[ M A R K E T
investment or risk analytics, the data needs
to be truly exceptional, and significantly
different to what a lot of the brokerage com-
munity and other technology providers are
offering or launching. Daron Pearce, EMEA
CEO for asset servicing at BNY Mellon, says
custodians are not trying to replicate the
investment analysis provided by brokers.
“Our objective is not to tell managers
which stock, asset classes or countries they
should be investing in. Instead, it is to pro-
vide an up-to-date, real-time view of their
portfolios’ performance and risk character-
istics drawn from quality data pulled from
across the globe and including alternative
investments. We believe clients will pay a
premium to custodians for performance
analytics supported by APIs (application
programming interfaces) which are higher
frequency, instant and more accurate than
what they are currently receiving, namely an
end of day report,” SAYS Pearce.
Others agree custodians need to tailor their
data products properly. “Any custodian look-
ing to generate a meaningful revenue stream
through creating stand-alone data products
for the broader financial community by ap-
plying advanced analytics to their own data
exhaust will only be able to do so if their data
is truly unique and the analytics off the back
of it is also equally impressive. This is a high
bar. I believe custodians should absolutely
be exploring big data, but the most interest-
ing use cases might not be stand-alone data
products for the broader market, but rather
value-added products for their existing cus-
tomers,” explains Matthias Voelkel, partner
at McKinsey.
Is mining big data a big regulatory minefield?
Having been lightly – if at all – supervised,
the big data policies at technology com-
panies are now firmly under the gaze of
regulators following the aftershocks of the
Facebook/Cambridge Analytica scandal. The
UK’s Financial Conduct Authority (FCA)
has gone further and recently warned banks
about data misuse, with its head Charles
Randell affirming the topic was a major
issue and now top of the regulator’s agenda.
Custodians therefore need to tread carefully,
particularly as a number of lawyers have
advised fund manager clients to be extra dili-
gent when using third-party data analytics.
R E V I E W
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D ATA ]
Prudence around data collection and usage
is unconditional following the introduction
of the General Data Protection Regula-
tion (GDPR), along with its hefty fines for
non-compliance. “GDPR compliance is a
must for all companies, and it is critical that
providers ensure data is being used appro-
priately and there are no breaches of the
“It is now the custodians’ job to enable clients
to have better and more effective access to
their own data.”
DAVID BRENT, GLOBAL HEAD OF TECHNOLOGY
SALES, INVESTOR SERVICES, JP MORGAN
rules. Data security is also absolutely pivotal,
and this can be achieved by having state of
the art cyber-security protections in place,”
says Voelkel.
Pearce adds data security and data integrity
are essential for custodians moving forward.
“It is in the industry’s collective interest that
we all work together to achieve the highest
standards of data integrity and security. We
are incredibly careful in terms of the data we
access, and how we amalgamate it.”
The big data tightrope
Custodians have a lot of information about
clients and markets sitting idle on their
desks but finding a way to monetise it is
going to be hard. If clients are to purchase
big data driven analytics or specially tailored
solutions, then the products need to serve
a useful purpose and be set apart from
the competition. If the custody industry
manages this, then data analytics could turn
into a nice regular income stream, offsetting
some of the declines seen elsewhere in the
business, such as in securities lending or FX
execution.
Banks do need to be conscious though of
the public and political criticism about big
data following the abuses revealed at some of
the major technology companies. Regulators
have forewarned banks that any exploitation
or mishandling of data will be investigat-
ed, and this guidance should be onboarded
entirely by custodians. While banks need to
be bold in their big data ambitions, they must
also be compliant in the approach they take.
Fall 2018
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