Deep dive on automation – what approaches are asset servicers taking to future-proof their businesses?
By Tim Mietus, Citco Technology Management, Inc.
Published: 27 June 2022
The growing popularity of alternative asset classes has created both challenges and opportunities for the asset servicing industry.
The growth in assets under administration has created a clear path to organic growth thanks to the potential to win new and expanded client mandates.
However, accommodating that growth means asset servicers need the ability to scale up their operations to meet demand.
As witnessed across many other industries, technology is being used more and more for the heavy lifting behind the scenes – especially when it comes to managing all the data that needs to be processed, and ensuring workflows are optimised.
Below, we take a look at some of the leading options for asset servicers who are trying to build the business of tomorrow to meet client needs.
Streamlining processes with robotic process automation
One area where automation is having a big impact is processes and workflows.
Many asset servicers have multiple teams implementing manual tasks, which can lead to human error and delays, particularly at times of increased volumes.
In order to adapt processes to meet the rising demands of a growing industry, the Citco group of companies (Citco) has been looking to Robotic Process Automation (RPA), which as a tool automates tasks that are carried out by humans, often pertaining to multiple teams or departments.
RPA, which Citco has in production for a number of use cases, can improve back-office processing by reducing the number of manual touchpoints within asset servicers’ businesses, leading to less risk of errors, improvement in STP rates, and overall improvement in client service.
Natural language processing
One technology making waves in the industry is Natural Language Processing (NLP), which concerns the interactions between computers and human language, with a focus on how computers can be used to analyze natural language to extract information.
This idea itself is not new. Citco has been using an earlier version of NLP called Enhanced Optical Character Recognition for a number of years to extract key data points from text-based documents. However, such technology would traditionally struggle with non-standard formats and interpreting the nuances of human language.
With the advent of artificial intelligence, the complexity of NLP is progressing at pace, with the ultimate aim of being able to use computers to review non-standardised documents and extract key information without the need for human intervention.
The benefits of such technology to asset servicers are clear, whether in reading PDF statements from third parties to extract Net Asset Values (NAV) and speed up NAV finalization or by automating data extraction for processes such as capital call notices, corporate actions, and account statements.
Such uses would serve to speed up delivery and improve the client experience, while freeing up human resources to focus on oversight and higher value-adding operations.
One other approach is to instigate a series of rules for computers to follow. Known as machine learning, this works by implementing algorithms to teach computers a task they need to achieve, using both good and bad examples to ‘train’ them.
The algorithm then finds relationships between the data and ‘learns’ how to predict the target or answer the question from the training dataset.
Like the other models, it means computes can take the strain on a number of tasks, delivering a consistent, efficient - and crucially a scalable – process.
However, as with its processes above, these take time and investment from operations teams to initially implement in order to build a rigorous enough process.
Where do we go from here?
RPA, NLP and machine learning are already radically changing the way we do business. As well as enhancing how asset servicers work and giving them greater breadth to expand their workloads, they can be upgraded with new solutions as needed.
They are not the only solutions out there, with distributed ledger technologies such as Blockchain also presenting multiple potential use cases across the industry. These could include things like client onboarding, regulatory compliance, and the use of smart contracts.
The key with much of this is time. All of the above, if implemented effectively, should reduce turnaround times. This could range from NAV processing that may switch to more regular cycles as more steps get automated, to its use in collateral management where clients may expect faster responses to their emails as the industry automates the process of “inferring” client emails thanks to NLP.
In such a world, those asset servicers that don’t have cutting edge solutions may well see an impact on their ability to maintain and grow their market share.
The case for greater industry standardisation
When we see such examples of automation, it is easy to see the value that disruptive technology can bring to asset servicing and how it will enable the industry to scale in line with growing demand.
However, while Citco welcomes this progress, the real end game that we should all strive for is a better ecosystem for all participants in the industry.
By standardising the documents that we use, for example, and by enhancing communication between managers and investors when it comes to the various tasks that we carry out every day across the industry, not only will we create more streamlined processes, but also establish a consistent foundation for technological solutions to build from.
Of course, due to the way the industry has grown these changes will not happen overnight, and that is why technologies like those detailed here will be critical in managing the capacity constraints on the industry in the short term. However, it is the aspiration of many market participants, ourselves included, to push for the elimination of non-standard data and paper to truly digitise the sector.
This will mean a concerted effort to get competitors to cooperate by adopting the same technologies. While this has historically been a challenge, Citco firmly believes there is growing momentum for this to happen, with the end result being a sector which benefits from a more streamlined alternative investment universe.