Executive Summary & Introduction

When Alexander Graham Bell patented his design for a telephone in 1876, he could not have imagined how his invention would evolve over time. Telephones, once the preserve of wealthy individuals and large corporations, required specialist operators to control their networks until the 1920s. Over the following decades, they went on to become ubiquitous, and the process of using them became disintermediated.

Today, there are 5.28bn people on the planet with a mobile phone,ⁱ and many are using a variety of text/voice/video software options. Bell’s early technology evolved, adapted and democratised how we communicate.

Innovation changes all things, and, like communications platforms, the asset servicing industry has continuously evolved its own capabilities and provision through innovation.

Custodians have come a long way since their origins as the humble guardians of assets over a century ago. As an industry, asset servicing is becoming increasingly disintermediated, integrated, complete and collaborative.

The industry currently provides its clients with a number of services and solutions that it would not have been possible to offer even a decade ago. Asset servicers have been supporting their clients through the use of artificial intelligence (AI), cloud computing, data analytics and blockchain technology.

Beyond 2030, the industry will go even further. We believe that new, collaborative ecosystems will emerge that allow both digital and traditional electronic solutions to exist side by side. The asset servicers of the future will continue to be client centric and focused on asset safety.

But they will also be flexible, agile, creative and digital in ways we have never seen before, as new technologies, shifting institutional investing models and emerging market infrastructure entirely transform the financial landscape.

Industry participants are facing an existential challenge and will need to evolve and collaborate if they want to competitively position themselves for the future.

Digitalisation is proving to be a significant driver of this disruption, change and evolution. Today, the asset servicing industry is going through a process of digitisation and digitalisation simultaneously, though these are two very distinct things:

Digitisation is the process of moving paper content forward into the digital world, using machine learning and artificial intelligence to analyse it or give it some context.

Digitalisation involves no paper in the process at all. Everything that happens, occurs in the digital world. It is being driven by the growth of distributed ledger technology (DLT) and shared infrastructure, with standardised, commoditised processes being developed on those technologies. It is helping to support a growing shift to decentralised finance (DeFi), and is bringing about the advent of digital assets and other innovations.

KEY TERMS

Distributed Ledger Technology (DLT): a protocol that allows a digitalised decentralised database to record, share, and synchronise transactions via a series of electronic ledgers. DLTs promote transparency and minimise transaction times.

Blockchain: a type of DLT that organises data into blocks, which are chained together in chronological order.

Decentralised Finance (DeFi): decentralised systems, processes, and products seeking to disintermediate finance by removing intermediaries such as brokerages or banks from transactions. Instead, DeFi platforms have open protocols and provide financial services by leveraging blockchain technology. Blockchains, digital assets, and wallets are all part of their digital ecosystem.ⁱⁱ

Non-Fungible Tokens (NFTs): any digital offering or asset that purports to be unique and non-interchangeable, the majority of which are on the Ethereum blockchain.

Cryptocurrencies: a digital or virtual currency secured by cryptography, and typically decentralised.

Central Bank Digital Currencies (CBDCs): proposed digital currencies issued by central banks, and not decentralised.

Stablecoins: cryptoassets pegged to reserve assets, such a s the US dollar, in order to offer price stability.