After reviewing high-level results from a recent TARGET2-Securities (TS2) survey of Europe-based banks and diving into T2S access models, today we’re taking a closer look at asset servicing. When asked to rate the importance of various strategic considerations, nearly 50 percent of survey respondents indicated that asset servicing was of the highest importance in their T2S strategies.
In the landscape that is emerging, settlement will be handled via T2S and asset servicing will remain with central securities depositories (CSDs). In terms of asset-servicing solutions, that leaves banks with three main options:
- Their own in-house custody capabilities
- Asset-servicing agents, including custodians or local agents
- One-stop-shop CSDs, where settlement and asset servicing are bundled
Based on our survey results, here’s what we know:
There is no consensus on the best way to obtain quality asset servicing.
A majority of our survey respondents were leaning toward in-house capabilities or asset-servicing agents, but all three options listed above were under consideration. Given the importance of high-quality asset services, the diversity of approaches is particularly noteworthy.
Some CSDs are providing consolidated offerings for cross-border settlement.
In response to growing commoditization of cross-border settlement and the search for new revenue streams, large CSDs are adapting their service offerings and getting into the investor CSD business on the settlement side.
So far, banks are sticking to what (and who) they know.
Among those who considered external providers for asset servicing, 71 percent of survey respondents indicated that they would be using an asset-servicing agent. Just 29 percent had opted for a consolidated offering through a CSD.
But one-stop-shop CSDs aren’t done yet.
By partnering with local agents, and leveraging the infrastructure and/or networks of an international central securities depository (ICSD), large CSDs may be able to deliver asset-servicing offerings that are not only credible but also robust. In this case, the prospect of “one-stop shopping” may prove too good for banks to pass up.
Learn how asset servicing is evolving in “Evolution or Overhaul? How Banks Are Adapting to TARGET2-Securities in Europe.” Need help evaluating your organization’s asset-servicing options? Get in touch with me directly via email.