The Securities Services industry has generated relatively stable revenues driven by accumulation of Assets under Custody (AUC) or Administration (AUA) and underlying trading volumes, even during substantial market swings witnessed over the last decade. However, the last cycle has also seen continued fee compression and decreasing net interest margins at the core of the industry. Even the introduction of value-adding adjacent services has not sustainably offset fee pressure on core business models, since new services have typically been included in existing service offerings and have thus become subject to the same pricing challenges.
Looking forward, our analysis suggests that developments in the broader Capital Markets ecosystem will create continued top-line pressure for the Securities Services industry as we know it, which will make it difficult for some players to fund required investments and fend off the threat of potential disruption. For firms that can afford the required investment, there is a significant future growth opportunity arising from the servicing of new (digital) asset classes and leveraging of new technologies within Capital Markets, with higher margin for associated products and services.
On top of that, global geopolitical uncertainties increase the risk that the global Securities Services industry becomes regionally fractured. This might disadvantage firms that consequentially need to scale back their global business models. As a counterpoint, the firms that manage to retain global business models or which have a deep regional franchise in growing markets, may be able to increase their business.
With the knowledge that the Securities Services industry — as we know it — will undergo significant change over the next decade, but given the uncertainty of when and how this change will happen, we have taken a scenario-based approach to identify the drivers of change that are expected to have the largest impact on the industry.
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This article first appeared in the Securities Lending Market Report, 14th edition, published by International Securities Lending Association.