Enhancing operational efficiencies in asset servicing

Advanced technologies offer enticing solutions – but can asset servicing firms find the optimal solution for their clients’ unique and evolving needs?

August 13, 2024

5 mins

by:

Allan Song Head of Transformation & Performance Management, Financing & Securities Services, Standard Chartered

Financial marketsFinancing & securities servicesTechnology & innovation

With growing demand for faster settlements and constant margin compression, enhancing operational efficiencies is becoming a crucial competitive advantage for asset servicing clients. Advanced technologies offer enticing solutions – but can asset servicing firms find the optimal solution for their clients’ unique and evolving needs?

The global asset management industry and the global custody service market both continue to grow in size (with assets under management growing from USD115.1 trillion to USD147.3 trillion by 2027, and the global asset servicing market growing from USD1.3 trillion to USD1.8 trillion by 2028) as well as in complexity amid rising competition, evolving regulatory requirements, and relentless cost pressures.

Even before the transition to T+1, the compression of settlement cycles was one of the biggest pain points for asset servicers, as the process remains manually intensive. Now with T+1, leading asset managers, broker dealers, and other stakeholders need even greater speed, accuracy, cost efficiency, and transparency from their asset servicing partners. So much so that it wouldn’t be a stretch to say we are amidst a paradigm shift from a state where operational efficiencies were ‘the right thing to do’ to them being a matter of survival.

Aiming for the optimal solution

Powerful technological tools such as artificial intelligence (AI) and distributed ledger technology (DLT) can address the challenge of operational efficiency. AI and DLT are levelling the playing field, pushing asset servicers to offer more differentiated and cost-effective solutions across the asset-servicing spectrum.

While there is a wide breadth of solutions available, success, however, comes down to scalability. Solutions must capture larger pockets of use cases or capabilities and tools have to be accessible for users of various skill levels. They must also deliver value from day one.

Indeed, we’ve seen several asset servicers start to implement real, practical, solutions using predictive AI capabilities that take advantage of machine learning-based classification and prediction techniques. And some, including Standard Chartered, have demonstrated success with more advanced natural language processing (NLP) techniques to automate many of the manual inbound processes that plague the industry.

At Standard Chartered, we recognise the importance of operational efficiency as a differentiator and have been continuously investing in technological capabilities as well as the talent needed to deliver these solutions. In addition, we discuss opportunities with our clients daily and incubate those opportunities with the right technologies and skillsets.

The first-mile differentiator

The transition to T+1 means numerous pre-settlement tasks that previously took hours to complete now need to happen within minutes. Additionally, these tasks tend to be influenced by local market nuances, which make them harder to standardise and less cost-effective to automate using existing platforms.

So, while developments in automation and standardisation that have occurred in recent years constitute 70 per cent of the entire asset servicing process, these remaining opportunities represent the last 30 per cent that will help set providers and clients apart.

More importantly, automation solutions need not all be complicated or require major investments in monolithic systems. Our focus instead is on co-creating optimal, fit-for-purpose solutions with clients – by relying on a thorough understanding of our clients’ needs to inform decisions on the type of technology that needs to be deployed for the task at hand. This approach places a premium on the voice of the client in the digital transformation process, and is not about merely about deploying technology because it’s possible to do so.

The idea is to find ways to build scale without over-engineering and putting at risk the other things that we already do very well, in a bid to handle first-mile requirements. For example, some of the changes can be as simple as receiving a broker file in a different way. We can build tools that normalise and map the data, empower our operational teams to harness their expertise to achieve these tasks upfront, and then enhance straight-through processing. We’ve seen significant success with this approach in terms of rolling out these capabilities and scaling them faster with the right controls and governance.

This approach also helps asset managers and broker dealers to quickly realise tangible benefits that are also felt by their own clients – for example, direct savings from failures prevented or a reduced number of investigations, improved cutoff times, and faster execution.

Keeping it simple

The importance of simplifying operating models cannot be overemphasised. With many tech initiatives requiring years before they begin reaping rewards, keeping the transformation process simple can help initiate the process of changing the operating model in parallel, deliver near-term efficiencies, and preparing said operating model to get the most out of those technological advances.

To that end, our focus is on reducing touchpoints and friction within the settlement lifecycle – including by providing intelligent workflow solutions to improve pre-matching and settlement cut-offs, rules-based enhancements to continuously improve STP rates, and successful AI solutions leveraging NLP to seamlessly automate manual client instructions and other documents. While less advanced than large language models (LLMs), NLP can augment a team’s ability to handle 10 times more volume at a fraction of the error rates seen for processes done manually.

To be sure, technological capabilities, especially in the field of AI, are growing exponentially. Taking a multi-faceted approach to automation – such as selecting the right tools, simplifying our processes around those tools, and delivering an operating model that optimises ours and our clients’ human capital – has led to meaningful benefits to our clients. To navigate this ever-evolving landscape and remain competitive, asset managers, broker dealers, and other stakeholders can best position themselves for the future by leaning on a partner that makes it a point to adopt a collaborative and client-centric approach – one that creates operational efficiencies by optimising their digitalisation journey.