As the custody services industry faces increased commoditization, regulatory challenges, and market consolidation, custodians are striving to differentiate themselves through technology-driven innovation and strategic collaboration. At the recent Post Trade 360 conference in Stockholm, Sweden, S&P Global Market Intelligence moderate a panel focused on "Balancing Scale with Innovation", where three leading custodians from the Nordic region, provided insights on the evolving landscape.

Commoditization

The panel initially addressed the key question, on whether core custody services have truly been commoditized. While larger global institutions are driving commoditization, the consensus was that significant differences still exist among providers, especially when viewed through the lens of client segments. Across the region, differentiation remains critical, as clients increasingly prioritize services beyond core custody, such as prime brokerage, lending, and financing. While the evolving client needs are pushing the custodians to rethink and reshape their value propositions, further highlighting the importance of tailored services.

Strategies Initiatives

Given the competitive and regulatory pressures, custodians are emphasizing the need for strategic initiatives to tackle the challenges in both the Nordic region and internationally. One of the key areas highlighted was the need for harmonization across Nordic markets, where complexities such as varying tax and cost structures remain hurdles. While the role & number of Central Securities Depositories (CSDs) across the region is under scrutiny, with ongoing regulatory changes pushing them toward greater standardization. Custodians are also shifting from proprietary systems to more strategic decisions on technology adoption, focusing on who they partner with, to deliver value-added services efficiently.

Role of Technology and Innovation

Innovation continues to be a central theme across the custody services landscape, with a focus on the potential of Generative AI (Gen AI). AI is increasingly being recognized for its potential to transform client servicing, trade reconciliation, and engagement through better data insights and automation. Although the adoption of blockchain and asset tokenization has been slow, custodians are keeping an eye on digital issuance on blockchain for potential cost savings, but it is the role of AI's that is seen as enhancing operational efficiencies, particularly in predicting deviations in calculations and assisting in client dialogue.

Collaboration

The growing importance of collaboration with fintech's, other firms, and clients was also highlighted as key in driving growth and service enhancement. Open APIs and data-sharing platforms are becoming key enablers, allowing custodians to offer flexible, plug-and-play solutions. The ecosystem approach is gaining traction, with custodians striving to meet clients' demands for standardized, enriched data through partnerships with diverse solution providers.

Future Outlook and Strategic Positioning

As we looked to the future, the view is that the custody services landscape will continue to evolve, driven by client segmentation and cost considerations. The integration of platforms and the consolidation of services are expected to streamline offerings and reduce operational costs, but custodians must remain close to their clients, adapting to their needs with tailored services and carefully selecting long-term partners to stay relevant across the entire value chain. By leveraging technology, fostering collaborations, and continuously adapting to client needs, custodians are positioning themselves for a future where differentiation and strategic agility are paramount.