Safekeeping Empowered: Reimagining the US Custody Business

Until recently, the global custody industry operated fundamentally in the same manner for decades. The old perception of pillared institutions vaulting securities, collecting income and calculating net asset values for funds belies the custodian of today who more resembles a technology provider than stodgy bank. In this era of cyber threats, regulatory changes, disruptive technology and commoditized custody services, custodian banks must adopt and even develop their own innovative means of attracting and retaining assets, or risk submitting to the perception.

TABB Group interviewed a select group of sell-side senior executives (COOs, heads of operations and heads of technology) at mid-sized banks and brokers in the US regarding their own priorities, and, in turn, what they expect from their custody banks. We found that the custody industry is set for transformation in terms of the technology they use to support our respondents, while the focus on customer service reigns supreme. Adoption of automation for remaining manual processes, combined with better data analysis, are critical enablers of the high-touch coverage the sell-side so covets.

The priorities of the sell-side consumers of custody services, particularly mid-sized banks and brokers, are being compelled by the needs to achieve value, comply with regulation, aggregate data, and reduce costs. Their initiatives are both technical and workflow-oriented in scope. The first objective of our outreach was to gain an understanding of how they are prioritizing their development budgets. Our outreach additionally sought to gain an understanding of what mid-tier sell-side custody clients are looking for from their existing custodian bank relationships; how they might evaluate a new, prospective custodian; and how they believe custodians should be prioritizing technology to advance their relationships.

The custody business in the US is at a critical turning point. Custodians must automate whatever inefficient processes remain to reduce those exceptions, by whatever means necessary, while diverting resources to high-touch client service capabilities to best serve their sell-side customer base.