The transformation of Securities Services amidst disruption

Exploring the impact of Distributed Ledger Technology and emerging technologies on Financial Market Infrastructure, an Asian perspective

7 October 2020 Eleanor Barlow, Global Head of Strategic Research and Insight Strategy, Innovation and Architecture, Securities Services

The securities services industry needs to change, to evolve, to become less complex, more efficient, more streamlined, fit for purpose, future ready and secure. We are out of step with the pace of change evident in other more progressive industries creating a mismatch in client expectations whilst incumbent providers start to feel the effects of commoditisation and shrinking margins. Whereas other industries have already experienced major disruption, the securities services industry has yet to feel the full force of the blow until perhaps now. Covid-19 has turned the world on its head and as unsettling as the situation undoubtedly is, this global crisis may prove the accelerator for transformational change our industry is much in need of. Reliance on paper and manual handling in a world where social distancing and remote working may persist for some time has forced us to expedite digitisation1, digitalisation2 and automation. Full scale disruption is closer than ever now, and we must act.

With these challenges and issues at the fore, and prior to the advance of Covid-19, Securities Services at HSBC undertook a research study to explore potential disruption to Financial Market Infrastructure (FMI)3 and specifically securities services as a consequence of new and emerging technologies across Asia. Arguably more than any other ‘disruptive’ technology, Distributed Ledger Technology (DLT) claims to offer the potential to reinvent process, reduce friction within and across organisations, generate new business models, create new value propositions and transform the financial services ecosystem. The study therefore specifically sought to understand levels of awareness and activity pertaining to DLT and consider the impact this may have on the end- to- end FMI value chain whilst at the same time explore other key issues and challenges across our industry.

Our findings highlight that:

  • Whilst Distributed Ledger Technology is still evolving, overall technology maturity remains relatively low with adoption hampered by structural fragmentation and poor interoperability across the end-to-end value chain. Increased involvement from regulators in particular will be essential as well as other key actors across the value chain in order to expedite solution development.
  • One of the biggest opportunities to transform our industry lies in digitisation and automation. True digital transformation requires us to reimagine how we operate across the entire process, end to end, and invent a future without faxes, printers or paper. We need to develop better, more intuitive digital experiences for clients and colleagues which place the user at the heart of the design process.
  • Our industry exhibits a preference for tactical solutions over strategic. We observe a desire to implement emerging technologies in a discrete and tactical way thereby delivering only marginal improvements to the status quo. To shift the dial, it will be necessary to consider the whole ecosystem and understand where the real opportunities for innovation lie.
  • Infrastructure fragmentation, process inconsistencies and poor interoperability prohibits innovation and transformation in our industry. Joined up thinking at the highest level and co-solutioning within consortia will support co-ordinated efforts and innovative thinking across FMI for the benefit of all.

One of the biggest opportunities to transform our industry lies in digitisation and automation.

We are not impervious to disruption and we must not be complacent; anticipating major change and adapting to it is crucial to ensure ongoing success, moreover it enables us to play an active and positive part in shaping the future of our industry. Our research is intended to help drive the conversation forward, to help encourage and inspire us to think differently, to be bold, brave and ready for whatever the future holds. Covid-19 and the current crisis affords the opportunity to change dramatically and we must seize this opportunity; we cannot afford to live in the past any longer.

 

To read the full report please download the PDF, (PDF, 3.56MB)

 

1 Digitisation, the conversion of information from physical format into a digital format

2 Digitalisation, the application of digitisation to a process.

3 Financial Market Infrastructure refers to parties involved in delivering services critical to the smooth running of financial services and encompass e.g. Stock Exchanges, Counterparty Clearing Houses, Trade Repositories, Regulators and Central Securities Depositories.

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