Market conditions are tough for custodians despite the boon to business from the recent market
volatility. A flood of market initiatives such as MIFID, T2S and Link up
Markets are putting pressure on an already commoditised business, and utility
services and new entrants such as CSDs are adding to the fierce competition. This
is where custodians need to start looking at service differentiation to
maintain their edge against these new challenges as well as against each other.

The custodians’ opportunity lies in their unique position at the heart of so many transactions.
Following the Lehman Brothers debacle, investors want a definitive picture of
where they stand for risk mitigation purposes, and this demands greater clarity
and more detailed information about all network counterparties in a
transaction. Country risk, counterparty risk, liquidity risk and the type of
fund and security are all issues asset managers need to address, creating the
demand for a system that provides meaningful risk assessment of each trade.

We recently put together a whitepaper around this exact issue and concluded that by
putting risk surveillance at the heart of the service they offer, custodians
can set a new benchmark – redefining themselves and their business model and
carving a new niche as a value-added information business that entrenches them
in the role of ‘trusted and established guardian of assets’. They can then use
this position as a springboard for more innovative services to prove their competitive
advantage and weather the current market upheavals. When the flood waters rise
above the trees, you need a boat to keep afloat.