Local custodians can tackle structural costs - and improve customer experience - through outsourced proxy services, finds a new paper from Finextra.
In the face of serious headwinds, securities servicers need to take out costs, increase efficiency and improve the experience they offer customers. This is among the key findings of a new paper produced by Finextra, in association with Broadridge. Options to achieve these goals include exploring shared services for critical but non-differentiating functions like proxy services, the paper finds.
Entitled 'Local custody: Transforming your proxy service to drive cost efficiency and enhance the client experience', the paper explores the challenges local custodians face in today’s evolving capital markets landscape – including regulation, increased competition and margin pressure. In particular, the paper assesses the impact so far of Target2-Securities on custodians’ business models, examining their strategic responses to date and drilling down into how those responses are likely to evolve as the commodisation of settlement further shapes the marketplace.
The situation “isn’t all doom and gloom” for securities servicers, the paper finds, since regulation and digitalisation among other trends create opportunities for custodians to offer new, compelling solutions for their clients. But the imperative to take out structural costs cannot be ignored – and here there is a major opportunity to mutualise spending on commoditised functions.
Among the prime targets for this approach according to the industry experts contributing to the paper is the proxy voting process. This is increasingly under scrutiny in light of the focus on raising standards of corporate governance, but is time and cost-intensive, and if every local custodian is providing the same information to clients, leads to significant duplication of effort.
In short, the white paper explores how shared services for proxy make sense, but custodians will need to tap into providers with the right credentials in terms of security and reliability, and with proven strategies to stay ahead of technology developments in the utility space. Here blockchain could come into play as “by its very nature” it creates a “collaborative environment”.
Concluding with recommended next steps for custodians considering pursuing the shared services route for proxy voting at the local level, the paper suggests critical questions to ask. These include how the costs of performing the proxy function on an outsourced basis would compare with current costs, and what the potential for re-directing spend to genuinely competitive activities would be.
Download the paper here.