Interview: Jeff Conway, State Street
It has been 18 months since Jeff Conway returned to the UK after
a decade in his native US and is now firmly settled into his role of CEO of EMEA,
with regional responsibility for the Global Services, Global Markets and Global
Exchange businesses.
He has brought back a zeal for technology and is leading a
root-and-branch overhaul of business processes. Europe has not, in the
meantime, had a stellar year. Brexit and market turbulence have only added to
the daunting prospect of complying with an unceasing barrage of compliance
demands.
“Our clients need us now more than they ever have. We need to be
relentless in our ability to deliver for them.”
To “relentlessly deliver” is a phrase that Conway repeats during
the interview, describing the need for his business to support clients in
increasingly challenging times. Testing for sure, but also circumstances where
the best prepared can pull out an advantage.
Not every industry trend or regulatory change will benefit State
Street but Conway takes the view that there is now no point fighting the
inevitable and effort is best spent getting ahead of the curve.
“Just accept it – regulation is not going to go away. We have
our own regulatory requirements but our clients have their own and we need to
help them. I looked at the level of demand that our customers were looking to
from us – and it continues to be quite high.”
Strategic
direction
There is an array of possible strategic directions for the truly
global custodian banks. Primarily due to regulation, there are unresolved
questions of what is required of trust banks, new opportunities left by
investment banks curtailed by capital constraints and areas where clients need
additional support.
“Where there is confusion, there are real opportunities,” he
says. “On the back of market change there is opportunity for us to introduce a
new set of capabilities. Our ability to position the organisation while
remaining nimble enough in areas of change is going to put us in a good place.”
For example, State Street’s enhanced custody product was
launched as a result of regulatory constraints hitting prime brokers. Enhanced
custody, run by Alex Lawton’s team for EMEA from London, provides short supply
to the market alongside (rather than competing with) prime brokers, many of
which are constrained by Basel III and would perhaps rather concentrate on
activities attracting less capital cost and greater revenue.
Waiting for certainty before starting the development process would mean products would not be ready when clients’ needs arise.
“We are going
to have to take some bets – for lack of a better word – in advancing new innovative
solutions. It isn’t always going to be a clear path. But if we are smart about
how the regulatory environment is driving the market then we can take some new
product bets.”
Data deluge
The complexity and frequency of regulatory reporting
requirements has stoked demand for powerful data solutions. State Street is
certainly not alone creating products to streamline vast amounts of data but
Conway says that State Street Global Exchange is “doubling-down” on its
solution.
DataGX platform, which is already operational for Solvency II
and EMIR, has the potential for far broader application. “I said, let’s look
this a little bit differently. Let’s invest more, be forward looking. Let’s
make sure we have the resources not just for today’s demand but build this out
into a broader platform for the demands we think are coming.”
State Street has already signed up clients to DataGX, which
allows them to internalise and consume a variety of data, including from other
custodians.
“It is the leaping-off point for us offering a broader range of
data-analytic solutions within Global Exchange. If I can solve my client’s data
aggregation challenges – and do that as an extension of our current services
relationship– there will be tremendous opportunities to innovate into new
spaces alongside our clients.”
It is a strategy that could harness many market trends. For
example, the move towards multi-asset class vehicles means liquidity monitoring
is becoming a critical function. Indeed, the US SEC is looking into liquidity
management around subscriptions and redemptions.
Says Conway: “If you consider complex investment strategies with
subscriptions and redemptions coming in every day – what scenarios could impact
the liquidity position of the fund?”
Likewise, the trend for large pension funds to insource
investment management requires support. “Providing the infrastructure required for
them to be able to take on these activities, and to help with the transition, increases
the impact that we can have on those clients. There’s a level of innovation
happening across the franchise that gets us much more deeply into
outsourced-CIO services.”
Conversely, asset managers are looking to outsource non-core
functions and face their own regulatory issues. “They want less of the
infrastructure in house and to leverage organisations such as ours. Changing
their operating model to support new investment strategies while complying with
new regulation is a heavy lift.”
Guiding light
State Street’s digitisation efforts are guided by Beacon, a five
year internal transformation programme launched this year. “It is about looking
at things process-by-process, automating and digitising our core operating
model and integrating those benefits into the end-to-end operating model with
our client.”
In January 2016, State Street predicted that Beacon would
generate substantial ongoing savings including $75m during the year and $550m
over the next five years (although there are large implementation costs). Its
transformative focus moves across businesses but the theory is the same; first
it rationalises overlapping applications and processes and then optimises the
workforce – moving jobs to lower-cost locations and “less hands-on work” –
before identifying new product opportunities.
In the context of DataGX, it meant rationalising processes and
constructing a platform that allows the automated consumption of trade data.
For example, it banishes the practice of collating trades into an NAV and
sending end-of-day reports to clients.
“In the new environment, we get our trades in a straight-through
automated fashion. Our clients have visibility into its production cycle as we
configure the NAV.” Ultimately, this will allow State Street to provide
real-time data delivery. “We’re not fully there yet, but the clients already get
a cleaner set of data and more rapid delivery to their shop.”
A focus on efficiency inevitably means changes to the workforce:
“Beacon ultimately creates new growth opportunities and will allow our workforce
to develop other skill sets versus openly pushing on reductions. Organisations
have to push to create a cost advantage and part of that is automation. No
question.”
While he could not be accused of being overly sentimental,
Conway has a very positive perspective. “What makes a winning formula is
creating a cost advantage while fuelling new product capabilities. It requires
a real process engineering mindset, changing your core operating model,
overlaying technology, to drive out manual intervention.”
Rise of the tech
guys
Automation and digitisation have increased the importance of
technology experts. As Global Investor/ISF reported frequently during 2016, there has
been a steady flow of senior industry figures to technology start-ups to guide
systems development.
“Continuing to deepen our technology resources and attract new
perspectives and skills remain a priority. Beacon reinforces the opportunity
and challenge related to changes to our business model and developments
required in defining the workforce of the future.”
While maintaining existing business lines will require less
manpower, it does not mean the total workforce will decrease. “Our digitisation
effort is clearly about creating greater efficiencies in our core operating
model but more importantly, it’s about growth. If the digitisation effort
creates new product potential, the workforce needs to introduce new skills and
talent.”
Already, there been a noticeable change in the type of person
being hired to people with deep data analysis skills. “You need core technology
developers, but also a hybrid people that can do data mapping, analyse core
data sets or build new analytic models on top of data sets.”
He says technology has become a core, revenue-generating part of
the business. “It is an exciting prospect for people starting out in the
industry.”
Next steps
While last year’s industry buzz-word ‘data lake’ resulted in the
DataGX product, the current “cool things” State Street is working on with
various partners involve robotics and trading. “Part of what we’re doing is
creating regulatory solutions for EMIR, MiFID or KYC.
But at the forefront is what we’re doing around cognitive learning.
And we are doing some really cool things around unstructured data.” State
Street has a tie-up with Media Stats that enables it to create signals for
predictive analytics. Progress is at a very early stage but is “advancing at a
reasonable rate” and should lead to robo-learning capabilities.
Right now, its research teams can furnish clients more
predictive analytics and “it’s a space that we’re continuing to push and advance”.
For example, its risk analytics tool can be used to identify opportunities that
emerge as a result of interaction between seemingly unconnected markets. While
these tools remain mostly of use to chief risk officers they will become increasingly
useful to portfolio managers as the tools approach real-time.
“We have to invest in the future – and we certainly are. We
recognise that the industry is changing and we need to change at a more rapid
rate than ever.”
You can be sure Conway will be relentless in facing the
challenge: “You can never have an end game.”
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