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Article18 Jun 2021

Adapting to a Changing World - Data as a Differentiator

The securities services world is changing. While the adoption of innovative real-time data tools and analytics was happening well before COVID-19, the pandemic has accelerated the pace of transformation. If harnessed properly, data can help clients extract insights, make operational improvements and enhance services to their downstream customers.
A tough climate
Global custodians and broker/dealers were already facing serious revenue contractions pre-COVID-19 exacerbated by falling client fees, declining margins off previously lucrative ancillary activities such as FX and securities lending, and the introduction of new regulations. There were fears initially that COVID-19 would prove especially ruinous for securities services with an Oliver Wyman research paper1, for example, warning that the industry was at risk of incurring losses of between 10% – 15% last year.
As we enter into the second year of the pandemic, the industry is still facing revenue shortfalls. In order to return to profitability, custodians and broker/dealers need to identify more operational efficiencies within their own businesses while making material improvements in the way they service their own clients. It is here where data, if harnessed correctly, could make a world of difference.
Data is the foundation
Underpinning the technologies driving efficiencies in securities services — whether it is distributed ledger technology (DLT), application programming interfaces (APIs), robotic process automation (RPA) or artificial intelligence (AI) — is data. However, in order for these technologies to be leveraged successfully, the underlying raw data fed into them needs to be accurate, organised in a structured format and stored in a centralised repository, such as a data lake or relevant data stores.

“The way in which we look at our data strategy for securities services is about driving efficiency and value for the clients. As an overarching vision, we have three pillars in terms of how we think about data,” said Fiona Horsewill, Global Head of Data for Securities Services at Citi.
The first pillar is focused on delivering Citi-held data to clients through their choice of delivery channels. The second is about delivering data to help customers with their decision-making. We also house client data and provide white labelling of the platform, which we undertake on behalf of certain clients,” added Horsewill.
However, consolidating and systematising data can be a very difficult exercise owing to the sheer volume of information out there. It therefore requires providers to have thorough governance processes in place to check that data is accurate and has been sourced legitimately. In other words, banks need to verify that data has not been obtained in contravention of local data laws, such as the EU’s General Data Protection Regulation (GDPR).
“There is a comprehensive global framework which describes how data should be organised, and this is something that our Securities Services business fully adheres to. We use appropriate, trusted data sources for all of our data. Any data that comes from a source must be completely immutable,” said Setanta Mathews, Global Head of Data and Analytics, Securities Services Technology at Citi. With a robust data infrastructure as a foundation, custody providers can then overlay technology to create valuable solutions for clients.
Actionable insights through APIs
The delivery of data in real time through APIs can help clients glean valuable insights, automate operational processes, reduce risks and help achieve significant cost savings. “Many of our clients want to interact with their data via a dashboard. It is vital we look at the client persona, namely whether they are an operations manager or a network manager, and understand what their role is,” said Horsewill.
“Imagine if we had an operations manager responsible for settlements in a certain region. We have a workflow tool which shows where a transaction is in its lifecycle, and provides status updates in real-time. This allows the individual to prioritise based on whether the transaction is taking place in a risky market. They can identify if there is an exception and drill down into it, but if everything is matched, then they do not need to worry about it,” explained Horsewill.
Such benefits are vital in the context of the unprecedented volatility clients are now facing. For example, during the pandemic, Citi’s API volume steadily increased by 7k times. APIs are a more efficient mechanism by which to disseminate data to clients, eliminating the need for manual reporting.
APIs could also play an integral risk management role, if vital communication channels between financial institutions and a market infrastructure or SWIFT went down. Some market participants feel that it would be remiss not to have contingency plans in place, which could be enabled through APIs. This would allow institutions to switch from a primary to a secondary communication channel with market infrastructures in a seamless manner. However, to achieve interoperability between organisations, there need to be comprehensive standards on APIs, which is a challenge the industry still must address.
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