SPONSORED FEATURE: The route to client empowerment in securities services

Satvinder Singh of Deutsche Bank reflects on what the changes in the securities industry over the past decade have taught us about creating a sustainable future.

In the ten years since the financial crisis started, the securities services industry has been on a journey of unprecedented change. Margins continue to be squeezed, the interest rate environment remains low, and several far-reaching regulatory, compliance and infrastructure initiatives have forced industry participants to, at the very least, review their business models.

As part of this process, Deutsche Bank has taken a hard look at the securities transaction chain to identify where we really add value, to find out what clients really want to buy and, equally importantly, how they want to buy it. Do they, for example, want a bundled or unbundled service? Can we be nimble about how we offer products and capabilities to our clients?

Industry trends
We cater to a dynamic and diverse set of clients, who are often in the process of evaluating their service proposition to their own clients. We looked at our business model and asked how, in this changing, dynamic world, we could adopt a more modular or component-based approach to product and service provision, allowing clients to pick and choose what they want and when.

One result of this assessment was the launch in November last year of ‘Asset Servicing Only’, a component-based solution that allows asset managers to outsource to us different aspects of their business, such as tax reclamations, corporate action processing and asset safekeeping. In so doing, they benefit both from harmonised, standardised solutions and from a modular approach that helps meet the requirements of the changing landscape.

The model delivers component-based data facilitated by component-based products and new business models. This approach was only made possible by new technology and a collaborative foundation both internally and externally.

Our industry is at a pivotal point today, with two trends in evidence. First, clients want more modular solutions with greater choice to allow them to remain competitive. From their service providers, they want to prioritise what gives them the most value and then go directly to market infrastructures for other transaction-related processing.

The second major trend is that new technologies are taking centre-stage. Our clients are spending more time evaluating them and seeing how they could be leveraged to boost efficiency and, ultimately, reduce cost. In the securities services business, engagement with these technologies is driven by the potential for enhanced analysis, delivery and security of data.

This last point should not be downplayed. Cyber-security is becoming a huge topic from an industry perspective. We are not only concerned with the safety of the assets we hold on behalf of our clients, but also the data we hold for them. We need to align with client expectations.

Learning from change
Addressing these challenges involves a four-pronged approach: front-to-back collaboration and partnership; embracing a cultural change in the way we do business; a concerted focus on data and digital; and creating sustainable business models.

Across Deutsche Bank, we have placed great emphasis on learning from the best practices that exist from front to back office. Clients do not care how we are configured as long as they are receiving a consistent service at a great price. The only way to ensure that can be sustained is to create a vertically integrated business solution that we can then scale and adapt.

Securities services are often portrayed as staid and conservative. Within Deutsche Bank, for example, you won’t hear much reference to ‘disruptive’ technology. That term is already an indication of a resistant mindset. We see new technology as enabling us to rethink our business model rather than as disruptive.

The market experience with TARGET2-Securities (T2S), the European Central Bank-led initiative for harmonising the settlement of securities traded cross-border in the Eurozone, is perhaps instructive here. The industry mood around the project has partly been shaped by the fact that it is one element in a set of changes that need to be completed before the full benefits can be felt, but at the same time, the industry harmonisation that preceded the live launch of T2S could not have been achieved without T2S and that, in itself, has unlocked opportunities for technological integration based on a common platform.

Attention is now shifting to issues of asset servicing and how the pan-European platform could be used to free up liquidity. As key regulatory changes such as MiFID II come into effect, the operational changes required to comply with them effectively will make evident the benefits of an integrated settlement platform.

Given the amount of data they hold, securities services providers are strongly positioned to create transparency to ensure compliance with regulations and provide further services that add value and insight to the client.

From a service provider perspective, the process of ‘decomponetising’ needs to move beyond settlement to other aspects of custody, allowing different combinations of services to be offered to clients and facilitate new forms of collaboration with clients and other providers of services currently working in their own silos. The cultural change we’re seeking from a business perspective is about making sure that we pay attention to how our clients and employees are using technology and how they want to buy and deploy it.

Digital promise and sustainability
Clients no longer simply want to know if their trade has been settled. There is already a demand for real-time data correlations and intraday tracking of settlement progress. The question is not the amount of data we make available, but the quality of the data. More is not necessarily better. Our data offerings must be targeted and useful. They must help our clients achieve what they are trying to achieve and find operational improvements, which means data must educate them as to where failures are occurring in their business.     

In that respect, developments at the retail level with digital technology demonstrate two aspects of client empowerment. On the one hand, clients can choose to access and manipulate information that previously required the intervention of their service provider; on the other hand, it also allows them to exploit functionality that was simply not available before.

Every piece of research that I come across says that margins are being compressed along the value chain. Without adopting and adapting digital opportunities, existing ways of doing things will no longer be attractive. We need to facilitate a true partnership with our clients so that they can thrive, thereby ensuring that we have a truly sustainable business model.

©2017 funds europe



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