As one of Asia’s most well-established markets, Singapore has a thriving financial hub and has been described by some as one of Asia’s economic “tigers” along with Hong Kong, South Korea and Taiwan.
Singapore gained full independence in 1965 and has since gone from strength to strength with a secure government that concentrates on ensuring the legal, technological and infrastructure resources are in line with the requirements of international investors. Its market has been described as educated and highly regarded as efficient and comparatively low-cost compared to other financial centres.
Additionally, the city-state’s advanced technological infrastructure has been a strength, placing it in a prime position to increase in Asia’s custody market. Further factors contributing to its evolution stem from investors becoming more sophisticated in their investments looking for yield and new asset classes like structured products, as well as mutual and hedge funds.
With much to be proud of, what is next on the horizon for the Asian Tiger and how is the ongoing COVID-19 pandemic affecting it?
Standing strong
Singapore has remained strong and resilient in the face of the unprecedented pandemic. COVID-19 has encouraged new ways of working for many in the financial services industry, with many now working from home. It has also placed a great emphasis on operational resilience, as well as shining a light on how technology can be better incorporated into processes. However, in Singapore, industry experts say that even before the crisis, the asset servicing industry had pivoted towards a technology-led transformation.
Mathew Kathayanat, director and head of product and strategy for Asia Pacific, asset servicing, BNY Mellon, says: “The COVID-19 crisis has not only justified the industry’s targeted investment in technology, but it has also now accelerated the digitisation of businesses. Obviously, these are very worrying times, but our systems are set up to handle spikes in transactions, so it doesn’t really differ from any other day when you have scalable platforms.”
In agreement, Yen Leng Ong, country executive for Southeast Asia at Northern Trust, notes that most of the mid-size and large financial institutions across Asia Pacific are well positioned to navigate the current environment.
According to Ong, an important contributor to this has been their investments in technology modernisation which has improved the straight-through processing rate.
Alongside investment, she suggests that being able to undergo IT network infrastructure upgrades is another important contributor in order to support more capacity and secure video conferencing platforms, in order to stay connected.
She comments: “The pandemic has also forced the industry to consider how staff can meet regulatory requirements while working from home. The challenge of adapting from managing a team of employees in a single office to overseeing distributed home offices is quality control of processes.”
“Most of the global, regional and local asset servicing service providers have been able to move quickly and deliberately during the distributed home office working arrangement, to maintain and even exceed the service level with clients,” Ong adds.
A technological wonder
Technology has advanced at a rapid pace over the past few decades and Singapore has been taking full advantage of the technology on offer across the financial services industry, especially within asset servicing.
In terms of its use cases, Kathayanat notes that technology is providing opportunities that has helped to improve harmonisation in Asia. He says: “Asia’s growing role in global markets and the financial ecosystem naturally mean that technology is a key enabler of improved harmonisation.”
The best example is blockchain, which regulators and big financial institutions are looking to as a means of increasing transparency, interoperability, and resilience to market events.
“Blockchain is already transforming the way in which securities are being issued, traded, cleared and settled, and not too far down the line, various types of assets will be tokenised, inevitably leading to greater regulatory and practical convergence between different jurisdictions. BNY Mellon’s blockchain-based platform for US treasury bond settlement- BDS360-has been running since 2016 and is used as a resilience tool internally providing an immutable version of security records,” Kathayanat says.
At BNY Mellon the focus is to leverage technology to unlock value, for instance using artificial intelligence and machine learning to deliver additional services to clients in a proactive fashion.
As an active market for fintech innovation, leveraging distributed ledger technology (DLT) for fund administration is inevitable, however, Ong highlights that the change requires a local market ecosystem and collaboration.
She explains that there are many upsides to using DLT for know-your-customer (KYC) practices, as it has the potential to make the asset servicing landscape more efficient. But the value of only Singapore’s ecosystem would be limited, given the global context of the asset servicing industry.
“With Singapore positioned as a regional foreign exchange (FX) centre, we have seen the FX landscape shift to leverage technology for trading. For example, Northern Trust launched an algorithmic e-trading solution and a passive currency management solution in late 2019 and early 2020 respectively,” she adds.
Trends in the market
There are quite a few notable trends in Singapore’s asset servicing space, including increased demand for digitalisation, data analytics and sustainable investments.
Ong explains that the accelerated demand for digitalisation has been heightened by the added factor of COVID-19. This has created the adoption of other forms of technology which, although have always been available before, are now relied upon more. She says: “In addition, the growth and evolution of technology has meant that some firms are looking to outsource services. It is difficult for all firms to handle the rapid growth in technology and therefore we are seeing some consider outsourcing middle and front office operations, even from the beginning of the setup of the firm. We are also seeing a demand for data analytics for performance and operation optimisation purposes.”
Another trend that has ridden on the coattails of COVID-19 is environmental, social and governance (ESG) factors. While ESG awareness was high in Singapore and the rest of the region, it will now become entrenched with their asset manager and asset owner clients as they emerge from this crisis, according to Kathayanat.
Meanwhile, discussing developments in the custody space, Ong says: “In listed securities, the processing is already highly automated. However, processing unlisted securities presents the opportunity for digitalisation. Therefore, applying fintech on the Singapore variable capital companies (VCC) fund administration should be considered.”
Continuing the momentum
Looking to the next 12 months, Singapore’s asset servicing industry has lots of opportunities in store, with the two main ones being VCC’s fund administration and family office asset servicing. Ong suggets this is due to the current VCC drive and wealth movement from Hong Kong to Singapore.
Kathayanat stipulates that the new VCC structure strengthens Singapore’s competitiveness in the arms race in fund structures, allowing asset managers to use a single locally incorporated structure to hold a pool of assets and multiple sub-funds.
“Firms from China, India, Switzerland and the US are already signed up. The interest levels are up despite the current situation which bodes well for the asset management industry in Singapore.”
“This year is about getting the first tranche of fund launches set up,” Kathayanat states.
Digitalisation is also set to continue its significant role in Singapore’s financial services space, with predictions that it will continue to evolve, coupled with digital transformation.
Ong stipulates: “For instance, setting up an end-to-end operational process to accept a proper instruction through an online portal or an e-signature of an emailed instruction, authenticating the instruction, processing it, recording and monitoring it with human intervention when the algorithms spots an anomaly.”
“This solution could be refined with the introduction of machine learning for improvement. In addition, digitalisation helps achieve more data gathering to create more analytics that helps drive decision making to achieve investment performance and operational efficiency.”
Another opportunity for Singapore is outsourcing. Ong says: “During the global pandemic, clients have been reconsidering their business resiliency strategy.”
She concludes: “We are seeing an increasing interest in operational outsourcing for both middle and front offices, in order to manage risk, comply with the constantly changing regulatory requirements and ensure operational efficiency.
