Custody Reimagined

Ultimately the conclusion of this step change will be a more efficient, transparent and flexible ecosystem, enabling products and services that are unimaginable today.

CUSTODY REIMAGINED

All of these trends and themes will have significant ramifications for the asset servicing industry. We believe that custodians and service providers will have to collaborate as members of a shared digital ecosystem.

Asset servicers and other industry actors will have to start to work together on platforms, and on shared infrastructure, to leverage market positions and to mutualise costs and create new revenue streams by partnership. We see this in the consortiums and collaborations that are already taking place.^xxxvii

Changes to the operational model will also impact the talent of the future. In a T+O operational world, where the time to manage exceptions gets shorter and shorter and increases in complexity, there will be less time for contemplation. Subject matter specialists will be expected to react far more quickly than they are used to doing now. Exception management will require much better control as well, and while it is likely that some of the more repetitive operational tasks will shift to robotics and AI, with subject matter specialists expected to address the more complex considerations.

To navigate this environment, asset servicers will need to invest in individual development, and ensure that their talent has the necessary expertise and skill-set, all the while supporting them with the right tools and processes. Operational specialists will be increasingly efficient, analytical, and fluent in all the features of technologies such as blockchain.

It is worth highlighting though, that while specialist skill sets will be needed, particularly around digital and data analysis, the industry will also continue to require people who understand the core fundamentals of the investment lifecycle. In order to attract the talent of the future, asset servicers cannot afford to be complacent, they have to reach out and engage with young professionals who may be lured away to other careers.

Additionally, as the march towards truly effective and integrated global operations increases, where the time to manage exceptions is extremely compressed, asset servicers will need to consider how to become as efficient as possible. They may be required to expand their global footprint, or to ensure that handovers across different time zones are as coherent as possible. There will be a need for diversity of expertise across the globe, which asset servicers will be required to address.

In a world where diversity, equity and inclusion are recognised as being critically important, the asset servicers of 2030 will undergo a cultural sea change. They will have a broader, more diverse, and cognitively disparate workforce to address these considerations. Those who pay lip service to inclusion in the workplace will not thrive. Instead, asset servicers with proactive leadership, which have built inclusive and cognitively diverse cultures, that value people of all different backgrounds, experiences and perspectives, will succeed.

There will be other considerations as well. Sub-custodians, for example, may have to re-think their value provision in a world where the life cycle of events like corporate actions and proxy voting become the domain of global custodians, as technology allows them wider market access. Equally, in this digital shakeup, smaller providers will need to consider what their core service provision should be.

Add to that the prospect of digital ecosystems based on distributed ledger technology, which will fundamentally change the role of the asset servicer – with the democratisation of assets, simplified trade processes and so on – and it becomes clear that you won’t necessarily need to be a bank or huge financial institution to operate in this digital marketplace. That should provide more choice for clients but also puts the traditional players at risk.

Custodians, sub-custodians, and other market participants will have to align their interests in order to provide the best possible service and offering to their clients. They will also need to cater to a host of different needs. Not all clients will require complex operational solutions, for example. Some will need access to simpler solutions. Others will vary in complexity.

Ultimately, the successful asset servicer of 2030 and beyond will have bridged the gap between traditional and digital assets, and helped their clients navigate the transition between the two. They will have embraced the opportunities provided by a DeFi world, recognising the implications of a democratising landscape, all the while remaining solution and service-orientated. These asset servicers will have offered their clients truly customised information and insights across all of their assets in a simple way, at any time and manner of their clients’ choosing. They will have adopted sustainable practices while anticipating operational trends in sustainable finance. They will be innovative, adaptive, and agile.

Successful asset servicers will need to remember that, even as innovation brings new challenges and opportunities, the cornerstone of their responsibility remains asset safety. Putting the needs of clients first remains their key concern.

In an evolving, transformational world, one where multiple developments are occurring simultaneously, that is one thing that will never change. A century ago, custodians knew that they were guardians of their clients’ assets. Beyond 2030, that will remain their core consideration.

REFERENCES

ⁱBankmycell.com. How Many Smartphones Are in the World?. 2021.
ⁱⁱWharton, University of Pennsylvania. DeFi Beyond the Hype: The Emerging World of Decentralized Finance. David Gogel. May, 2021.
ⁱⁱⁱNorthern Trust. Custody Reimagined: The Outlook for Global Services in 2030, Justin Chapman and Howard Rapley. June, 2021.
^ivIbid.
^vWharton, University of Pennsylvania. DeFi Beyond the Hype: The Emerging World of Decentralized Finance. David Gogel. May, 2021.
^viInvestor Strategy News. Is the Securities Services Industry Ready for Digital Assets?, 2021.
^viiIbid.
^viiiIbid.
^ixCNBC. Cryptocurrency Market Value Tops $2 Trillion for the First Time as Ethereum Hits Record High, 6 April, 2021.
^xDeloitte. Asset Management Survey: The Gold Rush Route for Asset Managers, 2019.
^xiCBInsights. What Are Stablecoins?, 16 February, 2021.
^xiiCoindesk. What are NFTs and How do They Work?, Ollie Leach. 1 February, 2021.
^xiiiRolling Stone. Kings of Leon Will Be the First Band to Release an Album as an NFT. Samantha Hissong. 3 March, 2021.
^xivReuters. Central bank digital currencies get full BIS backing. Marc Jones. 23 June, 2021.
^xvThe Economist. When Central Banks Issue Digital Money. 6 May, 2021.
^xviEuromoney. Beware the Hype Over Central Bank Digital Currencies, Peter Lee. 23 June, 2021.
^xviiBloomberg. GameStop Posts Best Week in a Month Fueled by Reddit Frenzy. Bailey Lipschultz and Divya Balji. 26th February, 2021.
^xviiiNorthern Trust. Custody Reimagined: The Outlook for Global Securities Services in 2030, June 2021.
^xixIbid.
^xxAssociation for Financial Markets in Europe (AFME). Consultation Response: European Commission Public Consultation – An EU Framework for Markets in Crypto-assets. 19 March, 2021.
^xxiAFME. HM Treasury – UK Regulatory Approach to Cryptoassets and Stablecoins: Consultation and call for evidence, 19 March, 2021.

REFERENCES

^xxiiNorthern Trust. Custody Reimagined: The Outlook For Global Securities Services in 2030. Justin Chapman and Howard Rapley. June 2021.
^xxiiiIbid.
^xxivIbid.
^xxvIbid.
^xxviMoneyMarketing. Behind the Numbers: Retail Investors a Growing Force in Sustainable Funds. Hortense Bioy. 19 February, 2019.
^xxviiIbid.
^xxviiiInstitutional Asset Manager. Global Investors Accelerate ESG Investments in Response to Pandemic, Says MSCI Survey. 10 February, 2021.
^xxixFinancial Times Moral Money Forum. Measuring What Matters: The Scramble to Set Standards for Sustainable Business. May 2021.
^xxxIbid.
^xxxiIbid.
^xxxiiIbid.
^xxxiiiThe Taskforce on Scaling Voluntary Carbon Markets.
^xxxivForbes. The Week Crypto Crashed — Market Drops $700 Billion After Chinese Crackdown And Elon Musk’s Environmental Worries. Robert Hart. 19 May, 2021.
^xxxvOrganisation for Economic Co-operation and Development. Financing Climate Futures: Blockchain Technologies as a Digital Enabler for Sustainable Infrastructure, May 2021.
^xxxviIbid.
^xxxviiNorthern Trust. Custody Reimagined: The Outlook for Global Securities Services in 2030. Justin Chapman and Howard Rapley.

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