October 2017

SIBOS PREVIEW: A solution for every problem?

The annual Sibos technology conference takes place in Toronto from 16-19 October. Funds Europe put questions to some of the experts in attendance about Sibos 2017 topics such as artificial intelligence.

 

 

 

MATT DAVEY
Head of business solutions, Societe Generale Securities Services

How can AI be used by fund managers’ back and middle offices?
There is a lot of hype about artificial intelligence (AI) at the moment and also some confusion about what it really means. There are a number of different technologies within the scope of AI, but in financial services, much of what is being implemented in the name of AI is actually machine learning.

For many asset managers, their immediate concern is regulatory compliance, firstly for MiFID II and then for GDPR.

These are the latest in a series of regulatory requirements and firms are increasingly looking to develop a data-management strategy to deal with these and future requirements, rather than creating one-off solutions. This will put them in a good position to adopt machine-learning technologies in operational areas that are well suited to its use, such as KYC (know your client), fraud detection, documentation and regulatory compliance. There are AI systems in use today carrying out some of these functions and redefining the way these processes work.

With great expectations about the promise of AI, there is a tendency to see it as the solution to every problem. The danger is to overlook traditional solutions, or to spend a lot of money on a system that is not suited to solve the specific problem. Firms therefore need to make sure they start with a clear statement of requirement and only then look for the most appropriate technology solution. For example, some of the latest AI developments by the tech giants include AI processing for speech, image and video data. This is impressive technology and has some clear applications for the consumer market, but their relevance is less obvious for the B2B market.

There are a lot of legacy systems in financial services, which carry out complicated operational processes and do not always lend themselves to AI. Robotic process agents (RPA) can be a useful tool in helping to automate these processes. However, they do need to be configured and setting these parameters can be very time-consuming. For this reason, some in the industry are disillusioned with the benefits of RPA. Some software vendors now offer a combination of AI with RPA, which could offer greater potential to improve operational processes.


ARNAUD MISSET
Global head of product management, Caceis

Explain blockchain and what it means to asset manager operations.
Blockchain technology is based on a virtual ledger of data distributed and shared among multiple parties which is inherently resistant to modification of the data. Financial networks have already benefited from connectivity between customers, suppliers, banks and infrastructures, and blockchain now brings something new: an authentication system of ownership that verifies the entire chain of transactions in a shared ledger, as well as the ability to keep checks on asset ownership automatically and efficiently.

In this respect, blockchain could offer great benefits for asset managers. The matching of transactions, collateral management and reconciliation could be facilitated. And transparency and traceability and confidence of investors that have a view of the security life-cycle, thanks to ‘chained’ data could be strengthened.

From Caceis’s perspective, potential applications range from storing client identification (‘you’re your client’) to reference data; handling cross-border payments; clearing and settling bonds, cash equity as well as collateral management on over-the-counter derivatives, repos and securities lending or regulatory reporting such as required by Emir or MiFID.

Until recently, most projects were proofs of concept, but in early July 2017, Caceis participated as transfer agent in the first successful blockchain-powered fund distribution transactions via the FundsDLT platform.


JYI-CHEN CHUEH
Head of custody services, transaction banking, Standard Chartered

What are the challenges that still exist around corporate action processing and what is being done to confront them?
First of all, let’s acknowledge the tremendous achievements around the automation, acceleration and de-risking of corporate actions over the past 20 years globally.

Initially, corporate action initiatives were mostly driven by global custodians and sub-custodians such as Standard Chartered that were looking at creating scalability, efficiency and speed for their clients.

The next phase of innovation is now increasingly fuelled by exchanges and central securities depositories, especially those in Asia, as they are upgrading their market infrastructure and stepping up their efforts to adopt corporate action standards and automation.

At Standard Chartered, we have been advocating and supporting such initiatives as they bring benefits to the entire community.

We are convinced this could bring us closer to the ‘Holy Grail’ of corporate actions, i.e. achieving a single source of truth, or ‘golden record’, from the issuer to the investors, saving industry players from spending millions in redundant rounds of data validation across the chain of intermediaries.

In addition, tax reclamation or proxy voting, once seen as peripheral activities, are the next hot topics, as investors are increasingly looking at optimising their ability to benefit from double taxation agreements, but also focusing on good corporate governance.

To address these new needs, we have been playing an active role in engaging with securities industry associations like the SMPG (Securities Market Practices Group) or the ISSA (International Securities Services Association) in defining business best practices and standards to harmonise tax processing and investors disclosure practices; while on the proxy-voting front, blockchain and smart contracts could become a credible response to today’s manual challenges.


VALERIO RONCONE
Head of markets and services, SIX Securities

What is the major transformation set to take place in post-trade and what is the scale trap?
The list of new technologies with major transformation capabilities is long: distributed ledger technology (DLT), which includes blockchain, cryptocurrencies, robotic process automation, artificial intelligence, application programming interfaces (APIs), etc.

DLT is by far regarded as the most promising technology as it offers decentralisation and, potentially, a different approach to interoperability for market participants. After the initial hype around blockchain died down, we saw an increasing number of collaborative innovations to move blockchain out from proof-of-concept into production systems.

For our part, SIX Securities Services, continues to explore the opportunities arising from DLT in various areas.

But even if DLT-based implementations are successful, challenges surrounding operational, business and regulatory issues – including interoperability between different networks – will continue to arise in the securities markets and will remain unanswered for years to come.

As a consequence, instead of talking about new, disruptive technologies we, as an industry, should first focus on the problems and challenges that need to be resolved over the life-cycle of a trade. Technology alone does not bring any added value without the right underlying business model and structures. The aim of any effective post-trade service provider should be to develop the right capabilities to solve real problems and create value and coherency across the entire market.

Industry participants need to look beyond traditional structures. It is essential that different post-trade participants work together and focus on investor needs while finding creative, streamlined, scalable solutions that can be leveraged across business lines.

©2017 funds europe