Custodians refine their data strategies

Irrespective of whether our clients are banks or asset owners, if they are to provide value to their customers, they will need access to high quality data.

September 9, 2024

4 mins

Corporate & investment bankingFinancial marketsFinancing & securities services

If our clients – irrespective of whether they are banks, brokers, asset managers or asset owners – are to provide value to their end customers, elevate their service offerings, and obtain operational efficiencies, then they will need access to high quality data.

As competition for wallet share intensifies, custodians and financial market infrastructures (FMIs) are responding to growing client demands for data by enhancing their own data and analytics capabilities.

A coherent data strategy is essential if custodians and FMIs are to differentiate themselves from their peers and future proof their businesses moving forward.

The availability of robust data will enable us to move at pace, and develop exciting new products, such as digital asset custody or environmental, social and governance (ESG) solutions. 

It can also help us – together with our clients – manage risk by reducing friction in the market and facilitating greater transparency in the custody chain from FMIs right through to the end investors themselves.

Delivering data to clients seamlessly

If a data strategy is to be successful, then custodians need to get the basics right first to ensure customers have the best experience possible.  This means delivering data, which is meaningful to clients, in a way that is flexible, consistent, and easily consumable.  

Custodians also need to be mindful that not every client is the same. While some institutions have fully embraced automation and digitalisation, others are still wedded to manual processes, meaning custodians should adopt an omni-channel approach when sharing data with clients.  

In practice, this means custodians could find themselves using an assortment of data distribution channels, including Application Programming Interfaces (APIs), online portals, Swift messaging or even email, depending on client preference.

No compromise on data protection

In addition to having effective data delivery channels, it is also vital we have robust controls in place to protect data, if we are to meet the requirements of clients and regulators (e.g. the EU’s General Data Protection Regulation, etc.)

As technology becomes increasingly sophisticated, so too do the risks. For example, some of our network management clients are asking us about what would happen if the books and records held at an agent bank or a Central Securities Depository (CSD), along with their data back-up servers, were to be compromised or wiped by cyber-criminals.  

Operational resilience and data governance will be critical here in mitigating such risks, as it will enable custodians to recover data quickly. 

With the growing ubiquity of open architecture – a public as opposed to private proprietary technology infrastructure – it is also vital firms have clear policies and procedures in place covering data sharing, according to one network manager client.

Providing a seamless data experience for clients is key but it cannot come at the expense of security.

Developing the right data strategy

Providers, such as ourselves, are leveraging data to deliver a number of cutting edge digital solutions to clients.

One of these solutions is by collaborating with leading technology companies. For example, we partner with a cloud provider that supports our data strategy by acting as a cloud warehouse for our data and analytics. Other projects include a collaboration to enhance the settlement data we provide clients with, and a partnership on a potential solution supporting digitalisation of the account opening process.

We also focus on co-creation initiatives with our clients to identify challenges, and potential solutions for those very same problems and enable them to employ a data-centric strategy.

Making a bet on AI

Custodians are embracing artificial intelligence (AI) tools, such as machine learning and natural language processing, both of which have been highly effective in automating a number of manual processes, such as instruction capture, data validation and exception handling.  Already, the results have been impressive, with some of these activities seeing their processing times fall by 90%.

We anticipate the technology will eventually permeate more into the world of client servicing, enabling us to provide our customers with instantaneous trade status updates and respond to their queries via bots.  Within a few years, generative AI solutions (e.g. ChatGPT etc.)  will likely be incorporated into custodians’ workstreams, a milestone which will further enhance their client servicing capabilities.

As a provider, we are integrating AI into our client service proposition. For example, we are streamlining our contract lifecycle management processes by working with Evisort, an AI-enabled contract management solution.

Evisort’s cloud-based software as a service will help us digitalise the end-to-end client onboarding process, from contract creation, through to negotiation and renewal for all FSS products globally, a move that will remove many of the pain-points synonymous with client onboardings.

In order to thrive in this digital age, custodians need to have an intelligent and thoughtful data strategy. While data can be empowering for clients, it is vital custodians adopt an omnichannel approach when sharing data with customers, and prioritise security.