Navigating a new era of securities services

Digital platforms have become central to the delivery of securities services, and global investors and asset managers are increasingly looking for opportunities around ESG investing. Meanwhile, concerns around increased automation and changing workforce compositions require fresh attention and solutions.

These trends were explored during HSBC’s Securities Service Leadership Festival, providing insight into how we should think about future of securities services.

Digital platforms have become an imperative

Advancements in technology have enabled the building of securities services platforms that expand access to investment resources and consolidate service offerings. Central to this effort is the role of industry partnerships, which are creating ecosystems of support from different partners and resulting in an elevated value proposition.

For these reasons, digital platforms are changing how securities services partners think about client servicing. By focusing on how to meet the needs of clients holistically, with access to services from a variety of partners available on a single platform, the industry is now able to offer an enhanced customer experience.

Zhu Kuang Lee, Chief Digital, Data and Innovation Officer, Securities Services, HSBC, summarised the value this way: “Clients are now looking for banks such as HSBC to act as infrastructure providers. Digital platforms offer a way for them to participate in the new digital ecosystems without having to switch from their current banking partner.”

Digital platforms are also increasing the potential use cases of innovations such as distributed ledger technology (DLT) in the capital markets. Although nascent, there is promising momentum around DLT acting as a single asset register for an asset manager or broker-dealer, which would enhance capital efficiency and give clients controlled access to real-time data. DLT is also being explored for clearing, settlement and reporting in the over-the-counter securities and derivatives markets.¹

Given Asia’s rising interest in tokenisation and digital assets, DLT applications may be expanded to facilitate trading in the future. Doing so could reduce operational and capital costs, as well as generate liquidity by connecting more issuers and investors.²

Growth in ESG investing continues apace

Parallel to the activity described above are exchange and infrastructure developments aimed at making international investment into Asia easier and more attractive. Key to this is positioning Asian exchanges to be more globally-sensitive in areas such as disclosure, trading times and settlements, which have historically been barriers to international participation.

As platforms continue to gain momentum in the delivery of securities services, investors and asset managers also need to stay aware of the trends around ESG investing in Asia. Affecting every link in the investment chain, ESG is now a key factor in investment strategies being driven by market preferences and shifts in the regulatory environment.

However, there is a still a gap in investors embedding this into their decision making. For example, HSBC’s ESG sentiment survey in June 2022 found that over 40 per cent of financial services professionals have sustainability as a primary or secondary fund objective, yet the level of incorporation of ESG into investment decisions among the majority of respondents significantly lags the intention to do so.

According to Wai-Chin Chan, Global Head of Climate Change Centre and ESG Research, HSBC, this discrepancy is because a “the work of integrating ESG into investment decisions involves reforming existing investment processes. ESG strategies need to be well articulated and established, as well as the necessary stakeholders engaged, for integration to happen.”

To overcome these challenges, internal operating models are being reviewed to improve the ESG investment process.³ For securities services partners, this is an opportunity to help institutional investors evaluate, validate and comply with emerging rules and regulations, as well as support asset managers to make the most of their data for ESG investment decisions.

Important market infrastructure changes are also underway - India’s recent shift to T+1, or next day equity trading in February 2022 being a case in point. By improving settlement speeds, India is creating the conditions for a more liquid market capable of offering global investors a more efficient trading experience, a win for both sides.

The evolving future of work

While platform strategies and ESG investing are central to the future of securities services, so too is solving the challenges around the future of work. Digitalisation and automation are now top of mind, promising an end-to-end transformation away from legacy processes and towards a model that puts the user at the centre of the design process.⁴

Key to this transformation is a shift in approach to learning and development - from a “work to learn” to a “learn to work” model, where continuous learning helps workforces remain adaptable to market changes and technological disruptions.

Describing how HSBC is approaching this, Lisa Cameron, Head of Workspace ASP, HSBC, said: “The jobs of the future are expected to be more machine powered and data driven. Courses such as data literacy at HSBC are being promoted to support our people to work alongside these technologies, but there is also a focus on humans skills such as problem solving, communications and agile leadership skills.”

The importance of this is underscored by the fact that almost 90% of companies worldwide believe they already have a skills gap or will face one in the coming years.⁵ If gaps are not closed fast enough through reskilling or upskilling – for example, in areas such as cybersecurity, risk management, compliance, machine learning and ESG – hiring external will become a necessary option to meet the business needs of the moment.

Securities services is a pivotal point in its development. Digital platforms are fundamentally changing business models and value propositions, while ESG investing has taken investors and asset managers in a bold new direction. Pair these with a shifting work environment characterised by increased automation, and the future of securities services is promising to be as dynamic as it will be challenging. Grasping the changes underway is key to navigating their implications.

Today, we and many of our customers contribute to greenhouse gas emissions. We have a strategy to reduce our own emissions and to help our customers reduce theirs. Find out more about our climate strategy at hsbc.com/sustainability