ASSET service providers are grappling with new financial and regulatory challenges in a market that is being hit by changes reshaping the industry.

Intense pressure to keep costs down on the part of institutional clients has translated into stronger and stronger fee pressure on their custodians and other asset service providers.

For now, the asset service providers have turned to the use of technology in order to increase efficiencies and reduce costs. But it remains to be seen how long they can continue to sustain this. But one thing is clear, the cycle of cost-cutting and increasing pressure on fees is not likely to end anytime soon.

“The speed at which we can invest in technology, to change and automate the process in order to offset the pressure on fees, is important. The challenge for the industry is: can we keep up, because pricing is coming down, and we’ve got to be able to react quickly to that,” says Pete Cherecwich, president of corporate & institutional services at Northern Trust.

The NTUC Income Cooperative, Singapore’s largest insurer, recently outsourced its massive fund accounting requirements to BNY Mellon, which is in turn using its highly-sophisticated Eagle Investment Systems fund accounting platform to consolidate a task that used to be done by two separate asset service providers.

NTUC’s case illustrates one of the challenges facing insurers, pension funds, and other large asset owners all over the world, who have to perform fund accounting for thousands of members involving billions of dollars in assets.

“One challenge in fund administration is streamlining the reconciliation process which is often very manual and time-consuming. It is not uncommon to see some middle and back office staff having to stay very late to finish off that process. So, we help to automate that. We have a very elaborate and evolved process around reconciliation. We automate a lot of these functions so it’s very intuitive for the users so that they get to go home at a reasonable time,” says John Legrand, head of business development for asset servicing, Asia-Pacific at BNY Mellon and general manager for EMEA/APAC of Eagle Investment Systems.

In any case, the level of fees has levelled off in the last year, perhaps reaching economies of scale for both institutional clients and asset service providers.

“If I look around the globe, actually fees are not dropping anymore at a precipitous rate. That being said, it’s still competitive. We’re not getting more fees for the same services but we’re having to sell more products to make revenues,” Cherecwich says.

On the regulatory front, the NTUC mandate illustrates how institutions and asset service providers are using technology to comply with new regulatory requirements and industry standards.

On January 1 2018, the International Financial Reporting Standards (IFRS), which are basically new standardized rules for accounting, will take effect worldwide. In Asia, many insurers, pension funds, and asset owners are still in the process of transitioning to the new standards or have yet to do so.

By mandating BNY Mellon to do its fund accounting system, the Singaporean insurer is updating its systems in order to make it IFRS compliant.

Legrand says other institutional clients who are not in the public domain are also in the process of transitioning their older legacy systems to automated technology systems like Eagle in order to become IFRS compliant.

“There’s been a big adoption in the last couple of years as more and more institutions are starting to adopt IFRS. I think that’s really helpful for institutions that have historically struggled to get their reporting out on time and accurately,” Legrand says.

This article is an abridged version of Custodians reshaping in a fintech world – Competition is now in providing data and information to clients, published in the November 2017 edition of The Asset, soon to be available online as premium content on The Asset Plus.