Custodians, consolidation and client service
15 July 2014
Category: News, Asia, Global
By David Macfarlane
Facing increasing investment complexity, changing regulations and a heightened need for cost management, institutional investors are placing a higher demand on their global custodians to not only provide the core services better, cheaper and faster, but also to offer solutions to solve the challenges they and their clients are presented with. So, as global custodians take on more clients – and the industry moves toward greater consolidation – are institutional investors getting the appropriate level of service?
Michael Chan, head of BNY Mellon’s Asset Servicing business in Asia Pacific, says strong client service is something that all custodians strive for. “The challenge we each face is that a “one size fits all” approach is not always achievable in Asia due to the fragmented nature of the region and the differing needs of each individual market. It’s not impossible, but not always wholly achievable,” he confesses.
Systems and technology used by custodians must be adaptable enough to deal with the numerous regulatory and market specifics within Asia, which most global custodial systems cannot support. Local investment and tailoring is needed. “Many custodians have started to recognise the best solution they can offer clients is a hybrid between their global system and a local system, if not to partner with a local provider,” Mr. Chan reveals.
Wai Kwong Seck, executive vice president, head of State Street Global Markets and Global Services, Asia Pacific, explains: “We have embarked on a global transformation effort for a number of years with the precise objective being to transform our operations to service our clients quickly and efficiently.”
According to Lawrence Au, who is head of BNP Paribas Securities Services in Asia Pacific, it is always a challenge to maintain service levels as a custodian takes on more clients to the extent of overcapacity. “It is not easy to have the ability to maintain service levels to meet client expectations,” he admits. He makes it clear though that as the fifth largest global custodian in the world, albeit a relatively new entrant to the Asia Pacific region, BNP Paribas Securities Services does not have capacity issues.
Institutional investors, in general, have a very detailed framework to measure performance and keep service providers on their toes, notes Jitendra Somani, head of global custody, Asia Pacific, HSBC Securities Services. “Regular dialogue and reviews at operational and strategic levels help build the transparency in the relationship between investors and service providers.”
William Mak, who replaced Teresa Parker as head of Northern Trust in Asia Pacific in May, says the role of the global custodian has evolved dramatically from the days when safekeeping and settlement of securities transactions were the primary focus of global custody. The competencies of the industry's major players now include technology, risk and performance measurement and investment policy compliance monitoring.
“In order to remain competitive, custodians need to keep clients ahead of the curve. At Northern Trust, our global strength is backed by local expertise and we offer solutions that help clients meet regulatory requirements such as customised reporting, and 24/7 access to portfolio information via a secure online portal or mobile device solutions,” he explains.
Hedge fund services will be another source of further growth, according to Mr. Mak, driven by institutional client demand for transparency and robust operations support. He says: “Having innovative technology solutions as always is integral to the ongoing changes in our industry – and for clients in Asia, local language support for their portfolios and data access, as well as local client servicing experts.”
In order to best service its clients, Mr. Au notes the firm makes a conscientious effort to maintain its agility and ability to provide personalised service through: a) Segmenting clients based on their industry so that BNP Paribas Securities Services can leverage on its global expertise and assign dedicated resources attuned with their specific needs to service them; b) Implementing a global/local operational model so that clients can benefit from the firm’s global operating model for cost efficiency, global best practices and global resources while having specific local requirements supported by BNP Paribas Securities Services’ local market connectivity and local expertise; c) Aligning the client's complexity of needs with service teams with appropriate levels of experience and account loading; d) Deploying global/regional specialist teams to address transversal client situations and issues.
Mr. Seck says State Street’s sales teams have been organised around client sectors (which it refers to as Sector Solutions) with dedicated teams focussed solely on each client group. The Sector Solutions’ teams work across all of the firm’s business lines, bringing together products and services relevant for each client. “Doing this helps creates a more holistic solution to tackle challenges facing our clients and also helps to better position them for the future,” he says.
Testimony to the fact that custodians are working hard to provide value is the expansion in the range of services and products offered by global custodians over last few years, explains Mr. Somani: “Whether they may be to support investors deal with regulatory changes like FATCA, AIFMD, or enable them to take advantage of market opportunities like RMB liberalisation, the Hong Kong-Shanghai Stock Connect, dual recognition between Hong Kong and China, ASEAN developments and access to frontier markets.”
Understanding the importance of investing in people who know each market really well is something custodians have been increasingly recognising. “The old mentality of parachuting in someone from the West is slowly eroding, which is a good thing,” claims Mr. Chan, who adds: “Local market knowledge, understanding the local regulatory environment – down to knowing the clients we are partnering very well, and being able to go in and see them whenever they need to or want to see us – is vital.”