Digitalisation is clearly one of the main challenges facing both the asset management and depositary industries. It includes not only all those projects that depositaries are undertaking internally in terms of process optimisation or efficiency gains thanks to Artificial Intelligence (AI); but also all those business initiatives that are being launched under the new digital asset regulation and the different experimentation programmes that are currently underway.
Leading banks explain the latest developments and projects they are working on in their respective organisations with regard to these issues.
María Dolores Domínguez-BBVA
BBVA is working on three key aspects:
- Artificial Intelligence (AI) and Generative AI: 'We believe that this is the great technological change that will drive a transformation of our finance industry', explains María Dolores Domínguez Haro, Head of Depositary Services at BBVA. In her opinion, AI will allow two things: 'We can hyper-personalise the service we provide our customers and make a qualitative leap in the efficiency of the processes we now have in place', she notes. The depositary's relationship with this AI technology is strong, considering that its primary function is to secure its customers' assets. In this regard, BBVA has signed an agreement with OpenAI for more than 3,000 Chat GPT licences. 'In the depositary and custody division, we sat down with the Digital Assets team and identified which scenarios were suitable for the use of this technology, e.g. reconciliations, cross-checking of information, financial transactions, double taxation, etc. But we have to get used to the idea that we are all going to work with AI.
- Biometrics is the other area identified as having potential. Eight years ago, the bank created Veridas after a strategic alliance with a start-up. 'This has given us considerable insight. We have more than 40 use cases on the table that have allowed us to learn all about remote customer identification. Now we have to see how these solutions are implemented with institutional customers', she adds.
- DLT, blockchain and digital assets. BBVA has been providing custodian and trading services for digital assets for some time now. 'Our aim is to extend it to other countries. But complying with two requirements: there must be demand in that country and, in addition, there must be effective legislation that provides a protective framework for the end-investor', she insists. For BBVA, crypto custody is a necessary starting point on a very long road. 'Our sights are set further ahead: in the tokenisation of products and cash', stresses Domínguez Haro, who believes that some banks will need to change their strategy.
Emma Urraca– BNP Paribas
The Securities Services innovation strategy at BNP Paribas focuses on three pillars: industrialisation, data management and DLT blockchain.
- The bank considers that industrialisation is fundamental. 'It helps us make processes more efficient, robust and secure. And that involves innovation and moving away from the day-to-day, although we cannot lose focus with regard to our role of protecting investors', admits Emma Urraca, Securities Services Sales for Spain and Portugal, BNP Paribas. In this context, they have incorporated AI and Generative AI as part of the technological pillar of their GTS 20-25 Plan: Growth, Technology & Sustainability. 'Since 2018 we have been integrating AI into our processes thanks to three enablers: we have a strong technological foundation, with global platforms with local application; on the other hand, we have entered into strategic partnerships and collaborated with Fintech and start-ups; and lastly, the investment we have undertaken to develop knowledge within the group', she says. She cites two use cases. On the one hand, in the field of private equity and, within fund of funds strategies, they are seeing robots that are able to read and identify information related to the underlying funds, with the idea that they will be able to efficiently and automatically record the data. On the other hand, in the traditional world, they are also experimenting with a robot so that it is able to read the brochure and extract the basic information for use by compliance teams. All this with prudence and caution.
- With regard to Generative AI, Urraca believes that 'it is very important to balance innovation with risk mitigation. We realise that Generative AI offers ample opportunity to improve our current work processes, but we are very cautious, especially as our ambition is to be able to meet the highest standards of regulatory compliance', she insists.
- The third pillar is DLT and blockchain technology. Given the interest from banks and the current regulatory framework, 'we are focusing on securities tokens, where we are working with the ECB and the Bank of France to help them develop the CBDC (digital euro)', explains Urraca. In terms of funds, work is being undertaken on two fronts. The first is in which assets the funds can invest in. 'Here we are working with Metaco and Fireblocks, and our efforts are geared towards enabling our fund managers, with transparency, to include digital assets in their portfolios', she notes. The second is tokenised funds, 'where we are working with customers on projects in Spain, Italy, Luxembourg and France. And we are already in a tokenised fund in the Bank of Spain's Sandbox where we are a depositary', she adds.
Cristina Gómez- Caceis
Five years ago they started a digital transformation process. Since then, Caceis has implemented direct communication channels through APIs, including robotics in internal processes, and improved efficiency. Three processes are currently in the pipeline:
- The possibility of offering data as a service: 'Within the data governance project, the objective is to have quality, standardised and well-structured data. This allows us to make more information available to customers in the shortest possible time; improve reporting capabilities; as well as the ability to communicate with our customers', says Cristina Gómez, Head of Business Solutions at Caceis.
- Integrating AI into the bank: 'Having this data more standardised allows us to implement AI more judiciously', she says. At Caceis there is a team dedicated to generating ideas and implementing a number of use cases that are using AI. 'We are currently being very prudent. Most of these concern being able to extract information automatically from documents in order to generate other documents or to include them in operating systems. The idea is to make it available to customers in the future', she says.
- Lastly, it aims to be a benchmark provider of digital assets. Caceis has a line of Digital Assets where it wants to include both custody services and, in the future, be able to cover the entire value chain. 'We want to be able to issue tokenised instruments and even be able to distribute them. We rely on a specialised market platform that is able to interface with other DLT platforms. To this end, we have implemented an operational model to complement the search for traditional assets. The ultimate goal is to provide transparency and consolidated information regardless of whether you have a digital or traditional asset with us. And all this by providing specific controls in order to avoid risks', she adds.
Aurora Cuadros- Cecabank
Cecabank is well aware that 'the Blockchain era is in full swing and regulation is providing the framework that institutions need to launch our innovations', explains Aurora Cuadros, Corporate Director of Securities Services at Cecabank.
- With regard to the crypto sector, Cuadros believes that 'we are addressing this transformation challenge'. As a result, depositaries have devoted a lot of time to be prepared for such a moment. 'It is a world full of opportunities, which involves risks but also a number of challenges: we must offer the same quality of service that we provide in the traditional world to the world of digital assets', says Cuadros. During this time, Cecabank has been preparing very prudently and in close proximity to the regulator. 'We are working on pilot projects with leading tokenisation firms and Cecabank is ready to offer this service, but the issue must also be adequate', she notes.
- On the other hand, the business model has also had to adapt to a new situation. This evolution, says Cuadros, 'creates opportunities, such as the tokenisation of wholesale fiat money. To this end, we have participated in the Bank of Spain's experiment, which has focused on payments through tokenisation of money and the settlement of tokenised assets. In this last phase of the experiment, both the bank and the supervisor have acquired a lot of know-how', she stresses.
- Lastly, Cuadros notes that they have 'the machinery ready for the arrival of MiCA. In short, our objective is not to lower the quality of this type of service, as we have the know-how, the necessary specialisation and we can provide value to our customers', she adds.
Óscar Pino- Inversis
For Óscar Pino, Head of Depositary Services at Inversis, 'the sector is in the midst of a period of transformation and process optimisation in which new technology will play a key role in continuing to offer a value-added service'. Banco Inversis is analysing how it can integrate these tools in order to continue offering depositary services as in the past.
- 'We are working on how the registration of positions can be done on-line. In short, gaining agility in the processing of any transaction, which reduces manual errors and execution times. As well as in the security and speed of instant payments, implementing authentication and validation controls for digital assets, and how to supervise the buying and selling of those assets', says Pino. In line with this, he believes it is 'important to see how we can make use of algorithms or patterns to detect suspicious behaviour or fraud in any transfer', he says.
- Finally, on the supervisory side, Pino believes that 'technological innovation helps to ensure compliance with the obligation we have as a depositary to investors and regulators, thanks to the automatic collection of all the necessary information'. He refers to increased monitoring of defaults or discrepancies with the aim of helping their customers while at the same time protecting investors. 'People are the key', he claims. To this end, Inversis has a team devoted to understanding the regulations; another that is devoted to the design of a new planning, where they analyse the possibilities of success and business cases; and finally, they are looking to create an ecosystem of partners, 'we must partner with them to access environments that we currently cannot access', he stresses.
