Written by </em></strong>Justin Chapman</strong> - Global Executive, Securities Services and Global Head of Market Advocacy and Innovation Research & Howard Rapley</strong> - Global Product Lead, Securities Services </p> It’s 2030, and it’s the middle of the night. Despite the time, a pension fund manager is awake, and wants to access settlement data for two digital currency transactions. They then want to see all the pension scheme’s assets across all systems, geographies and platforms, in a single book of record, at T+0. They don’t have to worry about reconciliation data, because reconciliation no longer exists. But they want to leverage their securities service providers’ technology to run several investment scenarios to decide what hedging programmes to adopt across a range of assets. And they want to do all of this on their digital device. </em></p> A world where fund managers and asset owners can access data and gain actionable insights in real-time, wherever they are and however they want, may seem distant but it’s closer than you might think.</p> The securities services industry is in the midst of an unprecedented transition to digital ecosystems, and client expectations of their custodians are widening to encompass a host of additional services around cyber security, artificial intelligence, cloud computing, data analytics, and blockchain technology. While asset servicers have always adapted their operations to keep pace with the ever-changing requirements of their clients, they will now have to be flexible, agile, creative, and digital in ways we haven’t seen before. </p> The custodians of 2030 will be client centric and focused on asset safety, but will also be providing a new, collaborative ecosystem where both digital and traditional solutions exist side by side.</p> New asset classes, new market spaces</strong></p> The asset servicing landscape will have profoundly changed and technological advancements will require global custodians to act as digital conduits for their clients – enabling access to an ever-broadening array of markets spanning traditional geographies as well as emerging digital infrastructures. We are seeing the drivers for this already – for example, the Australian Stock Exchange’s efforts to transition to Distributed Ledger Technology (DLT) or Deutsche Börse’s work building digital asset market infrastructure.</p> Digital assets – assets that are issued, exchanged and settled digitally – will be commonplace across all sectors, whether it is bonds, private equity, exchange-traded funds (ETFs), special purpose vehicles, precious metals, real estate, and more. Beyond these traditional assets, new market spaces will normalise digital currencies and foster the development of entirely new asset classes.</p> Embracing change</strong></p> With so much change and a raft of new skill requirements, custodians will need to have embraced cultural change, with success likely to be based on proactive leadership, and an inclusive, cognitively diverse workforce.</p> The importance of digitalisation cannot be overstated, and its impact will have been felt across the full value chain of the securities services industry. The complexity of this emerging landscape is likely to encourage co-operation between asset servicers with competition based on service and the ability to add value – in particular, from actionable insights – rather than the ability to execute on standardised process, which will be commoditised.</p> Operational efficiency</strong></p> As much as asset servicers are required to be innovative and creative in their approach, they will also be expected to continue to demonstrate their operational efficiency – new technologies are offering plenty of opportunities to do so. Under current models, data is created multiple times at each asset servicing firm, for example, and systems and infrastructure have high costs. By 2030, custodians will be working more closely with one another – data will be created once and synchronised across all firms, with shared systems and processes to reduce cost. Operational functions will become self-learning and self-functioning, with the integration of data becoming much easier.</p> Similarly, there will always be reporting and auditing requirements, but this process will become real-time with auditors and regulators given direct, live access to transactions. Recent regulations with a focus on accountability and governance have already encouraged the creation of new technologies for dramatically enhancing transparency, and regulators around the world are working to understand and enable financial innovation.</p> The brave new digital world</strong></p> Faced with this brave new digital world, custodians will evolve, or they will fall by the wayside. By 2030, successful asset servicers will be the ones who have bridged the gap between traditional and digital assets, and helped their clients navigate the transition between the two. No matter how advanced technology becomes, custodians will always have to demonstrate that they are a trusted and stable provider. Their evolution, as it always has been, will be client-centric and, in 2030, more time will be spent giving clients information on what they need to know, and enabling them to make better decisions.</p> The next decade promises greater efficiency, immediacy and customisation of data and insight provision from custodians – the enablers of innovation – which will allow clients to focus on their core competencies. However, 10 years is an incredibly long time in the custody industry with the investment landscape in constant flux as new products, asset classes and technologies come to the fore. As ever, custodians must stand ready to adapt as far more could happen in ways we cannot anticipate.</p>