The COVID-19 crisis shows that the securities services industry is well-prepared, flexible and resourceful when dealing with previously unenvisaged scenarios. Many market participants achieved business as usual relatively quickly, complying with regulatory responsibilities, maintaining their operating and reporting environment and their relationships with clients despite a significant amount of employees working from home during the crisis.
One consequence of this new model has been an uptick in the quality of communications between service providers and their clients. It has proved more straightforward than many imagined for people to switch to online interaction. At BNY Mellon we recently hosted a webcast – replacing an event that ordinarily has an in-person audience of around 80 people – and it attracted 250 online attendees. More generally, many clients have sought to engage more frequently and deeply with the bank than usual: this may become the new norm.
There have been other encouraging changes of behaviour. Our data shows a significant increase in the use of online tools by front office teams. Analysts and traders have always relied on the data these tools provide but a surprisingly large number used printouts provided by an assistant. This new habit may endure. Digitisation has long been the direction of travel in the industry but the experience of COVID-19 will accelerate its use, including video interaction for relationship management, and the move away from paper-based processes. Working largely from home has proved to be a viable option for many.
In terms of operations and technology, there were some firms that discovered vulnerabilities in parts of their architecture. The COVID-19 experience will no doubt prove a catalyst for investment to address such issues and streamline operations.
A plethora of new technologies are changing how the securities servicing industry operates and interacts with clients. In terms of immediate impact during the COVID-19 crisis, three technologies stand out.
The COVID-19 crisis will spur increased demand from fund managers for application programming interfaces (APIs). APIs enable information to be accessed on-demand rather than via an end-of-day file and help to de-risk operations. The advantages of receiving data automatically and immediately via an API have resonated with clients that have experienced them first hand during remote working.
Similarly, the value of artificial intelligence (AI) and machine learning (ML) has been demonstrated during the spike in trading volumes in March. AI and ML helped BNY Mellon to maintain high standards of controls and checks despite elevated volumes.
Most obviously, remote working has reinforced the benefits of the cloud. As BNY Mellon increasingly digitises its capabilities, the cloud will help make it possible to offer local-like services without a physical presence. Of course, physical premises remain important – not least for wet signatures in some jurisdictions – but the COVID-19 crisis will strengthen the move to cloud computing in combination with other disruptive technologies.
Moreover, despite expectations that physically-focused processes such as sales would cease during lockdown, many have continued remotely. Sales processes such as due diligence and beauty parades which were thought difficult to replicate online have migrated, though the industry is likely to focus on how to improve such interaction further.
New regulations relating to post-trade workflows, such as the Central Securities Depositories Regulation, Uncleared Margin Rules and the Securities Financing Transaction Regulation, have been a hallmark of the past decade. Regulators have sought to improve transparency and stability by focusing on data and reporting. These regulations – where still being implemented – will be completed, though there may be some forbearance on dates. (The replacement of LIBOR is a hard deadline, however.)
The experience of the COVID-19 crisis could prompt a regulatory pivot to resilience, continuity and recovery capabilities. Most firms had tested and prepared for the loss of individual sites but had not considered the need to transfer almost all processes to people’s homes. New measures will need to be put in place in anticipation of similar widespread disruption in the future: the digitalisation of operating environments will be critical to improving resilience.
Despite an inevitable focus on de-risking and building resilience, the future of securities servicing will encompass much broader change. Environmental, social and governance issues are now central to all client discussions while cryptocurrencies and digital assets are here to stay. Technology, including AI and ML, is certain to play an ever-increasing role in the industry.
Crucially, these developments will intersect: AI, for example, will not only help improve visibility and control but could help clients better understand their portfolios and ESG compliance. Similarly, technologies such as robotic process automation may play a key role in improving efficiency and lowering costs also enhancing resilience against future shocks. The industry’s evolution looks certain to continue apace.
Head of Asset Servicing Strategic Growth
Daron Pearce is Head of Asset Servicing Strategic Growth at BNY Mellon. In this global role, Daron focuses on identifying and accelerating both inorganic and new market entry opportunities.View Profile