BCP: Emerging
Themes for
Custodians
Giles Elliott
SVP, Head of Business Development & Support
HSBC Securities Services, Hong Kong
Agenda
1. Recent Trends in the Custody Industry
2. Summary of BCP Trigger Events
3. Critical Failure points in the Custodian Chain
4. The case for BCP Investment for Custodians
5. Key Initiatives for Custodians in BCP
6. Summary Challenges on the BCP Agenda
Slide 2
Recent Trends in the Custody Industry
ACTIVITY GROWTH
INVESTMENT EXPANSION
COMMUNICATIONS
CONSOLIDATION
CLIENT CONSOLIDATION
AUTOMATION
OPERATIONS
CENTRALISATION
IT STREAMLINING
MARKET COMPLEXITY
Activity Growth
–
Core Asset Growth and Transactional Growth Rates across Asia
have exceeded 50% per annum over the past 5 years
–
HSBC CNC now safekeeps over USD 1 trillion of assets globally
through over 55 CSDs
Investment Expansion
–
Expansion across Unlisted Equities, Bonds, Moneymarket
securities, Derivatives, Managed Funds
–
New set of market interfaces supporting these assets
Communications Consolidation
–
SWIFT as preferred primary channel
–
Expansion into Fund Management and CSDs, but no single high
grade contingency option
Fund Management Consolidation
–
Consolidation in Funds Management sector driven by cost agenda
and sectoral growth
Slide 3
Recent Trends in the Custody Industry (Cont.)
ACTIVITY GROWTH
INVESTMENT EXPANSION
COMMUNICATIONS
CONSOLIDATION
CLIENT CONSOLIDATION
AUTOMATION
OPERATIONS
CENTRALISATION
IT STREAMLINING
MARKET COMPLEXITY
Custodian Bank Consolidation
–
Consolidation in Subcustody and in Global Custody with
HSBC/Westpac, Citibank/ABN and Mellon/BNY as recent examples
–
Increasing focus of volume / capacity through single channels
Automation
–
Cost and volume agenda has driven investment in STP and
automation of core processing channel using message and static
data standardisation
–
Traditional manual contingency solutions are no longer credible,
driving need for focus on high grade contingency solutions.
Operations Centralisation
–
Trend towards creation of regional operations hubs or Centres of
Excellence
–
Changing profile of impact of a single point of failure in operations
infrastructure
Slide 4
Recent Trends in the Custody Industry (Cont.)
ACTIVITY GROWTH
INVESTMENT EXPANSION
COMMUNICATIONS
CONSOLIDATION
CLIENT CONSOLIDATION
AUTOMATION
OPERATIONS
CENTRALISATION
IT STREAMLINING
MARKET COMPLEXITY
IT Streamlining
–
Rationalization of IT platforms driven by focus on standardisation
and cost management – increasing use of single software solutions
regionally for custodians
–
Consolidation of databases and IT hardware infrastructure as part of
drive for rapid deployment, efficient maintenance and cost reduction
–
Resulting consolidation increasing impact of single failure in
infrastructure
Market Complexity
–
Asian markets are developing rapidly and volumes and complexity
of instruments and corporate actions is increasing
Slide 5
BCP Trigger Events & Impact Level
NATURAL DISASTERS
TECHNICAL FAILURES
HUMAN FAILURES
POLITICAL INCIDENTS
IMPACT LEVEL
Natural Disasters
–
Earthquakes, Tsunami’s
–
Typhoon, Floods
–
Pandemic - Avian Influenza/SARS.
Technical Failures
–
Power Failures (NZ)
–
Hardware & Software Failure (Y2K)
–
Network Failure / Viruses
Human / Political Incidents
–
Fraud, Industrial Action
–
Terrorism, War
Impact Level
–
Local » City-wide
–
Country » Sub-regional/Regional
Slide 6
Critical Failure Points for Custodians
CORE PROCESSING
SYSTEMS
COMMUNICATIONS
CHANNELS & INTERFACES
BUILDINGS
STAFF/PERSONNEL
MARKET
INFRASTRUCTURE
Core Processing Systems
–
Hardware Failures, System Mirroring
–
Software Failures.
Communications Channels/Interfaces
–
SWIFT & External Data Communications Vendors
–
Telephone/Fax
Buildings / Staff
–
Hot sites, Warm Sites – Proximity Decision
–
Temporary or Permanent Staff Loss
Market Infrastructure
–
Depositories
–
Payments Systems
Slide 7
Investment Case in BCP for Custodians
FINANCIAL
REPUTATIONAL
LICENSING
Financial Motivation
–
Settlement Failure Costs
–
Investment Performance Restriction
–
Principal Asset Loss
–
Funding Charges
–
Fines
Reputational Impact
–
Market Reputation
–
Custodian Reputation
Licensing
–
Custodial Business Licenses,
–
Bank Licenses
Slide 8
Top Initiatives for Custodians in BCP
CLIENT COMMUNICATION
DEPOSITORY INTERFACE
PAYMENT INTERFACE
BI-POLAR OPERATIONS
BCP COORDINATION
STANDING INSTRUCTIONS
Client Communication
–
High Capacity SWIFT Alternatives
–
Internet Channel / CPU-CPU
–
Cost of Implementation / Testing & Increased Regional
Appointments
–
Continued use of Fax Channel
CSD Interface
–
Upgrading Primary Channel
–
Investment in Robust Secondary Channels
Bi-Polar Operations
–
Dual Site Operations Model
–
Workflow and Process Standardisation
–
Training and Capacity Investment
–
Avian Influenza Focus
Slide 9
Top Initiatives for Custodians in BCP (Cont.)
CLIENT COMMUNICATION
DEPOSITORY INTERFACE
PAYMENT INTERFACE
BI-POLAR OPERATIONS
BCP COORDINATION
STANDING INSTRUCTIONS
BCP Coordination
–
Complex IT, Operations, CSD Interface Model
–
Advanced Coordination Approach
–
Regional Focus
Standing Instructions
–
Increased use of Standing Instructions
–
Dynamic focus vs Static Instructions
Slide 10
Challenges for Custodians in BCP
AUTOMATION
UNIQUE CSD INTERFACES
DEADLINE TREND
CLIENT INVESTMENT
AGENDA
Reliance on Automation
–
Increasing Automation in Industry is Increasing the Impact of any
failure of this mechanism
Unique CSD Interfaces
–
Lack of Common Interface Protocols on Primary or Secondary
Channels increases cost and challenges in having a robust interface
solution
Deadline Trend
–
Client Deadline pressure now leaves little scope for credible
contingency options
–
Focus on critical automation
Client Investment Agenda
–
Fragmented Agent networks makes the investment spend agenda
tough for Global Custodians
–
Subcustodian need to present a more credible regional solution that
should encourage Investment
Slide 11
Thank You