With so much change in the securities landscape it can be hard for asset and wealth management organisations to keep up, especially when you take into consideration customer expectations, new technology and the regulations they need to adhere to in this space. This episode on the Payments Podcast features guest host Simon Pilgrim discussing the securities settlement process with Frederic Viard, from the Bottomline Technologies.
Simon Pilgrim: For asset and wealth management organisations, keeping up with constant regulations can be an uphill battle. Especially when you consider the historical, manual, processes many currently use.
Hi, I’m Simon Pilgrim. Today, I’ll be the guest host of the Payments Podcast. Joining me is Frederic Viard from our Bottomline Technologies Swiss office.
Today, we’ll be discussing the security settlement process. In particular, the changing landscape, the challenges that the heads of operations of asset and wealth management companies have described to us, and how Bottomline can help.
Frederic, there’s been a lot of changes happening in the securities landscape. In your opinion, what’s the driving force behind these changes?
Frederic Viard: Thank you Simon. Yes, you are right. We’ve seen a lot of changes in this industry for many years. I think there is a very important point that happened in 2008 with the Lehman Brothers bankruptcy. Before that, we had a lot of regulation anyway. Since this date, the number and depth of these regulations have dramatically increased. This means that, for the asset management and private banking business, this is very important, for them to remain compliant with all these regulations. This has a very high cost.
The cost of compliance is very important. It’s, really, one of the main challenges for the financial industry in general. It’s about implementing compliance, that’s one point.
The second point is around keeping the customer happy, meeting the customers’ expectations. We all have, in our private lives, the habit to use new devices, to connect to multiple screens, to have visibility and transparency. Now the people, the customers, expect the same level of user-friendliness, the same level of frictionless tools that they have got in their private life. For the bank, it means they have to digitalise all of their tools in order to meet the customers’ expectations.
The last one is around technology. Bottomline is a technology company. We are really, monitoring carefully these aspects. I just mentioned the fact that technology is really important for the end customers because they need to have the appropriate tool to visualise, to control, and to have a look at their assets. There is also technology which is required, and which is changing the game, at the business side.
We have all heard about Bitcoin, Blockchain, and distributed ledger technology. All these new things represent new assets, new ways of managing assets. For an asset manager, or for a private bank, this is also about providing… Being connected to these new ecosystems to provide, to the end customers, new investments vehicles which are based on new technology.
I think the three main challenges for this industry… There are several others, as well, but I think the three key ones can be around regulation and the cost of its implementation, it’s also about customer expectation and how to meet these expectations by providing the right tools, and finally, it’s about technology for us to provide end-users with a good tool. Also, to connect, to be part of the new ecosystem, which is currently under construction within this new technology space.
Simon Pilgrim: Okay. I think you’ve raised a really good point there. Something I’d just like to focus on, quickly, is the regulation and compliance. As we know, the Shareholders Rights Directive 2 is due to come into force in September 2020. Would you just mind providing your thoughts on the impact this will have on asset and wealth managers?
Frederic Viard: Yes, sure. We mentioned… I would say that most of the regulation aimed to achieve the same goal, which is around protecting customers, protecting the industry, by providing more transparency and more visibility. This new SRD 2 directive is… Actually, it started with a simple thing which is to provide more rights to the shareholders, voting rights. It’s a basic principle, to allow shareholders to vote.
The impact of this regulation is quite massive because it means that you will have to manage new corporate action messages which are based on the new standard ISO 20022. You will have to build new processes to take some information in your back office, to compile it and send back to the issuer. From a simple starting point, you will have a very big impact on all the flows and all the processes which are in place.
This directive will impact, I would say, quite a lot of players. As soon as… An EU listed company, with headquarters in the EU. As soon as you own some shares of such a company, you will be in a position to respond with the list of shareholders. There is some flavour of implementation per country, but you will be in a position where you will have to deliver some information about the shareholders. All these processing chains will have to be put in place. This is a big change in the [key flow 00:05:47].
Simon Pilgrim: Okay. You’ve been speaking to a lot of senior operations leaders in private banks, asset managers, and wealth managers. Meeting these companies at events such as Sibos and AM TECH DAY, as well as talking to our customers. What’re the biggest pain points they, as well as our customers, have told you that they’re having with regard to their securities assessment process?
Frederic Viard: Depending on the region or the type of business that these guys are operating, there are several flavours of the main challenges. I would say one big challenge that they have is around simplicity or complexity, depending on which side you are taking the point.
Basically, these businesses have made good margin for many years. It’s still the case, but there is much more pressure right now from the customers because they would like to assess, “What are the fees which are applying?” Customers are much more volatile. What was affordable in the past, meaning relying on manual processes… Relying on ___[00:06:54] tools such as Excel, Lotus Notes, or whatever, which are poorly connected together. That has gone, now they have to be much more efficient to reduce the cost, to reduce the fee.
It’s especially the case since we discussed, at the beginning, that implementing regulation has a cost. It’s mandatory. If you add the cost of these regulations, plus the fact that the customers are more volatile and looking at lower fees, lower… Yes, lower fees for their transaction. They have to provide, build, a new environment which is much more simple, to remain profitable.
The second point, which is really important, is around data. In essence, the business for asset managers is really based on data. They are sitting on a mass of data. Whatever it is about, pricing, rating, risk, customer information, they are sitting on a lot of data. How to make the best usage of this data in order to provide the best services for the customer…
Also, the cost of this data. When you are retrieving, gathering, information from market data vendors then you need to be sure that you will not make redundant [code 00:08:11] because these are quite expensive. Controlling the cost of this data is really important, and making the best usage of it as well.
The last point, again, is around technology. We mentioned the fact that the customers are expecting much more fresh tools than they had before. We also have seen that there are new assets which are coming with these new technologies. The asset managers and private banking business, they have to be in a position to connect to these new ecosystems to provide new possibilities, new options, for their end customer. I think it’s really…
They are looking for more simplicity, to reduce cost and also to reduce risk. Since you have processes which are interrupted, fragmented, you generate an operational risk. Having something which is much more integrated, much more seamless and simple, decreases the risks which are associated with the transaction.
I would say simplicity, usage of data and cost of data, and also looking at technology for, both, the end customers and also the… Coming soon, or they’re already there, the new ecosystems based on new technologies.
Simon Pilgrim: Okay. You’ve mentioned, there, a range of external pressures that these businesses are having to manage. Traditionally, I think, technology is a way for many industries to help relieve a lot of these complexities, or additional complexities, from their business. However, there seems to be a slightly slow adoption around technology from asset, wealth, and private bank. Do you think this is a fair assessment?
Frederic Viard: I wouldn’t say that there is a slow adoption. I think these businesses, this industry is here for a long time, they have centuries of experience. They have seen so many initiatives which have reached nowhere. I think they are, more, assessing which are the winning models, which are the winning channels. They are looking at these new things with pragmatism, in order to choose, to select, the best solution for them and in order to provide the best services for their end customers.
As such, I think, the cloud propositions, such as the one from Bottomline, are very interesting for them because it enables them to access quickly, and at the best cost, new services. For them, it’s easier to have a faster time to market and to provide new services by renting services instead of building everything at home. There is, really, a trend towards accessing services in order to be faster and more cost-efficient.
I also think that it’s about priorities. We mentioned the fact that this industry is, let’s say, impacted by the cost of regulations. Once they have done all this implementation around regulation, they can really think, “What are the new drivers?” The first priority, to remain in business, is really to comply with the new regulation.
Simon Pilgrim: Okay. You touch on a good point there, I think. That is about prioritising where to focus resources. When you’ve been speaking to customers and other private wealth organisations, have you now got a sense of what might be at the top of that priority list for those businesses?
Frederic Viard: For sure, it will depend on the type of business target and focus that this financial industry has. I would say that if you look at… We mentioned regulation, we mentioned customer expectations. All of that is going in the same direction. It’s all about providing more transparency, more visibility, and more control to protect the business, to develop the business in a safe way. I believe that, really, this is about helping customers to keep trust, by providing transparency, visibility, and control of all the transactions that they are making on behalf of the end customer.
Simon Pilgrim: Okay, very good. I think what… A recurring theme is emerging in a lot of these learnings that we’re taking from the market. Technology, data, margins - as well as visibility, control, and a more, maybe, end-user customer focus in deployment of some of those technologies and the services – are all very important and taking centre stage at the moment.
Would you mind just taking a moment to explain how Bottomline’s trade settlement solutions will support these businesses to meet some of these recurring themes, as well as the expectations from their customers?
Frederic Viard: Yes, sure. Bottomline, we have been in this business for asset management and private banking for more than 20 years. We have built, with time, a set of solutions. Of course, the solutions have evolved with the new requirements. We have…
I would say the first point is making this industry be able to be connected to the ecosystem. It’s about connectivity, providing all the connectivity options that are required to discuss, to interact, to exchange information with all the players. [Whether 00:14:06] they are custodians, end-users, banks, issuer agents, or whatever, they need to connect to all these populations, to these ecosystems. Offering a wide range of connectivity options is a key part for allowing this industry to be part of this ecosystem.
I would say the second one, once you have made this transaction, is about controlling that everything has been received and settled properly. It’s all about reconciliation and raising exceptions in order to speed up the process around exception management. We do that as well.
So connectivity, reconciliation, and we mentioned data. The cost of data and the accuracy of data, because data accuracy is really a key point because what the… The ultimate goal for an asset manager, towards his customers, is really to provide the best investment possibilities, but also to report accurately on the value of the portfolio of the customers. Having accurate data, coming from multiple vendors- You have to clean this data. You have to filter, to sort, this data to build, what we call, the golden copy, which is the best information that you can yield for evaluating the portfolio of your customers.
So managing data, also, to reduce costs, because you don’t want to have redundant data retrieval which will cost more than what you need. You need to control that, that’s what we do as well.
We are also in, what we call, the STP. Straight-through processing, meaning the automation of all the flows, is very important, to lower costs. This is particularly the case in the corporate action space. You will receive a lot of information, you don’t know exactly which one is the right one, which one is the last one when you have to respond to a corporate action. We have built a solution that enables you to monitor all these notifications, to control them in order to build the best and to keep the best information coming from these corporate actions.
Since we have all these solutions, which are available for the back office of an asset manager or private bank, we saw that it could be important to have a single view of all the key indicators which are seated in the various systems.
We built a dashboard where you can integrate, from our solution but also from other systems, the key indicators which are often trapped in various systems. By surfacing these indicators, short account, [failed trade 00:16:42], reconciliation unmatched… All this important information, in one single screen, it offers, really, a good view of controlling the risk and the appropriate processing of all the settlements. For the head of [a corporation], for instance, he can have, with one single view, control of all these processes.
That’s not all. We are providing, of course, this solution for the securities settlement area. An asset manager and a private bank, they are making a lot of payments as well. Cross-border payments, domestic payments. Bottomline is a very good candidate for providing solutions in payment. This is their core business. It is our core business to provide payment solutions. We provide the settlement side of the securities, but we also provide all the payment facilities, cross-border international.
There is also a very important point around fraud. One of the key assets of a private bank is a reputation. Ensuring that there is the most limited risk of fraud by protecting all the payments to make all the payments secure, to control against the sanctions list and all of that, is also something that we propose to our customers. Meaning that we have a solution which is built on securities settlements with various solutions around that, all the payments, payments methods, payment rails, so we are talking a lot around API, we are managing that. Instant payment as well. All of that is something that we provide.
We are making all these transactions and payments secure by monitoring the risk of fraud, and by monitoring all the, let’s say, sanctions lists which have to be applied these transactions.
Simon Pilgrim: Okay, wonderful. Just to summarise those points, I think you’ve communicated that really where Bottomline is looking to provide significant value to these organisations is around simplification of their processes, better management of their data, more increased workflows and automation. All with the objective of better decision-making within the organisation, but also to help manage costs in a more efficient manner and remove some of those manual processes that we know still exist in this business.
When we look to the future a little bit and think about current trends or future trends that are starting to become visible, do you have a sense of what might become more important or what trends might become more visible over the next year?
Frederic Viard: Yes. I think the asset management business is a growing business. It has always been a growing business, and it remains a growing one. According to all the studies which have been recently performed, and also the vision from the big four consultancy companies, this is a growing business in the next years. Maybe, especially, in some regions such as Asia, for instance. We can also…
It’s easy to understand because you have more people owning assets over time so you have more rich people over the planet who are candidates for asset management. You have, also, new assets, new vehicles, new companies, so you have a growing number of people, a growing number of available assets. All of that, together, will make this… And you have new regions which are really growing fast, such as Asia. All of that will drive a growing business around asset management and private banking in the future.
Simon Pilgrim: So automation is definitely going to become key to these businesses, to be able to manage the volume of transactions, the volume of traffic, the volume of corporate actions which are appearing, is that what you’re leaning towards?
Frederic Viard: Yes, absolutely. If you want to keep high profitability, you will need to reduce costs. Within something which is growing, you will need to further automate to further speed up the processes and to offer new services in order to grow your business. So yes.
Simon Pilgrim: Okay. Thank you Frederic. Hopefully, we’ve been able to provide some insight into what the market, as well as our customers, are telling us, and also about how Bottomline is well-positioned to help in the securities settlement process. Don’t forget, you can listen to more on all things payments at a touch of a button.
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