Don’t let the beat drop

Liz Pfeuti explores the vital switch from traditional to digital in custody and asset servicing, drawing parallels with the entertainment industry’s most thrilling transformations.

In the entertainment sector, some of the greatest moments are delivered by a sudden change or transformation.

From trapeze artists releasing and catching in mid-air to a DJ bringing “the drop” of a switch in track, the move to a new direction delights the crowd. 

But it’s not just the change itself. The build-up and imagining of what will come next before its faultless execution are all part of the overall feeling of satisfaction.

A magician miraculously transforming his glamourous assistant into a Bengal tiger would be nothing without the dramatic, over-acted moments leading up to the dazzling prestige. 

The build-up excites and lets the audience anticipate what is meant to happen. It gives us the feeling that things will differ after this clearly defined point. The euphoria of a beat drop in a packed club only occurs as the expectant crowd becomes almost desperate. 

There can be no doubt that in the (potentially less thrilling) world of custody and asset servicing, we have been building up to a switch from the traditional to the digital for some time.

As DJs build their setlists, the custody and asset servicing community has been making the solutions their clients will need when the big switch comes. 

Although it won’t happen as instantaneously as a tiger appearing in a cage, the switch to digital assets, including their custody and servicing, will occur at a pace that seems rapid to some. But this switch is essential for financial services to operate in an environment that not only wants but expects a more instantaneous and accurate approach to managing money – so all links in the chain need to get with the plan. 

We have been told what the future outcome should be and at what angle and speed the industry trapeze artists will have to swing to make the successful transition. 

Regulators have also put regimes around clearing and settlement that provide the guidelines for meeting these goals and give the industry a pathway to get there.

Our industry has seen what happens when a guided pathway to a new, regulated digital future has not been prepared. It usually doesn’t end well and reflects poorly on everyone. 

As the anniversary of the collapse of FTX comes around, the entirely predictable questions are being asked: “How did people not realise?” “Why didn’t anyone stop it?” and “Who would be mad enough to invest in or through it?”

While some of us had an instant cynical take on the whole set-up – would a middle-aged black woman have had the same media and industry cut through? – plenty, including some of the world’s largest investors, didn’t. 

Billions of real-world dollars were lost (or stolen, we’ll have to see) through a digital network, with apparently no redress. The knock-on effect will continue to ripple through the rest of the crypto ecosystem and impact its future and regulatory control. 

But back in the world of regulated financial services, we are approaching the bridge between the old and the new, and we need to both plan and put our faith in a new, digital future. 

Whether safeguarding, trading or buying and selling assets for others, the future is only going one way – to get all the help and advice you need and allocate the resources necessary to get there. 

Like a trapeze artist or a DJ on the world stage, they are getting this transition wrong spells the end. Without a digital assets strategy, financial institutions don’t have a future. 

© 2023 funds europe

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