Ancillary services have grown to include asset administration, corporate action and tax management, proxy, regulatory watch and analytics, among others. These activities are complex and fragmented, often developed around local market regulatory landscapes and not always harmonized across countries. To manage such activities, financial institutions are exposed to significant costs due to operational staff requirements, sometimes manual processing or low automation and constant regulatory changes.
While asset servicing is dominated by custodian banks competing in expertise and solutions delivery (through market coverage, local infrastructure links and IT platforms capabilities), new actors and business opportunities are emerging, bringing asset owners, asset managers, financial intermediaries, IT providers and markets closer together. As digital transformation unfolds, this dynamic environment is encouraging many financial institutions to innovate their asset servicing model to achieve competitive advantage. This is where new technologies and flows disruption savviness, within an organization, can really make a difference.
Swifter corporate actions
The management of corporate actions is a challenging activity due to a number of complex events, limited harmonization across markets, the need for decision-making responsiveness and instruction processing obligations. Integrating new technologies such as robotics to address basic automation needs (e.g. manual repetitive tasks) or more enhanced features (e.g. optical character recognition, instant translation) promotes flows optimization, decreases processing time, reduces operational risks and improves service quality.
Similarly, the ability to cross-reference and instantly structure the relevant information (e.g. smart data) enables the delivery of a suite of advanced services based on behavioral analytics (e.g. benchmarking/prediction). In other words, correlating past corporate action activity outcomes with upcoming events maximizes decision-making value and revenue opportunities for clients.
Reducing the manual workload
The same approach can be applied to other asset servicing areas such as tax management or proxy. Tax activity is cumbersome considering the significant manual workload deriving from tax legislation scrutiny, investor vs investment market tax profiling and associated administrative requirements. The interactions with tax authorities are often manual and paper-based, increasing operational risk. Furthermore, clients sometimes fail to accurately and timely file tax forms, exposing themselves to the application of the maximum withholding tax rate.
On the reporting side, clients rely on custodian banks for tracking the outstanding forms and correlating the latter with income proceeds distribution. As a result, the digitalization of tax management will not only facilitate the day-to-day processing cycle and reduce the overall costs, but also will bring more transparency as “paperless” and electronic filling principles expand across markets.
In the proxy management area, the application of distributed ledger technology (DLT) is also unfolding the possibility of answering numerous challenges posed by the often frustrating process of casting a vote at a shareholder meeting. Some companies are looking at blockchain technology as a service accelerator - improving recordkeeping and instructions cut-off management.
Beyond technology, collaboration
When it comes to connectivity and communication, new technologies are not the only approach to consider. Breaking existing organisational silos and connecting with external ecosystems becomes essential. Co-creating with external partners such as issuers, fintechs, regtechs and market data providers on asset servicing empowers the community. These actors may collaborate on a shared ecosystem for corporate action and income events notification distribution, using systems similar to social media platforms. Such a platform would streamline the access to event information and/or updates on a real-time basis and in a more transparent manner, automating data reconciliation. For instance, BNP Paribas has teamed up with Tata Consultancy Services to accelerate the distribution of corporate events information via blockchain technology.
Overall, the industry initiatives, including the R3 consortium, have a clear role to play but reaching a consensus is sometimes difficult. Some initiatives are supported by leading technology and financial services providers. When using open standards, these offer an enhanced value proposition combined with a short time-to-market. We expect new developments in this area.
Embracing the change
Yet, companies should remain vigilant when deploying new technologies as these also raise concerns such as cybersecurity and data integrity. In a way, the usage of fintech is changing the risk profile of asset servicing from a traditional operational risk to cyber and data security risks.
Structural changes are disruptive by nature. In the asset servicing space, additional flexibility in service delivery is always perceived as significant value. The ability to provide timely, integrated services at a global scale, yet in non-linear way, creates a competitive advantage. Financial actors are at the crossroads of these tectonic changes.
Embracing the change is turning an uncertainty into an opportunity. As a result, the financial industry must keep evolving and not remain in a self-contained environment. To stay relevant, they should embrace change and educate themselves on the new technologies and cybersecurity challenges. It is also important that financial companies adapt how they operate in order to deliver efficient services and to reduce the risks and transaction processing costs – all of which, will result in improved, more efficient services.