The future of post-trade in a post-covid world
The health crisis forced the whole world to dive headfirst into virtualisation and innovative technologies much faster than expected. Yvan Mirochnikoff, Head of digital solutions at Societe Generale Securities Services, shares his analysis of the finance industry and securities services in particular.
The Sibos conference saw a major transformation this year. This huge annual event, which draws over 8,000 professional attendees every year from the banking and global finance industries, is being held entirely online. While we are disappointed not to be seeing each other in person to discuss the future of our industry, of course, this is an excellent sign of our resilience in a new world which we were thrust into much faster than we anticipated.
Virtualisation and the widespread use of technologies are not revolutionising our industry in and of themselves; the digitalisation of securities, for example, is a distant memory for most of us. What is new is the breadth of this transformation and the fact that it is unavoidable, making each of us responsible for how prepared we are for a crisis that is as unprecedented healthwise as are its economic and social effects.
Our first observation is one of reassurance regarding the ability of our organisations and systems to have absorbed the shock. Despite high market volatility and a significant rise in transactions, all of our institutions rose to the challenge and continued supporting the economy and securing financial trading. Bravo!
An in-depth transformation of our operational models
Yet it is something else with a more long-term effect that reflects the in-depth transformation of our business activities. We all saw how important it was to update our economic models, value chains and operational models.
We have made three key observations in the post-trade industry:
- The client experience is a cornerstone of the transformation strategy for all stakeholders
More than ever, the COVID-19 crisis has demonstrated the importance of proximity with clients in order to anticipate their needs and provide them with quality service around the clock. This quest for excellence in client relations depends on the trust between stakeholders and the quality of the teams on the ground, and is often the product of the kinds of long-standing relationships which are typically found in asset servicing. But this also involves changing systems that must now offer greater autonomy and personalisation in client services. The development of self-care must enable everyone to access useful information at any time. The alert systems need to supplement traditional tools through the increased use of smartphones and unified messaging (including video) to link clients (whether investors, asset managers or institutional investors) to their financial service provider.
At SGSS, we came up with an alert system that enables fund managers to receive alerts at the threshold of their choice so that they are warned of major changes in their funds’ liabilities nearly in almost real time, without having to wait until the following day to see the volumes traded.
- The quest for greater value-added drives us to make the best use of our data assets by developing innovative solutions
For many years, we all felt like we were sitting on a gold mine that we didn't know how to tap into. That's all in the past now, however, and thanks to innovative technologies (e.g. the cloud, big data and artificial intelligence), we have increased the efficiency and relevance of information provided by using richer historical data, which makes it possible to develop models (risk, performance) that are far more efficient than human operators, who experience difficulties spotting useful signals in increasingly complex data environments. There are many examples: the development of stress testing, performance models, benchmarking and value-added sales reporting.
However, the way information is presented is also changing. Traditional spreadsheets seem outdated post-COVID!
The way we present information enables us to target our message and manage our activities and investments with greater control and efficiency. Machine learning, data visualisation tools and developments in R or Python are becoming the standards mastered by young recruits in our industry in order to provide the insights expected by managers and other financial experts.
- The quest for greater operational efficiency drives us to develop partnerships
There is no doubt that the transformation of value chains in order to meet the economic challenges facing our industry means overhauling every single link and making sure you have the best-in-class solution for each of value-chain component. By forging a strategic partnership in services related to international fund distribution, for example, SGSS shares a global fund-distribution platform with MFEX granting access to information on the transactions and retrocessions of tens of thousands of funds held by over a thousand management companies. The same goes for the partnership with the software developer SimCorp, which enables SGSS to offer its clients “CrossWise”, the front-to-back, fully modular solution which combines portfolio management, order management and routing, transaction management and post-trade management (via an IBOR1), custody, fund administration and the function of a transfer agent.
Beyond that, fintechs becoming immersed in certain niche services and certain kinds of clients (Epsor, for example, offers employee-savings schemes to SMEs and ISEs2) is what has promoted agility when creating new offerings and broadening ranges of more effective tools. You also have to adopt an open architecture for your information system to facilitate the integration of new components in legacy value chains.
Necessary adaptation to a post-COVID world
Within the scope of our activity, each of us recognised the scale of the transformation that would take place, and perhaps even the investments to make in order to upgrade. We have to remember the extraordinary adaptive capacities of our teams, which took a proactive stance to quickly transform our organisations and adjust to the constraints of remote work or work in very secure environments.
However, we mustn't forget the assistance and training efforts we must undertake in order to help the teams (and sometimes clients) adjust to this new work environment. Nowadays, signing and archiving a contract electronically, using a data visualisation tool and validating a NAV3 from your smartphone all seem like simple day-to-day operations. But to get there, we have to completely change the way we think by putting the client first and ensuring the financial viability of every project, and we have to do it without losing sight of the need for risk assessment and control – tasks exclusive to the banking business – even when dealing with operational risks for new technologies.
As such, there are still many areas to uncover and test. For example, more disruptive and recent technologies such as blockchain,API platforms4 and micro services will need to be tested extensively (at French and European level), and even be subject to common regulations or new “open” standards fostering truly interoperable systems and seamless integration of new services, before weighing the advantages. Welcome to the world post-coronavirus!
1 Investment Book Of Record
2 Small and Medium-sized Enterprises and Intermediate-Sized Enterprises
3 NAV: Net Asset Value
4 API: Application Programming Interface