Contents Welcome

Dear TNF Friends,

It is hard to believe that we are just a few weeks away from our third Annual Meeting – last year’s event in Vienna feels like yesterday! We are really looking forward to catching up with many of you in the ancient city of Athens, and to be brought up to date on all the latest news on a professional and a personal level.

The theme that has emerged around this year’s Annual Meeting is “Transformation, Innovation & Collaboration – Embracing The Future”, which I think perfectly summarises what we consider to be the ethos and impetus behind The Network Forum.

even less clear, but what is interesting is that it does not seem to be holding back innovation in our industry at all – as you will read in this Journal.

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Since we formed at the beginning of 2017, we have seen a great deal of evolution in all of the markets to which we are actively exposed to via our membership, now over 1,500 individuals worldwide, and our various gatherings – Africa, Americas, Asia and, new for 2019, the Middle East, alongside the Annual Meeting. Technology, regulation, efficiency and security are the main pillars underpinning this change, and the rate at which this is happening is only increasing.

The number of organisations – from established players, both financial and non-financial, to new startups – offering solutions based on fine-tuned “legacy” technologies, leading edge DLT/blockchain concepts and even solutions based on a blend of the existing and the emerging – is at an all-time high. A significant number of the articles in the publication you are now holding shed some light on many of these, as well as some of the challenges and opportunities resulting from the current trading environment.

This time last year, we were all contemplating a European Union without the United Kingdom. Sadly, the Brexit saga rumbles on, and the outcome is seemingly

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The Network Forum, we believe, is uniquely positioned to help promote the dialogue and collaboration that is so important to the ongoing health and vitality of our industry, and with this in mind I hope you find this Third Issue of The Network Forum Journal an informative and enjoyable read, and that we will see one another on our travels very soon!

Edward Jones Managing Director THE NETWORK FORUM

The Founding Partners

The Network Forum are honoured to be supported by The Founding Partners below.

The securities services business has long struggled with the concept of technology innovation. Product innovation is a constant, but IT often struggles to keep pace with the changing demands of clients and regulators. These firms are faced with a low-margin environment, intense competition, high costto-income ratios, and global and local regulatory changes that are altering the way industry participants operate. In this era of increased transparency, securities services firms are being compelled to address their legacy architectures and this has resulted in the launch of numerous digital transformation programs. The remit of such programs, however, is often less than clear.

Overall, the increase in the number of executives dedicated to digital transformation within securities services firms reflects a gradual move within the industry away from a product-centric approach to marketing and sales to a more client-centric approach over the last few years as firms seek to identify and target their most profitable clients more effectively. Market forces have pushed firms to shift from a largely product-based orientation and remuneration structure to a services-based approach. Thin margins and high operational costs in a volume-sensitive business have led to the industry’s increased focus on fostering client stickiness, which has resulted in a desire to better understand clients’ risk appetites and product preferences through a joined-up approach to product marketing across silos. Creating a single view of a client is a business imperative for new client acquisition and existing client retention, and this process needs to be initiated during onboarding (which can itself prove a sticking point due to slow and duplicative processes). This single view also enables firms to accurately classify and categorize clients for regulatory reporting purposes. Digital transformation is therefore often focused on the client experience—though in the institutional realm this is very different from similar efforts in retail banking. It remains much harder for institutional clients to swap providers than for retail clients and this is unlikely to change in the short term. achieve due to the barriers posed by archaic processes and mindsets around servicing clients. The use of the latest technology tools is hindered by old processes and technology. The journey toward customer-centricity will be achieved more easily if firms can overcome the poor data quality of customer information related to preferences and sentiment. Understanding what kinds of tools are out there and what can practically be achieved in the short term and the longer term is a basic first step toward implementation.

Client and counterparty data management isn’t just about client experience, however, there are a lot of reasons why it’s a focus for digitalization. In order to meet the reporting requirements of the European and U.S. recovery and resolution regimes, firms need on-demand access to consolidated data about their counterparties and clients to prove to regulators that the unwinding process could proceed in an orderly fashion if bankruptcy occurs. The European regulatory community is also working on the fifth Anti-Money Laundering Directive, which requires greater tracking of data related to clients across the firm. Moreover, understanding the interconnectedness of key clients and counterparties, the changing exposures to certain markets, and even the internal structures within the financial institutions themselves becomes a much more important task when one considers this information’s impact on capital requirements.

The strict regulatory focus on compelling firms to provide an audit trail for all their decision-making related to their clients has also buried many firms in a mountain of data. Digging out of this mountain and focusing on the competitive advantages that can be gleaned by correlating some of this information with other client communication-based data sets is a task yet to be tackled by most.

But adding in new technology bells and whistles will not fix the important underlying problems related to data consistency and aggregation. This is why the remit of digital transformation teams is a lot less glamourous than it appears on the surface. Multiple systems create data silos, and customer communications and referential data sets may not be aligned correctly. The bigger the firm, the bigger the problem. Tracking an institutional or broker client’s services and support across an entire enterprise is incredibly challenging for a securities services firm—for example, because the firm may have different systems per business line. Mergers and acquisitions have been frequent over the last couple of decades, which has added to operational and organizational complexity at the industry level. Better alignment and control of data is critical for financial institutions to not only survive but also thrive in the current competitive and regulatory environment. Firms still have a lot of aging systems in the middle and back offices. Data alignment is therefore not easy to

All of this work also needs to be conducted in the face of resistance to, and fear of, change and innovation that can emanate from various corners of every firm. Tackling this is all about changing the mindset and the culture of the firm. There needs to be a clear alignment on how the business is going to be driven, which roles need to be created, and what kinds of collaboration with external firms need to be established to tackle data quality problems. This type of program needs to be both topdown and bottom-up. In the realm of capital markets, the most successful innovation programs involve C-suite executives clearly communicating goals and metrics for success in a phased manner and line-of-business champions engaging in providing feedback and guidance from the coalface. It’s a long hard road for the digital transformers, data quality champions in disguise.

Virginie O’Shea, Research Director, Aite Group