Asia strategy intact as digital push intensifies
Deutsche Bank’s new global head of securities services, Paul Maley, shares his thoughts on building Asia and the promise of digital in disrupting the custody business in an exclusive interview with The Asset
16 Apr 2021 | Daniel Yu

As Asia recovers from the pandemic, international banks are doubling down their bets to accelerate their expansion in the region. In fact, business strategies are being reconfigured as the region becomes a source of capital, in addition to the decades it has been a magnet for investments.

“Even though Covid-19 is a global tragedy, I don’t see the trend will have changed because of the pandemic,” believes Paul Maley, global head of securities services at Deutsche Bank. “The overall engine of global growth will be in Asia for the foreseeable future. That is where the new emerging economies and emerging companies will come from.”

Speaking to The Asset exclusively in his first interview since taking the role as global head at the beginning of 2021, Maley says the bank is shifting more of its focus and resources to Asia. “That remains our plan. We are building new capabilities in China and our business is growing in other emerging markets such as India.” In December 2020, the bank became the third foreign bank, after Standard Chartered and Citi, to be granted a domestic fund custody licence by the China Securities Regulatory Commission.

A key objective of the business in the coming years, he says, is to be able to grow with clients in the region. “Given the recent intra-Asia and Asia outbound asset flow picking up, we are keen to offer clients a more multi-market custody offering and increase the size of our coverage with those customers.”

Maley hopes to strengthen the internal partnership securities services has with the bank’s fixed income business. “The clients we are trading with and for whom we are a liquidity provider or committing capital could well be the next client for securities services too,” he continues.

The idea is to present the firm on a joined-up basis. “It happens very well already and actually works best in Asia. We just have to make the glue between the different parts of the organization stronger in the other regions.”

Accelerated uptick

With an acceleration of the shift to digital, Maley anticipates it will have an impact on the custody business. “The diversification of asset classes is starting to happen. How our clients interact with custody in a post-Covid economy, and the adoption of those new technologies, will become more relevant and there is going to be an accelerated uptick in what happens in that space over the coming years.”

The recent controversy around so-called meme stocks such as GameStop, which showed how retail brokers can now have a disproportionately large effect on the way the US markets are operating, has certainly triggered discussions on the shift in the settlement horizon for securities.

Although the global standard is generally a T+2 settlement cycle, the idea of moving to T+1 is not far away. “One can probably anticipate the market will get from T+2 to T+1 using the existing technology framework that we have today,” he suggests. “However, we are also having conversations around whether or not the whole market can move to T+0 settlement. One can’t do that with anything that is a batch-driven system.”

He reckons that if the market moves to anything that would be closer to real time, then there is going to be a potential pivot in the way the technology will actually need to facilitate that, such as on a blockchain. “That can only be done with the permission and the support of the regulators [and] I expect that to be a fairly coordinated global effort.”

Today, there is some momentum around that across the industry, he continues. But it is unlikely to happen in the coming two years even though there are clear benefits, such as freeing up capital in the form of margins that can push liquidity to the brokers and ultimately to the asset managers as well.

Paul Maley, global head of securities services at Deutsche Bank

Atomic settlement

The challenge, Maley explains, is that individual services would need to be created using those new technologies. “You need to have some perfection around atomic settlement: the securities and the payment for the securities happening at the same time.”

As more of the infrastructure will need to be operating on some form of distributed ledger technology (DLT), that creates a new debate regarding interoperability and potential disconnects between those individual parts of the financial infrastructure.

“We are still looking at the emerging elements of these technologies. Some of the higher-profile DLT projects, they have not been easy,” he shares. “That transformation from what was probably a relatively old-fashioned but stable, trusted and reliable piece of technology than runs on a relational database and the move over to a distributed ledger has been much tougher than I think a lot of industry protagonists have anticipated.”

That is also a reason why, he notes, the industry has been talking about this topic for seven or eight years. “We have not seen the tipping point yet where markets move over to this new environment. There is a tension between the rush to deploy the technology at scale and how that can be deployed in an environment that everyone would consider to be safe and secure.”

He feels that taking part in what happens in the future of securities services is genuinely very exciting. “But we are witnessing a change that is going to take many years.”