Sanjay Prasad, Head of Capital Markets and Insurance, TCS BaNCS – North America
The complexity of corporate actions has been a challenge for the securities processing industry for a long time, and that is not going to change anytime soon. If anything at all, corporate actions are becoming increasingly complicated. And, when you add cloud technologies to the mix, you are not just making it more challenging but possibly embarking on the ‘c-ea’ change that the industry has been looking for.
The financial services industry has always been at the vanguard when it comes to the adoption of new technologies – from punch cards to mammoth Mainframes, all the way to today’s breed of AI and serverless computing. The same applies to the adoption of cloud native technologies. To a large extent, the apprehension and caution towards adopting cloud technologies was due to the existence of unproven concepts and perceived risks around data security, system availability and performance, and scalability and regulatory compulsions of the financial services and insurance industry. However, that perception has changed swiftly over the last few years, and in particular, over the last 12 to 18 months, catalyzed by the COVID-19 pandemic.
Bharat Shah – Head of TCS BaNCS Cloud describes scenario of how COVID-19 has pivoted cloud technologies from ‘Cloud First’ to a ‘Cloud Must’ because of their abilities to scale, be available, be secure and, ironically, for the very same reasons that were driving caution not too long ago.
Many financial services providers have begun delivering corporate actions and income processing on the cloud now. A note of caution in this race to adopt cloud now is to ensure that the same on-prem or hosted technology is not placed on the private or public could infrastructure. Yes, in this case the client benefits from not having to invest in their own technology infrastructure upfront or on a continuous basis. Many firms have proven themselves as true cloud adopters and gone the extra mile to embrace the concepts of containerization, APIs and microservices. These technological enhancements are the key steps in the right direction. Such providers are not only reducing the technology debt for themselves, but also setting the stage for their customers to benefit from the future value and potential that cloud-based asset servicing solutions have to offer – spanning technology, data, analytics and operational risk mitigation. This state can be referred to as cloud harnessing for asset servicing.
So, what could some examples of cloud harnessing look like?
A cloud harnessed state of asset servicing will not just be limited to on-demand computing, scaling, securing and ubiquitous access, but will create and leverage the power of a larger and richer ecosystem of corporate actions technology providers, data suppliers and consumers – both the financial institutions and investors. This ecosystem model will open up new opportunities for mutualization and sharing of the common functions and features – which will benefit all the ecosystem participants (a.k.a community). Mutualization of common functions and features can result in a significant decrease of operational costs, while also mitigating operational risks and allowing investors to make informed decisions based on intelligent analytics. For example, for corporate actions’ Golden Copy, there are at least 20 dominant announcement feed providers globally and 50+custodians servicing hundreds of asset managers around the world. These announcement providers essentially pump the data, pretty much in the same format with the same nuances (and idiosyncrasies – divide a particular vendor’s rate by 100 as it is always quoted in percentage and not absolute value). This is perhaps a table stakes case for mutualization across consumers. Likewise, there are use cases around the issuance of elections notifications issued by the custodians and the nuances around the options mapping and terminologies. This again remains common across all the consuming asset managers. Just these use cases can eliminate significant operational risk and millions of dollars from operations costs. Lastly, from an investor standpoint, such mutualized ecosystems can help retail investors make informed decisions while hosting corporate actions elections – based on a cohort data that represents their investment style and risk appetite.
In conclusion, can the C in Cloud be the C-ilver bullet that can bring about the C-ea change to the world of asset servicing? The answer is a big yes. With the collaboration of technology service providers and the consuming financial institutions, corporate actions processing can be reimagined and use cases for mutualization created by sharing best practices – which is only possible with cloud-native technologies. This may perhaps be one of the key dimensions of the power of the cloud that has not been fully harnessed yet. Trust of course will be the key driver.
Disclaimer: Views or opinions represented in this blog are based on the author’s own research and do not represent TCS BaNCS.