How will technology shape the future of asset servicing?

Highlights from Sibos 2023

How will technology fuel the evolution of asset servicing?

A cornerstone of the financial services industry, asset servicing is all about people. In a roundtable discussion at Sibos 2023, participants discussed how it will – and will not – be impacted by technologies such as artificial intelligence (AI) and the tokenisation of assets using distributed ledger technologies (DLT).

With markets around the world at different stages of development no two markets are the same and it can be difficult for global corporations to harmonise processes as much as desired, shared Ying Ying Tan, Global Head of Product, Financing and Securities Services, Standard Chartered. This impacts the calculus around investing in new technology as well as creates a disparate regulatory environment.

For instance, while cloud computing plays a significant role in streamlining processes, not all regulators are open to the technology. Also, while manual processes still exist in asset servicing, hiring more labour to carry them out is not a long-term solution. However, AI and other technologies can help fill the gaps.

AI is now being used to convert data residing in ‘unstructured’ formats, such as PDF documents, into instructions for automation across systems, facilitating faster data processing. Ying Ying also cited successful use cases for AI in speeding up client onboarding processes and enhancing robotic process automation capabilities. Yet another focus area is using AI to automate the flow of client communication, where bots can deliver instantaneous responses, freeing up humans to handle more complex queries.

“The ability to provide instantaneous, accurate information is key,” said Ying Ying, as clients increasingly seek data ‘on demand’, such as the status of their trades and cash reporting right at their fingertips. This means data needs to be communicated clearly and with low latency, which AI solutions can help accomplish.

Adopting a change mindset

Yet it’s not as simple as merely installing AI software and moving on with business as usual. While the data will arrive instantly, change will not - a result of a gap that typically exists between clients’ expectations and their readiness to onboard new technology. This calls for a transition period both from the client’s end and the data provider’s end, rendering it necessary to continue running some legacy systems until the switch is complete.

Then there is the question of satisfying constantly evolving client needs. In the past, data providers would prepare reports presenting relevant analysis. Now, clients are increasingly asking for raw data to be delivered instantaneously. In addition, clients want data visibility not only for themselves, but also for their clients. As a result, three-way visibility with low latency is an increasing priority, which requires an in-depth understanding of the data requirements of more parties across the value chain.

Given the increasing usage of technology and AI, you need a culture and mindset of innovation in the organisation – you can’t do it the traditional way.

Ying Ying Tan
Global Head of Product, Financing and Securities Services,
Standard Chartered

One way banks can optimise the change management approach is by partnering with fintechs, which tend to operate with a more agile mindset and offer expertise in niche areas. That way, banks can bypass the resource-heavy process of developing solutions internally from scratch, focus on providing the financial expertise, market reach and scale of a global institution while the fintech partner brings the technological expertise - a win-win situation for all stakeholders.

Key to data governance: Hiring the right talent

As banks and financial institutions go about creating innovative solutions with the help of tools like AI and machine learning, and managing change, they must not lose sight of the attendant compliance needs and pay attention to proper data governance, which is fundamental in a highly regulated industry like financial services.

And that means understanding who owns the data, where it is gathered from, and what can be done with the data, including patterns gleaned from various datasets. Therefore, establishing the right governance model can be a key success factor.

This requires hiring people with the appropriate skill sets – such as experienced data scientists and engineers well-versed in tools like machine learning – to train systems to process data in a compliant manner. The right team of experts can also identify hard-to-spot patterns in the troves of information thus generated, which can in turn be structured into data products.

“Data is no longer just a base for other insights – it is a product in itself. When you change that mindset, you can hopefully differentiate yourself and offer a more holistic approach for your clients,” said Ying Ying. “If we do get all these things right, including governance and control, then there’s a lot of potential for AI to help to optimise workflow and even increase revenue.”

New tech: Solid potential or just buzzwords?

Along with AI, tokenisation and DLT have the potential to further improve the asset servicing function, the panel noted.

Tokenisation – the digital representation of an asset on a distributed ledger – is expected to increasingly add value by facilitating the distribution of funds and enabling illiquid assets to be used and transferred as collateral more freely, thereby removing settlement frictions. Yet, exciting as these developments may be, they are still at an experimental stage, and it would be better to proceed slowly but purposefully rather than jumping on a bandwagon, the panellists agreed.

Running a successful proof of concept doesn’t mean it will lead to successful adoption and a successful launch across the industry. The industry and clients have to come together to make DLT pervasive.

Ying Ying Tan
Global Head of Product, Financing and Securities Services,
Standard Chartered

Another barrier to adoption is the old adage, ‘If it ain’t broke, don’t fix it’, the panel noted, pointing out that asset servicing is already enjoying improvements in terms of straight-through processing, higher speeds and fewer settlement fails. While this calculus is understandably making it harder for financial services firms to justify investing in a new technology if it will deliver only incremental improvements, they’d do well to recognise that rapid advances in technology mean they can be tailored to serve the needs of different clients, and ultimately aid growth and bottom lines.

Furthermore, alignment on DLT across the industry will help all participants get the most out of this technology – from issuance to custody – while regulation can help boost participation by providing a direction for the whole industry to unite behind and follow.

Ultimately, the panel noted, new technologies will always create benefits when balanced correctly with human capabilities, which is paramount. This way, harnessing technology to improve processes will allow humans to do what only we can do: manage relationships, customise services to client needs, and make the right decisions on how to use technology for the benefit of everyone involved.