Curated by leading financial journalists, Sibos Issues brings you all the latest news and views from the conference</strong>. The complete PDF of this year's Preview edition will be available soon. </p> Partnerships, standardisation, mutualisation, automation and new technologies are just some of the ways post-trade service providers are looking to reduce costs in a narrow-margin business as they acknowledge the need to evolve.</strong></p> Notwithstanding the projected losses being racked up by COVID-19 - which both Oliver Wyman and Morgan Stanley reckon could slash up to 10-15% off revenues - the securities services industry is in a precarious position, and has been for some time. Since 2008, a number of regulations – including the Central Securities Depositories Regulation (CSDR) and European Market Infrastructure Regulation (EMIR) - have been introduced, adding to the costs of doing business. Moreover, client returns have fallen sharply leading to downward fee pressure. Compounding matters further is that the industry is struggling to make revenues off deposits, because of the low interest rates. </p> Added to these challenges, customers are expecting a range of new services. “Asset servicers are facing new challenges, linked with higher complexity in products and new customer requests to deliver quicker, high value information, as well as insights, reports and analysis,” says Yvan Mirochinikoff, Head of Innovation and Digital Transformation at Société Générale Securities Services (SGSS). Unless banks implement decisive changes, then the industry’s very existence could be in question.</p> </figure> Asset servicers are facing new challenges, linked with higher complexity in products and new customer requests" </p>Yvan Mirochinikoff, Head of Innovation and Digital Transformation at Societe Generale Securities Services (SGSS)</cite></blockquote> </div></div> New technologies take the centre stage</strong></p> Securities services practitioners – fortunately – are not blind to the existential challenges they face. In fact, a number of providers have been embracing, or at least trialling, disruptive technologies such as blockchain, robotic process automation (RPA) and artificial intelligence (AI) for a number of years now, conscious that their own clients are becoming increasingly digitalised. Simultaneously, providers also recognise that automation can help rationalise costs while improving user experiences, according to Stephen Pemberton, Global Head of Product, Banks and Broker Dealers at HSBC Securities Services. “APIs (application programming interfaces) are helping banks improve their overall efficiencies. By integrating APIs with chatbots and messaging platforms like Symphony, we can improve client connectivity, remove inefficiencies and enhance the client experience,” he says.</p> </figure> Five years ago, the banking industry could be accused of ignoring fintechs, but now we are co-creating a number of products with them"</p>Nadine Chakar, Executive Vice President and Head of State Street Global Markets</cite></blockquote> </div></div> Additionally, banks are now partnering up with promising fintechs to deliver on these new services. Pemberton says that banks now recognise the value of fintechs having initially been somewhat sceptical. “Five years ago, the banking industry could be accused of ignoring fintechs, but now we are co-creating a number of products with them.” Nadine Chakar, Executive Vice President and Head of State Street Global Markets concurs. “As a bank, we are headquartered in Boston, which gives us extraordinary access to fintech and academic talent. We are partnering with some of these firms [fintechs] to solve our legacy issues and help us drive internal efficiencies and better solutions ,” explains Chakar. </p> COVID-19: Innovation becomes a need to have</strong></p> Although banks have been piling lots of resources into innovation and conducting regular proof of concepts (POCs), it was COVID-19 that really sparked organisations into action, forcing financial institutions to shift quickly away from their analogue processes. Mandatory lockdowns and the imposition of remote working have heightened the importance of all things digital. Activities which hitherto had been manual have been digitalised at breakneck speed. “In some markets historically, you had to be physically present to attend AGMs but COVID-19 meant meetings had to be conducted electronically, and this capability is something we have engaged with regulators about,” says Pemberton. Chakar adds COVID-19 has accelerated the industry’s development of RPA and natural language processing tools, again something which will put it in good stead moving forward. </p> Is mutualisation the answer?</strong></p> Mutualisation – for some – is the panacea that could solve many of the industry’s deep-rooted problems. In essence, it would involve post-trade providers delegating some of their non-revenue generating and non-competitive activities such as KYC and AML checks or account openings - to a credible utility like SWIFT or another third-party. In theory, the concept is a sensible one as it would enable custodians to incur massive cost savings through outsourcing high volume, low margin processes, allowing them instead to concentrate more on core client services. However, not everyone is entirely convinced by the merits of mutualisation.</p> </figure> Historically, utilities have not been a huge success. The issue is that the benefits do not always outweigh the material risks"</p>Nadine Chakar, Executive Vice President and Head of State Street Global Markets </cite></blockquote> </div></div> “Historically, utilities have not been a huge success. The issue is that the benefits do not always outweigh the material risks. If something goes wrong with an account opening or KYC check – for example – then the regulators will scrutinise the bank and not the utility,” says Chakar. Nonetheless, Chakar says some mutualised schemes are more compelling than others, most notably Proxymity, a proxy voting platform developed by Citi which has since been spun out, and is designed to help intermediaries navigate the requirements outlined in the Shareholder Rights Directive II (SRD II). </p> Standardisation of technology</strong></p> Standardisation has been a regular staple of the securities services industry. With new technologies emerging, experts believe that greater harmonisation is urgently needed, particularly around APIs. “APIs in their own right are not differentiators but there does need to be some sort of a transition to common mutual standards around data transmission,” says Pemberton. Such a move would facilitate easier interoperability between APIs and enhance efficiencies in the industry. </p> </figure> APIs in their own right are not differentiators but there does need to be some sort of a transition to common mutual standards around data transmission"</p>Stephen Pemberton, Global Head of Product, Banks and Broker Dealers at HSBC Securities Services</cite></blockquote> </div></div> “Demand for more automated tasks and dematerialised operations – such as the development of e-signatures – is higher, and disruptive technologies are expected to bring more autonomy in the management of data. Today, we prepare for the future with higher expectations of standards - for example on APIs, blockchain protocols, and AI modules plugged into legacy environments. Every change is designed to enhance the customer experience,” explains Mirochinikoff. Again, the industry has a long track record in delivering on standardisation, and it should look to leverage from its past experiences. However, standardisation is a process that takes time and will require patience. </p> </figure> [...] disruptive technologies are expected to bring more autonomy in the management of data</p>Yvan Mirochinikoff, Head of Innovation and Digital Transformation at Societe Generale Securities Services (SGSS) </cite></blockquote> </p> </div></div> COVID-19 and the economic aftershocks that will follow are going to make life incredibly difficult for post-trade providers. The business disruption being exacerbated by COVID-19 – along with the renewed urgency to automate and streamline operational processes – will force custodians into adopting new technologies more quickly, and identify practical solutions for industry-wide problems. </p>