This is all the more remarkable given the nature of most business continuity plans. While these may have been rehearsed, Copping pointed out, they have generally relied on moving from one site to another. “Now we’re all working remotely, what has helped most of our clients is that they have adopted an integrated approach with a single source of data, automated workflows and no real manual input. Where we have seen a lot of demand is for quick access to that data,” said Copping.
As the markets are volatile, clients want to see where their portfolio is; the ability to deliver that data from a centralised validated place is key.”
Pearce agreed. Some 97% of his colleagues globally have been working from home, along with a similar proportion among the bank’s clients. Despite that, Pearce suggested, “We’ve actually seen an uptick in in the quality of communications between ourselves and our clients. The bank recently hosted an event that typically attracts about 80 attendees. Online, we had 250 attendees. People have successfully made this switch into the virtual communications world.”
Pearce said that the few firms that have experienced vulnerabilities as a result of previous under-investment in technology would take the COVID-19 crisis as a catalyst for behavioural change.
“As people look to patch up some of the problems they’ve had with their architecture, they are also changing some of the behaviours in the front-office,” he said. “We’ve got clients who for the very first time have started to use our online tools. Not that they didn’t use the data with the tools before, but they maybe had an assistant sitting alongside them, printing off reports and dumping paper on their desks every morning. Now they’re having to learn how to use those tools themselves.”
Ludbrook and Pearce both confirmed that productivity levels had not dipped with home working.
“Teams have found different mechanisms to be productive,” said Ludbrook. “One of the challenges that we’ve experienced is how to get people to switch off.”
While digitalisation was already the “direction of travel”, explained Pearce, “This is an accelerator towards that. There will be more reliance on technology, on video interaction from a relationship management perspective with more working from home. The one business I wouldn’t want to be in right now, apart from airlines, is commercial real estate!”
A second poll question on which disruptive technologies were likely to have the greatest impact on post-trade processes and operations drew particular attention to APIs in the responses. “We were heavily invested in the deployment of APIs already, but this has been a catalyst for much greater take-up and demand from clients who’ve felt exposed to old fashioned means of communication,” said Pearce. “The advantage of delivering and receiving data on demand through an API is the improved control around it.” Again however, panellists were reticent about singling out any one technology. “Without artificial intelligence and machine learning in the last year or two, I think we’d have had challenges in processing the volumes that we saw during the spikes of volatility,” said Pearce. Copping meanwhile pointed to the potential use of machine learning in handling exceptions in trade processing. “We’re look at machine learning to predict breaks in that process,” he said.
There was agreement that the spread of cloud computing was likely to have an increasing impact on the shape of the securities processing industry more generally. “A lot of our data is already sitting in a private cloud we developed. As we digitise more and more of our capability, we think we’ll be able to get to a point where we can deliver a local-like custody service in markets without necessarily having a physical presence there,” said Pearce.
He acknowledged that there would always be a need for some bricks and mortar. There are, for example, physical deliveries and wet signatures required on certain types of documents. “Until the world is fully digitised, I won’t be completely out of real estate, but I think that cloud computing and the advantages of the other technologies that we touched on is going to make that physical footprint less and less important over time,” he argued.
“I think most of us have had to have a small number of people in a brick and mortar office to do certain things and those areas are obviously where we need to focus,” Ludbrook commented. Even since the start of the lockdown, she noted, the need for written signatures has reduced. At the same time, sales processes have continued, even where face-to-face contact was previously regarded as essential.
All three panellists agreed that, beyond technological advances themselves, regulation would continue to act as a catalyst for change. Although some deadlines might be pushed back, said Copping, preparing for regulatory compliance will remain a dominant driver for investment. “What clients are looking for is ease of access to the requisite data for regulatory reporting,” he said.
“If you look back, a lot has been done to achieve standardisation and harmonisation and I think we will continue down that path,” said Ludbrook. Regulation is a key part of the push to more data transparency. “A lot of the things that we’re doing in that regard we always want to do; it was perhaps a question of timing. Because we run global businesses, there were some challenges.” Pearce suggested that the regulatory focus might shift in the light of recent experience. “Regulators have been very focused on data and reporting,” he said. “I think there’s going to be more focus in future on resiliency and recovery.”
Ludbrook meanwhile foresaw a renewed focus on scenario planning in an effort to future-proof the industry against further unexpected disruption. “The question will be, how do you continuously evolve, because it’s a very complex ecosystem,” she concluded. “I wish I had a crystal ball to predict.”