A landlocked country surrounded by beautiful mountains, valleys and deep Alpine lakes, Switzerland is dotted with farms and small villages as well as cities merging the old with the new.
The country has also maintained its status as a leading global financial services centre. In recent years, Switzerland’s financial services industry has seen a boost in innovation and a growth of enhanced technology, while cost pressures and regulations are some of the areas that pose challenges. As such, Switzerland needs to continue its focus on regulatory flexibility in order to continue its momentum.
Speaking with Asset Servicing Times, Wim van Ooijen, country head of Switzerland, Northern Trust, tells us more about some of the trends and interesting themes in Switzerland.
What are some of the trends you are seeing in Switzerland’s asset servicing space?
We see investment managers being concerned about controlling costs in volatile markets, followed closely by a focus on risk and compliance challenges, as well as support for expansion into markets beyond their home country. These were among the key findings from research Northern Trust commissioned earlier this year surveying 300 heads of investment operations from asset management firms across Asia Pacific, North America, Europe, the Middle East and Africa.
In response to this, we see increased interest in asset managers working with their asset servicers to outsource certain functions to help drive efficient growth and strengthen key processes. For example, our survey indicated that 85 percent of respondents have either already outsourced their trading desk or are interested in doing so in the future. Nearly half (45 percent) are considering outsourcing data management in the next two years, while approximately one third are considering outsourcing foreign exchange and middle office functions.
Outsourcing remains a key way through which small- to mid-size managers can achieve operational scale and gain access to capabilities usually only available to the largest players – aiding efforts to maximise efficiency, realise cost savings and improve margins.
Our experience is also that by identifying functions that are ‘non-core’, for example, not of intrinsic value to their businesses, and outsourcing these to a third-party provider, managers often gain greater focus on the areas where they can add real value. In this way, outsourcing can aid managers’ focus on activities such as portfolio management and client service, and avoid being distracted by activities at which others may be more expert, such as trading.
How is Switzerland’s financial services working to keep up with the latest technology? What initiatives are you working on in this space?
As a jurisdiction, Switzerland can demonstrate close collaboration between government, regulators and financial sector firms to foster innovations in fintech.
Swiss-specific solutions in the financial industry, such as electronic payments, are in strong competition with solutions provided by global technology companies. We expect similar growth opportunities for global solutions in asset servicing and believe a combination of local presence in Switzerland with a global asset servicing platform provides the best value for clients.
There is no question that artificial intelligence (AI) and its variants are going to dramatically change the industry. Our market advocacy and innovation research team actively focuses on AI, distributed ledger technology, robotics, and other technologies to determine the best and most beneficial ways they can be woven into our business.
We believe industry practitioners and regulators themselves will begin to adopt live auditing in the coming period. We also believe that in the future, markets will regulate themselves based on algorithmic updates. The use of robo auditors will make the market safer, even for complex assets, which in turn will further drive the widening of access to the market.
What challenges is Switzerland currently facing within its asset servicing market?
The material growth of the Swiss financial technology sector we have witnessed over the last few years has increased the necessity for asset servicing providers to adopt these innovations for the benefit of their clients and the asset servicing industry as a whole. Fintechs have also in the last few years increased the pace of innovation in Switzerland, which is bringing structural challenges to the industry.
It would be also beneficial for Switzerland to maintain a favourable regulatory environment enabling and encouraging partnerships between asset service providers and fintechs. Such collaborations would ultimately benefit the end clients passing on new efficiencies and cost savings.
To what extent is data an opportunity for Switzerland’s asset servicing industry and its whole financial sector in general?
There is no shortage of data available to investment managers, and in our recent survey, the task of managing changes to existing data sources or providers was ranked as the biggest challenge for asset managers when evaluating their data management. Consolidating data from multiple disparate internal and external sources was ranked second.
Firms that fail to focus on incorporating data management into their operating models, are at risk of falling behind their competitors. Implementing next-generation technology internally is an effective way to build on a pre-existing data strategy and IT infrastructure. However, before going down this road, decision-makers should have a clear understanding of how this could impact their current technology commitments and operating model and how it can specifically help them to achieve their business goals.
In today’s environment, we see availability of this data – for example, on managers’ fund flows or investor on-boarding – as being crucial to supporting strategic decision-making. It will help managers more closely with key challenges such as growing assets, meeting regulatory obligations and controlling costs.
How could Switzerland further bolster its asset servicing industry?
To ensure Switzerland maintains and develops its status as a leading global financial services centre it needs to focus on a combination of regulatory flexibility, market competitiveness and asset servicing capabilities to accommodate a spectrum of requirements.
From a regulatory perspective, Switzerland needs to continue its focus on ensuring a pragmatic regulatory infrastructure to meet the broad-ranging needs of its diverse asset manager and asset owner clients. This entails continued focus on supportive regulations, including the ability for asset servicing providers to offer services to meet UCITS and Alternative Investment Fund Managers Directive (AIFMD) needs of non-Swiss clients as well as local clients in cooperation with the regulator.
It is important the industry continues to maintain its global competitiveness. Switzerland’s asset servicing industry supports a comprehensive range of funds which historically looked for a provider that could offer depositary banking, custody, fund administration and management company services as a package. Going forward, clients may look to break open this value chain and find ‘best of breed solutions’ for various components.
These trends and developments can be addressed by a focus on partnership models and joint solutions to bolster non-core elements and drive the Swiss asset servicing industry forward. A combination of local Swiss understanding of client needs plus a global asset servicing platform should benefit clients, as well as local and international asset servicing providers.
What do you expect to see over the next 12 months? What do you think will be the hot topics this time next year?
The impact of COVID-19 is accelerating the digitisation of the financial industry and asset servicing is no exception to this trend. Asset servicers, in providing fund administration, global custody and data-orientated services to investment managers, have seen how current conditions create new challenges for the industry. The need for digitised investor communications, real-time, high-quality data and tools to help users make sense of it is more relevant than ever. We expect this topic to rise further up the industry’s agenda in the coming months.
There has also been a strong focus from our clients on regulatory compliance and how we can support new ways of managing and delivering data to enable them to focus on what is important to them – for example, fund performance and distribution growth.
In addition, technological innovation continues to play an increasingly decisive role in separating the ‘winners’ from the ‘losers’ in asset management. We expect to see firms continuously evaluating the role of technology in their operating models to create integrated, holistic cross-platform solutions that support their strategic objectives. Asset managers will continue to identify disruptive technologies for use in their businesses and look to re-design long-standing processes to help provide them with a competitive edg
