Why Legacy Technology Threatens Global Custody Operations

Good morning, and welcome to Global Custody Pro.

Global custodians face unique risks from aging technology. Their systems handle trillions in assets across multiple markets, currencies, and regulatory regimes. Yet many run on platforms built decades ago.

The Global Custody Challenge

Global custody is especially vulnerable to technology problems. These banks handle complex asset servicing across time zones. They process corporate actions, handle tax claims, and manage huge settlement volumes.

The old systems weren't built for today's 24-hour trading. They struggle with new asset classes like ETFs and digital assets. And they can't easily handle the rising complexity of corporate actions.

Why This Matters for Asset Managers

For asset managers, custodian bank technology directly affects their operations.

Old systems mean slower trade settlement. They cause delays in corporate action processing. They make it harder to get real-time portfolio views. And they increase the risk of fails in complex markets.

Sub-custody networks face extra challenges. Local market requirements keep changing. Cross-border settlement is getting more complex. And new regulations demand better reporting.

The Network Management Impact

Network managers face growing pressure from these old systems.

They need real-time data about sub-custodian risks. They must monitor liquidity across markets. And they need better ways to track asset segregation.

But legacy systems make this harder. They weren't designed for today's complex oversight requirements. And they can't easily show where assets are at every moment.

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How Custodians Are Responding

Leading custodians are tackling these problems step by step.

They're building new layers for client reporting. They're updating their corporate actions systems. And they're improving their network monitoring tools.

Some are partnering with fintech firms for specific functions. Others are completely rebuilding their infrastructure. But all face the challenge of updating systems while keeping daily operations running.

As we’ve written about previously, it’s like changing the aircraft electronics mid-flight.

Risk Management Priorities

Custodians must handle unique risks when updating their systems.

They need perfect accuracy in asset positions. They must maintain client asset segregation. And they can't risk disrupting daily settlement cycles.

This makes system updates especially tricky. Every change must be tested extensively. And contingency plans must cover every possible problem.

Industry Trends

The custody industry is changing how it handles technology.

Some banks are creating shared utilities for common functions. Others are standardizing their market interfaces. And many are working together on new settlement technology.

Regulators are pushing for stronger technology oversight. They want better reporting on asset segregation. And they're demanding clearer recovery plans.

What to Watch For

Technology will reshape the custody industry in the coming years.

The banks that update successfully will gain market share. They'll handle new asset types better. And they'll give clients better service.

But the risks are significant. Watch how your custodians approach this challenge. Their technology strategy will directly affect your business.