SmartStream
SmartStream’s Nick Smith explains that much of the implementation of AI is to supplement existing platforms rather than radical replacements of legacy systems
What technology trends are you seeing in asset servicing right now? What role does automation play in asset servicing?
At the top of everybody’s agenda and requiring significant investment, is adapting to changes in the regulatory environment in addition to ongoing compliance with the regulatory framework.
In addition to wide-ranging regulations such as the second Markets in Financial Instruments Directive, more localised requirements such as New Zealand’s BS11 or the European Banking Authority’s regulations around cloud providers all require investments in both time and resources.
Many financial institutions have moved to cloud strategies for hosting their infrastructure as an enabler to flexibility in the delivery of solutions. These cloud strategies improve time to market for new solutions, almost real-time scalability to adapt to growth in the business needs and are very cost effective.
Are you seeing a trend of people building on old legacy systems or are they replacing legacy systems with AI and/or machine learning? What is your company doing?
Despite a lot of claims in the industry, much of the implementation of artificial intelligence (AI)/machine learning is to supplement existing platforms rather than radical replacements of legacy systems. We see a lot of in-house AI teams continuing to search and explore for use cases, which results in a more tactical adoption on the new technologies rather than radical strategic change.
Within SmartStream, we have been employing a number of approaches. We have developed a brand new product that runs completely on AI from start to finish. We have introduced AI to supplement our existing products and we have introduced AI to our managed services clients that will reduce operating costs and therefore pricing, improve efficiency and have a direct impact to the reduction of exceptions that an organisation has to manage.
How is new technology transforming the custody and settlement space?
The entire industry continues to evolve. Whether it is market initiatives, standardisation, or the consolidation of businesses, they all require technology as an enabler to deliver the change for maximum benefit.
SmartStream continues to see the standardisation of processes and the resultant application of technology as being a major driver in the reduction of operating costs, regardless of the specific space within the industry.
Although a lot of financial services companies are already using AI technologies for the right reasons, do you think some companies are using such technologies because they feel a certain pressure to?
Many financial institutions are exploring the possible benefits of AI and there are often internal political pressures to ensure that there is a financial return on such investment. As the industry moves through a learning curve, we will see the application of AI refined. Some processes will benefit significantly from the application of AI, while other processes will benefit just as easily from the use of legacy technology investment.
Data scientists are in high demand, and it is key to ensure that their skills are applied for maximum benefit and return.
Has increased regulation in the last 10 years become a catalyst for the use of more technology in asset servicing?
Without continuing investment in technology, an organisation risks becoming a failed organisation. Attempting to meet ever-evolving regulatory change with the appropriate technology will be both cost-prohibitive and expose an organisation to compliance breaches.
For case studies, we can see many examples of the Financial Conduct Authority’s Client Assets Sourcebook (CASS) requirements being breached and the direct impact that has on an organisation—fines, changes to capital adequacy requirements, forced investment in specialist consultancy firms and technology to close gaps in the operating model.
How has technology helped financial institutions comply with regulations?
We continue to see breaches in compliance being driven by the reliance on people rather than technology. Whether it is human error or incorrect interpretation of the regulations that drive the breach, both are serious.
Where financial institutions have developed central repositories of data rather than disparate systems, this level of data management defines the quality and integrity of an institution’s regulatory reporting, effectively creating a golden source.
On a regular basis, we encounter financial institutions that have found failures in their regulatory reporting as a result of either including data incorrectly or omitting to include data. Effective technology management will contribute to the elimination of such breaches.
How do you see the AI technology world developing over the next five years? What kind of things do you expect to see?
While the data scientists in many organisations continue to search for use cases, this will in time evolve into defined strategies delivering significant cost benefits and improvements to the risk and control framework. The groups working on AI will evolve from relatively small specialised teams to mainstream teams leveraging best in class approaches.
SmartStream’s strategy is to ensure that AI is embedded in all of our products, including our managed services outsourcing businesses, in order to ensure that our clients obtain full benefit from our extensive investment in these new technologies.
