Industry experts hail progress of standardisation, but warn of challenges to come

Discussion during Global Custodian seminar highlights need for commitment and inclusiveness to meet asset servicing standards goals

These were among the key findings of a panel discussion on standardisation that took place during the recent Global Custodian magazine 20^th Anniversary Seminar in London, entitled "Back to the future: What the past can tell us about the future of the securities services industry".

The panel, moderated by Global Custodian editor-in-chief Dominic Hobson, explored the impact of standardisation on the asset servicing business ("If global custodians used to make money out of inefficiency, have standards made it harder for the banks to make a living?"); whether there is a vested interest in avoiding a single standard ("Business models are rooted in normalising and catering for a piecemeal information market"); and the positive benefits for standardisers of heightened regulation post the financial crisis ("The past 12 months have definitely created an environment favouring transparency").

While the panelists - Mark Bolgiano, president and CEO, XBRL US, Werner Frey, managing director, European Securities Services Forum (ESSF) and Roger Harrold, global head of domestic custody services, Deutsche Bank - were in agreement that much has been achieved in the area of standards, they were also united in their assessment that challenges remain.

Not the least of these is that, as Hobson put it, "we're now trying to do stuff that's hard"; having made great strides with payments and securities settlement, the industry's focus has moved on to standardising more complex activities such as the corporate actions process.

In part the challenge arises from the need to include new constituencies of market participants (for example, issuers) in the end-to-end standardisation process - especially if in the first instance they have to spend money to benefit other participants in the chain.

XBRL US is engaged in an initiative with SWIFT and the Depository Trust & Clearing Corporation (DTCC) to create a solution for issuers based on XBRL and aligned with global ISO standards, with a focus first on the US but ultimately a global ambition. As Bolgiano said, though: "There is a natural tension where you have the immediate cost being borne by the issuer, while the benefit accrues to the consumer of the information. We recognise the barrier and working to address it."

Another challenge in the corporate actions space arises from the fact that much of the change that needs to happen is out of private sector hands, as Frey pointed out. "Giovannini Barrier 3 regarding corporate actions is one of the most formidable barriers to greater efficiency, but it's very clear that meaningful steps on the part of the public sector - forceful action in the legal area - are essential to dismantle this barrier, in addition to private sector efforts." And while there is no shortage of commitment to harmonising securities laws, there is a tendency for all states to say, "standardise on my legal model".

Agreeing and then implementing standards is a time and resource-intensive business, and requires co-ordination within firms and industry wide. As Harrold said, "Who is going to do the work? There are lots of interested parties inside the firm - the investment bank, the private bank, the prime broker - and there is a need to achieve internal consensus first."

At an industry level, it can also be difficult to get the right people involved in standardisation ("Everybody wants to go to heaven, but nobody wants to die."). Frey recounted the positive experience of the Corporate Actions Joint Working Group (CAJWG) which has successfully garnered input from across the industry to agree and endorse a set of operational standards required to harmonise corporate actions processes across borders. As he added, though, "the proof of a standard is in the implementing of it, which is ahead of us". "It will be even more important to apply the inclusive approach of the CA JWG in the implementation phase - especially in relation to issuers."

So is the co-operative approach to standards development taken by SWIFT the most efficient one, or would the industry have made more progress more quickly if it had encouraged competition between standards? Said Bolgiano: "Having worked with other standards bodies, most suffer from one of two ailments: either they exist in a purely standards environment and are too focused on abstract technical perfection, or they are very driven as a vendor at the cost of inclusiveness and transparency of the process. An industry owned co-operative to me seems to be a very sound solution to the equation. The existence of a party like SWIFT in the standards environment gives a stable state to the market that allows for other standards to operate around ISO 20022 and the new XML standards set. Though SWIFT may not move as fast as a competitive company might, the destination is more stable."

In closing the session, Hobson asked each panelist to cite the one action they believe would accelerate standardisation in securities services. Bolgiano said the tipping point is here - and it's harmonisation among standards, for example between XBRL and ISO. For Harrold, "the consistent implementation of standards is also critical": "The standard that gets consistently implemented will be a fantastic achievement."