The future of custody: How data and technology are transforming conversations

24 Nov 2021

Custodian banks are becoming less like service providers to their customers, and more like strategic partners. While the human element remains key, the topic of conversation is turning to the digital revolution.

People and machines

For a long time, custody was seen as the boring part of banking. While it is true that scale, safety and stability remain watchwords for the sector, the emergence of entirely new classes of digital assets and systems of transfer means that innovation and custody are now going hand in hand. The transformational implications offer a rebuke to the lazy argument that custody is being downgraded and “commoditised”.

Many intermediaries sit between an investor and an issuer. Ensuring that these intermediaries work together in the speediest and most efficient way possible is one way that custodian banks can offer their clients an improved service, allowing them to feel that they are more closely connected to the markets. This is particularly important for Standard Chartered, given that many of the issuers are in challenging frontier and emerging markets, while many of the investors are sitting in Western nations and expecting the same level of delivery as if they were investing in developed markets.

Five years ago, technology had not developed enough to attempt more ambitious, multi-party collaborations, but today there is a clear technological glidepath to a whole new way of doing business. The main impediment is trust – distributed ledgers appear to be the most logical way of enabling this new mode of doing business, but one institution trusted by all parties needs to “own” the blockchain.

If this can be resolved, the future will arrive very suddenly. No longer will collateral need days to move from one clearing house to another: tokenised digital assets offer the potential to remodel the entire ecosystem around instantaneous transactions, particularly if central (or even commercial) banks start issuing digital currencies that are recognised by financial institutions.

Already, the digital tokenisation of assets is expanding the financial services sector and offering the potential to build bridges between traditional and digital markets and ecosystems. These are uncharted waters, and the rules of the game are still emerging. Custodians need to be nimble in order to navigate this change, and promote a culture of agility and responsiveness within their organisations.

Preserving the human touch

Ultimately, custody and security services remain a people game, based on personal relationships and conversations about how to solve problems and understand requirements. Nowadays, many of these conversations are about digital assets, and there is a sea-change in the kind of people being hired into custody teams, Talent is arriving from fintechs, crypto-specialists and tech giants – people who understand the emerging shape of the new digital landscape and have the skills to navigate these changes.

That is not to say that banks can do everything for themselves. Custody is an implicit part of asset servicing and teaming up with the right partners is crucial, whether they be fintechs or more conventional suppliers. This is not just in the “pipes and plumbing” of asset flows but also in improving digital client servicing and creating integrated experiences that deepen and cement relationships.

When it comes to navigating change, data and analytics are likewise crucial. Data can be looked at in two different ways. Custodian banks sit on powerful quantities of data, and giving clients access to it in a way that is compliant, insightful and most of all easy to access is an important requirement.

A second aspect of data is driving custodian banks’ processes through a data-centric model that allows better connections and interoperability between services across the ecosystem, both the banks’ own services and those from third parties. Again, it comes back to client services – enabling clients with greater predictive power and forging a strategic partnership.