Beyond the digital frontier

It’s 2030, and it’s the middle of the night. Despite the time, a pension fund manager is awake, and wants to access settlement data for two digital currency transactions. They then want to see all the pension scheme’s assets across all systems, geographies and platforms, in a single book of record, at T+0. They don’t have to worry about reconciliation data, because reconciliation no longer exists. But they want to leverage their securities service providers’ technology to run several investment scenarios to decide what hedging programmes to adopt across a range of assets. And they want to do all of this on their digital device.

A world where fund managers and asset owners can access data and gain actionable insights in real-time, wherever they are and however they want, may seem distant but it’s closer than you might think.

The securities services industry is in the midst of an unprecedented transition to digital ecosystems, and client expectations of their custodians are widening to encompass a host of additional services around cyber security, artificial intelligence, cloud computing, data analytics, and blockchain technology. While asset servicers have always adapted their operations to keep pace with the ever-changing requirements of their clients, they will now have to be flexible, agile, creative, and digital in ways we haven’t seen before.

The asset servicing landscape will have profoundly changed and technological advancements will require global custodians to act as digital conduits for their clients – enabling access to an ever-broadening array of markets spanning traditional geographies as well as emerging digital infrastructures. We are seeing the drivers for this already – for example, the Australian Stock Exchange’s efforts to transition to Distributed Ledger Technology (DLT) or Deutsche Börse’s work building digital asset market infrastructure.

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Digital assets – assets that are issued, exchanged and settled digitally – will be commonplace across all sectors, whether it is bonds, private equity, exchange-traded funds (ETFs), special purpose vehicles, precious metals, real estate, and more. Beyond these traditional assets, new market spaces will normalise digital currencies and foster the development of entirely new asset classes.

The importance of digitalisation cannot be overstated, and its impact will have been felt across the full value chain of the securities services industry. The complexity of this emerging landscape is likely to encourage co-operation between asset servicers with competition based on service and the ability to add value – in particular, from actionable insights – rather than the ability to execute on standardised process, which will be commoditised.

The next decade promises greater efficiency, immediacy and customisation of data and insight provision from custodians – the enablers of innovation – which will allow clients to focus on their core competencies. By 2030, successful asset servicers will be the ones who have bridged the gap between traditional and digital assets, and helped their clients navigate the transition between the two. Their evolution, as it always has been, will be client-centric and, in 2030, more time will be spent giving clients information on what they need to know, and enabling them to make better decisions.

Read Northern Trust’s latest paper – Custody Reimagined: The Outlook for Global Securities in 2030

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