Custodian banks will have a new focus in 2018, as the raft of regulation that has preoccupied them for the past few years shifts down the agenda.
Sources said 2018 will be about digitization of custody and asset services, as the low-yield environment forces clients to look for more granular data, better flexibility in accessing data and more frequent reporting of this data.
Custodians contacted by Pensions & Investments are preparing a suite of enhancements to help institutions interpret real-time data.
Daron Pearce, CEO of global financial institutions at BNY Mellon Asset Servicing in London, said: "The tsunami of regulation which we faced in recent years has peaked ... which means that we can now spend more time on developing new capabilities and new infrastructure to help our clients get better access to data." BNY Mellon has $30 trillion in assets under custody.
Chris Rowland, global head of custody at J.P. Morgan Chase & Co. in London, said: "Clients already look at their custodians to aggregate information coming from multiple sources — scrub, structure and validate it. Increased digitization will boost the ability to streamline, enhance and enrich the flow of information, to generate deeper insight for clients." J.P. Morgan has $20.5 trillion in assets under custody.
To provide the enhanced data, custodial banks are making upgrades aimed at more powerful and faster trade execution capabilities, in addition to introducing tools that will help asset owners brace for reporting next year under a number of new rules, such as the Markets in Financial Instruments Directive II, and certain other pieces of regulation.
Penelope Biggs, head of strategy for corporate and institutional services at Northern Trust Corp. in London, said: "Enhancing our data and digital architecture and the client experience will be our top priority."
She added: "Our partnership with BEx LLC to deliver a foreign exchange algorithmic trading capability ... will help clients access enhanced liquidity and enables (Northern Trust) to drive more transparency in the foreign exchange market."
MiFID II, which has preoccupied much of financial firms' time in 2017, is also giving custodians the chance to compete when it comes to making life a little easier for their clients. The European directive requires sell-side firms to separate the cost of trade execution and research so buy-side firms can make explicit payments for research.
Jeff Conway, CEO, Europe, Middle East and Africa at State Street Corp. in London, said his firm is providing tools that combine machine-learning and human intelligence, allowing institutions to access research in one place. State Street has $28 trillion under custody.