Asset servicing is undergoing a transformation, sparked by new regulations and rapid digitalisation.

Philippe Laurensy, Managing Director at Euroclear, discussed some of these changes, and how they are influencing asset servicing at The Network Forum (TNF), which took place in Athens in June.

Regulation is not going away….

The impact of upcoming regulation on asset servicing will be substantial.

In addition to new rules tackling Environmental, Social, Governance (ESG) investing, digital assets and shareholder engagement, there is a growing global regulatory push towards achieving shorter settlement cycles. With T+1 fully operational in India, and the US and Canada due to introduce it from 2024, Laurensy said he expected the EU to follow within the next two to three years.

Although T+1 could help reduce settlement risk and free up collateral, Laurensy told the TNF that its adoption is likely to cause issues across the EU. “The big question in the EU is whether each member state will be willing to introduce the changes at exactly the same time,” said Laurensy.

To avoid a fragmented implementation of T+1 across the EU will require all of the member states’ Financial Market Infrastructures (FMIs) to engage with each other on the subject.

There are other issues facing T+1 as well.

For investors trading EU securities out of distant time-zones, T+1 (and eventually T+0) could force them to pre-fund their FX transactions. A shorter settlement cycle also increases the risk that more trades and securities lending/borrowing transactions will fail, leading to financial institutions incurring heavy Central Securities Depositories Regulation (CSDR) fines.

In the case of asset servicers, activities such as corporate action processing and cross-border Exchange Traded Fund (ETF) settlement could face disruption too because of T+1. If T+1 is to be handled effectively, asset servicers will need to automate their core operations. “The industry’s current operating model is not adapted for this shortened settlement cycle,” said Laurensy.

Technology drives changes in asset servicing

Technology is changing the look and feel of many industries, and asset servicing is not an exception. However, providers do need to take a nuanced approach when executing their digital strategies.

“One of the challenges when leveraging new technology is getting the pace of adoption right. If an asset servicer introduces new technology too quickly, and the client is not ready for change, then that is not going to work. At the same time, if an asset servicer moves too slowly on technology, and the client is ahead of the curve, then that is also a problem,” explained Laurensy.

If asset servicers are to avoid these pitfalls, Laurensy said they need to develop a model which can bridge legacy technology with new systems. “This allows clients to migrate at their own pace from legacy technology to new systems, instead of having to do it in a big bang approach,” he continued.

For asset servicers to remain competitive, they will need to evolve, and support clients trading new and innovative products.

This comes as more investors are buying into the idea of digital assets. For example, 81% of institutions told a study by Fidelity Digital Asset that digital assets should be a part of the investment portfolio, with many citing the potential return upsides, the lack of correlation to conventional markets and inflation protection as being among the main benefits (Fidelity Digital Assets – October 2022 – Institutional Investor Digital Assets Study). 

“Safekeeping these new types of assets will cause challenges for custodians, but they will have to adapt,” said Laurensy. A number of custodians are currently strategising on how they can supplement their traditional safekeeping services with digital asset custody solutions. 

"This allows clients to migrate at their own pace from legacy technology to new systems, instead of having to do it in a big bang approach."


Philippe Laurensy, Head of Group Strategy, Product Management and Innovation - Euroclear

New risks come to the fore

Asset servicers are having to deal with new risks.

In the aftermath of COVID-19 and the Ukraine war, asset servicers are spending a lot more of their time focusing on contingency planning. “Business resilience should be a key focus for intermediary providers, when upgrading technology systems and maintaining legacy ones,” noted Laurensy.

These two recent crises have highlighted the importance of supply chains - in that either a failure of or a disruption to - a strategically important fourth party (i.e. critical IT providers) can have a significant impact on sub-custody, global custody and FMI operations.

“Global custodians and FMIs need to up the ante when conducting due diligence on providers. Instead of just assessing them, we need to test them routinely and ensure there are back-ups in place, should something go wrong, even in small markets,” said Laurensy.

The custodian of the future

Instead of being focused on processing settlements and offering commoditised products, Laurensy said custodians are focusing more on delivering value add services, such as risk management and data management. “Rather than being a provider involved in processing activities, custodians will evolve to become data consolidators,” he said. By supporting clients with their data requirements, the role of the custodian will become increasingly important.

Those asset servicers who adapt and refine their operating models accordingly will emerge the winners over the long-term.


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