Custodians face the challenge of providing either insourced or outsourced middle-office capabilities to clients.
The Australian Custodial Services Association (ACSA) is focused on promoting operational efficiency for the market – following the recent successful implementation of T+2 settlement with the ASX – and we have commenced discussions about the CHESS platform upgrade, improvements to the global over-the-counter market, and possible leverage of blockchain technologies.
The regulatory landscape continues to change, with a focus on greater investment transparency for risk management (e.g. APRA portfolio holdings disclosure requirements) and custodians focused on establishing standards to manage more complex alternatives (e.g. syndicated loans). There is also increased governance evolving for technology and data security, with the market moving towards cloud-based solutions for increased agility. This is coupled with international regulation including FATCA, and G20 reforms impacting international markets.
ACSA is also working with the Australian Taxation Office and Treasury on a number of reforms including the attribution managed investment trust reforms, offshore business units, foreign income tax offsets, collective investment vehicles, common reporting standards and implementation of the new accounting standard for superannuation entities AASB 1056 for the middle of this year.
In a global environment of low (and negative) interest rates coupled with lower investment returns, there is an increased focus on efficiency and costs in the fund administration value chain to drive member value. This is challenged by the need to invest more in regulatory change and a rapidly evolving technology environment.
With the core role of the custodian being to provide asset safekeeping, there is increased scrutiny on data security by clients as the world rapidly digitises. Significant investment is being made on cyber security to ensure the transmission, storage and process of data remains safe across global investment networks.
And while registrable superannuation entity (RSE) boards still focus on the traditional items of risk, strategy, investment returns, organisational culture and member service delivery there is an underlying theme of questions focusing on the better capture, analysis and insight of member data to enable the customer experience.
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When ACSA was asked at the Conference of Major Super Funds to address how RSE boards should prioritise investment between regulatory compliance, risk management and digital innovation, it was clear the lines are becoming increasingly blurred.
- Can we use the rich data set of portfolio holdings disclosure to provide deeper insight into a fund’s underlying risk exposures right down to the underlying investments of unlisted funds?
- Can we use the regulatory data we capture to provide more tailored information at the member option level to our customers, to improve member experience?
This raises another question: as the global investment world places greater pressures on custodians and fund managers to provide more data, more frequently, what possibilities lie ahead for improved risk management, investment agility and, in turn, the level of data provided for member experience?
ACSA encourages you to talk to your custodian about how we can help you navigate the many challenges and opportunities that lie ahead in 2016 and beyond. ACSA continues to scan the horizon – engaging with all industry stakeholders via our specialised working groups – to enable the industry to respond in an efficient and effective manner to the changing global environment.
Your custodian can assist you with business impact assessments, and the timely implementation of regulatory changes and industry reforms.
David Knights is chair of the Australian Custodial Services Association, and general manager of NAB Asset Servicing.