Risk mitigation, the right partner is key to maximise efficiency, ROI

Whilst a large part of the banking and finance industry has embarked on its digital transformation, asset servicing operations – which include fund services, custody and accounting, outsourcing services, securities lending, payment of dividends, stock splits, tender offers, mergers and acquisitions, amongst others – continue to be driven by manual processes.

As organisations hesitate to implement more modern technologies that will improve operations, money and reputation are lost. 

One of the key hindrances entails integrating a counterparty network that processes events that are consistent with industry standards such as ISO 15022 or the new, and more stringent, 20022. 

On top of the pressure to comply with standards, Cottingham adds, “regional processing differences, and making sure there's flexibility in the way you implement a new process to accommodate all the deviations is very, very important.”

With the seasonal mandatory event of corporate action, organisations need to find non-manual ways of managing volume increases in a timely, correct, and complete manner.

“All of these challenges are crucial... measured as operational markers of workload, level of automation, staff knowledge, and associated tooling to be deployed efficiently within an operation.

Responsibilities of Solutions Providers  

Ultimately, it comes down to solutions providers helping organisations find the customised, affordable solution that will achieve the relevant total cost of ownership, whether it be a small asset manager or a large custodian.

“Key is finding the appropriate tooling that is affordable for all participants in corporate actions,” Cottingham said. “Also important is the return on investment. Projects can't last for years. We have to be quicker and be more standardised to make sure optimisations and automation are achieved within a short timeframe.”

For the few organisations that have begun the automation journey, it has never been a busier time, said Adam Cottingham, SmartStream’s Global Head of Asset Servicing. He revealed SmartStream has received requests for proposals that are looking to replace legacy operating systems.

“On the buy and sell side, and within custody, we're also seeing activity from large organisations that are looking to take on a second project to further improve their operations processes,” he added.

Mitigating potential risks

Before embarking on their automation journey, Cottingham recommends that organisations first take the critical first step of planning to understand and benchmark their baseline manual operation and determine improvement goals.

“Having management oversight is critical, and having a goal of where you want to be in the future so that you can plot your journey,” said Cottingham.

As the operations change shape along the automation journey, “your view of your exceptions will change. Done correctly, that means that you'll be able to achieve a much more automated process intraday that is very transparent.”

Managing Clients to Achieve Automation Control

SmartStream’s corporate action solutions that enable automation and increase operational control are used by custodian banks, asset managers and hedge funds to address the challenges and risks associated with asset servicing operations. 

“Our stream has a rich SME team that understands this transition journey. They understand how to best optimise and standardise this model client configuration journey to achieve ROI and establish the foundations of this journey.”

Cottingham adds that in choosing a team, it is important to consider their depth of knowledge, tooling completeness, and understanding of edge cases.

“A key example of this is key custodians wanting to move away from 15022 to 20022, which can only be achieved by 2025. SmartStream is geared towards doing that in a cost-effective way for its clients.”

Changing mission 

As asset servicing operations become digitised, Cottingham predicts custodian team roles shifting from administrative to advisory roles in making corporate event decisions. This ensures optimum outcomes to maximise returns.

“Once the administrative burden has been remediated by automation and effective tooling, it's a way of making the operation more effective and more efficient, and then optimising the business as well,” Cottingham said.

In closing, Cottingham underscored that understanding the risks and finding a technology and service partner to help alleviate those risks is vital to the automation journey. “There are providers that can do this and isn't as expensive as it has been in the past. And so there's no reason to not start your projects now.”