Institutional clients are swimming in massive amounts of data that mere mortals can’t handle effectively.
That is why custody banks are increasingly turning to artificial intelligence and robotics to help their clients wade through it.
Such clients want their custody banks to offer better data aggregation and analytics and more automation, according to a recent report by BNP Paribas and the research firm Tabb Group. The authors surveyed a group of sell-side senior executives at midsize banks and brokerages in the United States regarding their technology priorities and their expectations of custodians.
“Clients can analyze data and react much more quickly with robotics than the current systems they are running,” said Bruno Campenon, a BNP Paribas Securities Services executive who oversees the financial intermediary and corporate client lines.
Cognitive automation could help in many ways, including with data collection on assets, the administration of tax withholding documentation, management of cash transactions, and data entry and validation within accounting services, said Adam Devine, head of marketing at the robotics process automation firm WorkFusion.
“Most of the core services of a custodian can be optimized with robotics and cognitive automation,” Devine said.
Indeed, helping clients manage information may now be the most important tech objective for custody banks, said Steve Lawrence, an executive with State Street Global Exchange focused on big data and machine learning.
“Machine learning can greatly help investment professionals with the information overload they deal with” on a daily basis, he said.
For example, AI and machine learning technology can help detect patterns in market data that humans might normally miss and make recommendations that can help investors make better decisions, Lawrence said.
“It can help investment professionals extract insights out of an overabundance of content,” he said.
Further, technology can help streamline operations and set priorities. Operations personnel can use AI to answer questions like “which of these error reports should I focus on and is there some kind of pattern we should be noticing?”
Along these lines, Campenon noted that automation can eliminate human participation in repetitive low-value tasks and allow brokerages and banks to allocate human resources to more high-touch, services-oriented jobs. The company is experimenting with using robotics to automate tasks at its various technology innovation centers around the globe.
“It’s much less risky to test [new technology] in isolation and then implement it progressively,” Campenon said.
State Street is also using AI to improve internal processes, such as helping research teams to identify the most relevant documents they should be reading.
“I have team of researchers that have to read a lot of academic papers and research; they have to get through thousands of documents a quarter in order to stay relevant,” Lawrence said. “So what we have done is run some algorithms on past documents to identify word patterns in those documents to determine how relevant it will be and use that to then prioritize where [the researchers'] attention should be. So it allows them to focus on high-quality research.”
Ultimately, custodians may need to invest in technology to survive, Campenon said. Because of the aggressive automation and adoption of innovative technology that Campenon said clients expect to be occurring at their custody banks, 80% of respondents in the BNP Paribas survey said that they believe there will be fewer custody service providers in the next three years, as those that fail to invest in technology will cease to exist.
That’s why, according to Campenon, custodians need to eliminate the old perception that they are there to hold securities, collect income and calculate net asset values for funds.
Custodians will “more resemble technology providers than stodgy banks,” he said.