Charl Bruyns, head of investor services at Standard Bank Group examines some of the challenges facing the fund services industry in Africa and how Standard Bank is helping to address these challenges.
Standard Bank is Africa’s largest bank by assets, with a unique footprint across 20 African countries. Our strategic position enables us to connect Africa to select emerging markets as well as pools of capital in developed markets, while our balanced portfolio of businesses provides significant opportunities for growth.
Africa’s growing and rapidly developing savings industry is driving demand for broader fund services capabilities. One of the key trends in the continent’s fund services space in recent years has been an increased focus on middle and back office asset administration capabilities. This is driving financial institutions to develop ever more value-added products for clients. Product capability, however, varies widely across the continent - from South Africa’s mature and largely outsourced product base, to pockets of smaller, more in-house capability in other sub-Saharan African markets.
From the perspective of evolving middle office capability there is, in Africa, an increased expectation around the role of the custodian. There is a growing discussion, for instance, around what custodians can do to support clients manage middle office services functions, especially daily valuations and post-trade compliance. These discussions are prompting the fund services industry in Africa to move up the value chain from a product and client servicing perspective. This trend is being extrapolated across Africa’s multi-jurisdictional landscape as regional clients ask their banking partners to partner them across their chosen markets.
Currently in Africa there are regulatory limitations around the kinds of middle office services that trustees and custodians are allowed to provide. As these regulations are reviewed and bought in line with global regulatory models they will provide more clarity, even in a mature market like South Africa. This will lead to the growth of the industry in building enhanced middle office capabilities.
To run custody and fund services operations successfully requires scale. The size of the investment, the infrastructure spend and enhanced regulatory demands require considerable capital and expertise. Since many African markets offer insufficient scale it is also necessary to be able to provide this knowledge, insight and capability regionally across multiple markets – all at different levels of infrastructural and regulatory development. It is important to note that in attracting investment flows from foreign funds there is a minimum regulatory requirement that needs to be met. As such, international regulations such as MiFID II and UCITS V will be increasingly relevant to African markets if they are to remain attractive as destinations for global flows.
Given that custody fund services are flow business there needs to be a focus on both technology and operations to create efficiencies as well as a strong control environment to ensure asset safety. Given today’s increase in technologically-driven disruptions, partnerships with fintech firms will be important in delivering a compliant, scalable custody service for clients at competitive rates in Africa. Since the strength of the core platform is key to digitallyenabling a business, Standard Bank has invested heavily in its core platforms over the last eight years. Task automation is a vital component of this process as it takes both inefficiencies and costs out of the system. When basic or repetitive tasks are digitised, resources can be allocated to more value-adding client delivery solutions. The expansion of capabilities towards APIs is a key component in integrating your environment to your clients eco systems and self-enabling clients.
Equally, building market infrastructure across Africa is a key enabler of Standard Bank’s digital journey. While there is currently limited Swift connection between CSDs and custodians in certain sub-Saharan Africa markets, for example, rapid progress is being made in improving this. As a bank it is important to use technology to develop and improve market infrastructure so that market participants can collectively enable the market to realise the benefits of scale and compatibility for clients. To this end, Standard Bank is actively partnering regulators and clients to develop market infrastructure through local and global custody associations in many African jurisdictions. We are seeing good traction in this regard across most of our markets in Africa, with the most significant progress in the last five years.
In Africa, opportunity exists for value-adding and disruptive technologies to quickly leapfrog markets to greater levels of efficiency and client service. For example, we have seen three markets in sub-Saharan Africa invest in e-voting platforms. The use of e-voting at listed company AGMs introduces far greater efficiency and accuracy. Ghana is currently testing an e-voting platform which it is looking to launch later this year, South Africa is currently partnering on an e-voting platform and Botswana is also looking to develop e-voting capability. In addition, Standard Bank is piloting a Corporate Action Blockchain platform in the Nigerian market. If this blockchain platform works in Nigeria, it has the potential to be scaled across other African markets.
Combined, these technological and operational trends are fundamentally changing the capability and risk profiles of Africa’s increasingly integrated and globallyaligned fund services and securities industries. Africa’s banks, fintechs and increasingly progressive legislators are at the forefront of this evolution as the continent positions itself to leapfrog to higher levels of market efficiency, transparency and global integration.