With TARGET2-Securities (T2S) being implemented in 2015, attendees of the Network Management Conference in Vienna were warned that the potential benefits of the platform have been dramatically underestimated by the custodian banking industry.
With TARGET2-Securities (T2S) being implemented in 2015, attendees of the Network Management Conference in Vienna were warned that the potential benefits of the platform have been dramatically underestimated by the custodian banking industry.
The cost savings relate to costs not yet fully incurred by the industry and costs not exclusively related to fee effects, said one speaker, who added that quantification of the end-to-end benefits has also, to date, not been attempted.
As the first in a series of T2S discussions in Vienna, the speech was geared towards illustrating how the benefits of the regulations are so large that taking a wait-and-see approach has significant cost and opportunity cost implications.
The sole speaker in the presentation commented: “To access cost benefits, early action is essential. Previous experience has shown that markets take too long to act. This year presents a window in which strategic supply chain decisions can be taken, and executed.”
The speaker went on to concede that, as T2S was revealed more than 10 years ago, a certain amount of lethargy is understandable. However, the session advocated how the long-term savings of T2S compliance would outweigh the potential short-term rise in costs.
On the regulatory front, attendees heard one panel agree that banks’ relationships with sub-custodians are rarely affected by regulations such as the Alternative Investment Fund Managers Directive (AIFMD).
According to the panel, service providers are not forced out of the market by regulations, despite due diligence practices having to be adapted. On the contrary, the moderator claimed that new regulations have breathed life into an industry that was not as appealing 20 years ago.
Audience surveys during the panel concluded that the increased costs associated with regulatory changes should be paid by investors themselves, while the contingent of network managers in the crowd, rather optimistically, declared that fees for sub-custodians would decrease over the next five years.
The panel closed by reiterating that sub-custodians would continue to be in demand, due to banks appreciating the local expertise and connections that they provide.
Next up was global custody, which attendees heard must adapt to the new industry environment by thinking its way out.
When surveyed, a large proportion of the audience (45 percent) felt that problems in the industry are strategic and therefore fixable.
A panel claimed that these strategic problems stem from a lack of innovation, leading markets to become challenging or even financially counterproductive.
One panellist claimed that the custody sector should look to other areas, such as investment banking or technology suppliers, for inspiration.
Although mimicking the former’s offshoring and outsourcing could be a mistake, a change in model is essential, as far as the panel was concerned.
One of the panellists commented: “We have tried to be all things to all men in all markets and it just doesn’t work.”
Another of the surveys revealed that collateral management is viewed by network managers as the most lucrative route for global custodians in the future, with 47 percent of the audience choosing it as the best bet for rapid and sustained growth.
Although the panel agreed with this to an extent, a panellist warned: “There is a scarcity … and a lot don’t get it right.”
An area that banks must look to harness is digital media, which will become essential to network management in the future, according to a panel at the conference.
Although banks are still reluctant to open themselves up fully due to reputational risk, the panel asserted that mastering digital media is key to building client relationships and fostering continued debate, and therefore growth, within the industry.
The panel did not offer concrete guidelines on how network managers can go about embracing the virtues of social media but stated that the paradigm shift was inevitable.
Nevertheless, with #AIFMD and #EMIR becoming more common on Twitter and valuable industry connections being made on LinkedIn, the panel claimed that every financial marketing director is obligated to become “skilled up” with social platforms.
In addition to Twitter and LinkedIn, podcasts and other digital media were earmarked as different methods to communicate with managers’ target markets.
One of the panellists commented: “There was a time, 20 years ago, when companies were obligated to produce a long list of rules about how to use the new medium, email, safely. These days people are not nearly as worried and I believe that the same thing will eventually happen with digital and social media.”
