It’s About Strategic Partners

Murray Bender: RBC Investor & Treasury Services is pleased to present insights on the future of asset and payment services across the globe. Coming up on today’s podcast is Dan Hickey, Global Head of Network Management at RBC Investor & Treasury Services, discussing the changing face of global custody networks and how this is impacting clients. Welcome, Dan.

Dan Hickey: Hi, Murray. Thank you so much for having me.

Murray Bender: Dan, as a global custodian, can you tell us how RBC Investor & Treasury Services’ approach to sub-custodian selection and management has changed in recent years? And what’s been driving this change?

Dan Hickey: Yeah, Murray. It’s a really good question. And I think RBC, and I&TS in particular, have been really pioneering in this space because what we’ve tried to look at is the kind of service that we’re providing to our end-user clients, where the world is going to in terms of digital assets, DLT (distributed ledger technology) and crypto, the kind of services that our clients will want from us in the future, and the way that those services will be delivered to them.

And I think there was a sort of vision led by the CEO, Francis Jackson, to take a view on our global sub-custody network and make sure that it was shaped and provided the right platform to meet the opportunities that our clients are facing, and to ensure that RBC was at the leading edge of providing those opportunities to our client base.

So what we did is we went through a consolidation exercise, which on the face of it doesn’t sound that exciting, but really it was quite dynamic and different for the industry at the time. And we’ve seen a lot of other global custodians follow suit during what I would refer to as the pandemic years, during COVID, to carry out similar exercises, but we were able to front run that by two to three years.

And the reason we did that is we actually realized that it’s about having strategic partners. And what we mean by strategic partners is across the financial service industry, particularly within the post-trade space, there is the sort of recognition that standardization is better than it was; standardization in the post-trade world isn’t overly consistent. But we want to provide a consistent, high-level, good service to our client base so that they have the information when they need it, in the form they need it to make the right decisions and to balance their risk appetite.

We realized in order to get into that space, we needed to reduce the size of our sub-custody network. And where we may have had numerous custodians across many different markets, we have consolidated that into five partner banks.

And the selection of those partner banks is around a number of criteria, but primarily what we were looking for them is to invest in the RBC I&TS vision, to get leverage with them so that they understood what our clients would require and that we could build to those client requirements, and to make sure that the people we were partnered with had deep pockets for that investment, were in it for the long game, were around to really see through the era of digital assets and crypto, and also were willing to operate in the sandboxes of DLT and understand these and participate in some of the initiatives that we’ve seen in Singapore and Switzerland and most recently in Germany with Clearstream’s D7 CSD.

So for us, that consolidation, that partnership was all about how we improve the end-user client experience and I’m very lucky that this project was thought through and came about and like I said, those two to three years in front of everyone else in the market.

I think where RBC’s uniquely positioned now is we are already there and established with base partner banks and have the leverage to start realizing some of these opportunities for our client base.

Murray Bender: So can you provide a bit more detail around exactly what effect these strategic partnerships are having on your underlying clients?

Dan Hickey: It’s again an exceptionally good point. So what we’ve done is partnered with people on a regional basis and taken large chunks of the map, which may have very different underlying market practices, but established sort of standardized ways that that data is coming back into RBC.

And then we’ve worked with the data management office who’ve been really key in this and our technology partners, and predominantly Product, in how that we get that data to our client base through systems like RBC One and, in the future, directly to the client base via APIs or other means.

And I think what’s important here, because it can vary from client to client on how this information gets to the client and what exactly the client wants to know, but I think we’ve positioned ourselves well with our underlying sub-custody network to get that information into RBC in a reasonably standardized format.

So, at very best, it’s going to differ slightly between our five sort of partner bank providers, which is hugely different considering we’re in north of a hundred markets. Effectively, you could have had that data arriving in a hundred different formats.

So getting that data consolidated, but getting that better client experience and some non-data metrics, so there’s better market advocacy, better leverage in the market, all of these factors to me will ultimately improve the end-user’s experience because with some of them, we’re looking very future looking at predictive settlement with some of our strategic partner banks. And they have a wealth of data beyond what we have which could really start to give our client base information about the likelihood of their trade settling. And that could be in near real time.

So, as it gets closer and closer to value date, the client could take a view on the likelihood of that trade settling and potentially some action that they might need to take if that trade was not to settle. But in addition, they could maybe take a view on the brokers they trade with going forward based on data.

So from the data perspective alone, it’s exceptionally exciting. But what I think is most fantastic about it is its kind of future proofing RBC I&TS as a global custodian. And what I mean with that is there are so many fantastic opportunities out there around digital assets and crypto, and clearly, we want to define our risk appetite and make sure that our client base is protected and the Bank’s balance sheet is protected. But we are partnered with the right sub-custodians to realize these opportunities when the client demand is there and the opportunity is there, but maintaining all the traditional elements as to why clients have come to I&TS such as the balance sheet and the credit rating, and all those good things RBC has. But at the same time, it’s just so fantastic to have this opportunity to explore new technology, to be on a front foot with those that are willing to invest in it, that are committed to long term, to sub-custody, and willing to grow and build product solutions around our client base.

And we see it as an investment on both sides. So the reason we’ve picked these banks is we see they’re willing to invest and we’re willing to invest with them to get the right solution for our clients.

Murray Bender: Finally, Dan, what about the future? How do you envisage global custody networks continuing to evolve as we move forward?

Dan Hickey: I mean, it’s very difficult to completely predict the future, but I think it’s, again, and hopefully not to belabour the point, is providing these right—making sure you’re with the right partners to grow with you.

So a lot of people see sort of challenges in the things as a challenge in the future. There’s this challenge the banks or there’s a challenge to custodians or does DLT or blockchain technology remove the need for a custodian? Well, I don’t think it does in any way remove the need for a global custodian; same with digital assets and crypto.

But I think what we really need to do is understand that new technology, understand that way of doing things, and modernize so that you can be more transparent with your client, you can remove layers from the value chain so they get their information quicker and in near real time, and that they—if you think of people in their personal lives are so used to that Amazon Prime model now of you order something one day and then you’ve received it the very next morning, I think what we’ve done in the way that we’ve partnered our sub-custody network, is we prepared ourselves to meet the opportunities, not challenges, that are happening in the banking network and across financing so that we can enable our clients to have the right information at the right time, to manage their risk, and make the right decisions for themselves.

And we are able, through our strong sub-custody network, to be a really active advocate in the market and to work with financial market infrastructure to realize some of these opportunities around DLT, digital assets and crypto. Because it’s absolutely key that the financial market infrastructure comes on and, in many ways, leads that journey.

So I think the exercise that started almost three years ago now, we are well embedded with and we are now in a position to realize some of these opportunities. But, most importantly,I genuinely believe we’ve future proofed ourselves because the world’s not going to stop at DLT and digital assets and crypto.

And so by being with partner banks that are willing to invest, and RBC’s willing to invest, I really think we can prepare ourselves for the future and continue to support our clients for the long term.

Murray Bender: Thanks for some very thoughtful insights, Dan. We really appreciate your time today.

Dan Hickey: No problem. It was a real pleasure. Thank you very much.

Murray Bender: Today’s podcast has been brought to you by RBC Investor & Treasury Services and we hope you found it useful. For additional insights on topics relevant to corporate investors and financial institutions across the globe, including our previous podcasts, visit I’m Murray Bender. Thanks for listening.

This content is provided for general information and does not constitute financial, tax, legal or accounting advice and should not be relied upon in that regard. Neither RBC Investor & Treasury Services, nor its affiliates, accepts any liability for loss or damage arising from use of the information in this podcast.