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Luxembourg Asset Servicing Round Table: Data Journey

Kieran Dowling, Head of Relationship Management at Northern Trust, Luxembourg, joined other Luxembourg asset servicing specialists to review the impact of digital transformation, the growth in private markets investment and the application of data science and AI. Read this extract from the report.

What are the major factors that are steering your development strategy as a Luxembourg asset-servicing specialist? In which direction are your clients taking you?

“Northern Trust has established a European client advisory group involving representatives from our top client franchise relationships across the continent. This acts as a forum to discuss key industry trends, as well as driving our product development road map. There has been a strong focus from our clients on regulatory compliance and how we can support new ways of managing and delivering data to enable them to focus on what is important to them – for example, fund performance and distribution growth. As a result, we are developing Northern Trust Matrix™, our enhanced technology platform, built to digitise our asset servicing business. It combines technology and operating model innovations to support new ways of managing and delivering data, and its first releases of functionality are taking place throughout 2020.

From a sector perspective, we are experiencing strong demand from managers seeking to establish Luxembourg-domiciled alternative funds across private equity, real estate and private debt and are addressing this through a combination of product enhancements and investment in our core infrastructure in Luxembourg. Having completed the acquisition of UBS Asset Management’s fund administration business in Switzerland and Luxembourg in October 2017, we are now realising the benefits of the service enhancements, and the wider European client base this has provided for our fund administration services. This has facilitated, for example, an extension of our service range for exchange-traded products to service physical replicating ETFs in the Swiss market. We are now integrating this on to our global funds platform.”

What about technology?

“Investment in technology and people is fundamental to the development of the asset servicing sector. Northern Trust has been operating out of two locations in Luxembourg, but is bringing these teams together and relocating to Leudelange, south-western Luxembourg, during 2020. This will enable us to be ever-more agile and collaborative in the way we support our clients as we enter the new decade.”

What have been the most significant business opportunities and challenges that your organisation has experienced during 2019?

“There is a core package of services that we all provide very well. Around this, there are opportunities to extend higher-value services that generate greater efficiency for our clients and help them focus on their core portfolio management requirements. For example, through Integrated Trading Solutions, we provide global trade execution, matching, and transaction cost analysis reporting. It is an opportunity to lower costs, reduce risk, help manage compliance and enhance transparency and operational efficiency.”

KYC considerations

“The standards that Luxembourg sets in this area are well respected across Europe. Transfer agency is one of the most visible services to our clients and getting it wrong can have a major impact on a firm’s reputation. We are developing technology-based solutions, but the people side of the business is vital here. We are introducing a sophisticated investor on-boarding experience using our Matrix technology developments and, notably, the concept of ‘global investor’. Whether it is on-boarding an investor, working with a distribution company or directly with a management company that is seeking granular data on its investor base, the ability to engage with each of the stakeholders across the fund distribution value chain is enormously important.”

What are your priorities, in terms of technology investment and refinements to your data architecture, to support your asset servicing activities? Are clients confident about having their data held in cloud-based storage?

“As noted earlier in the discussion, Matrix is our response to a rapidly changing environment. The transfer agency development will lay the foundation for a broader integration of this event-driven architecture which will digitise, automate and deliver value across custody, middle-office solutions, fund accounting and transfer agency.

Our discussion has highlighted the challenge of supporting clients active in multiple domiciles, where KYC and on-boarding requirements may differ slightly from jurisdiction to jurisdiction. Within our development programme we have embraced a ‘global investor’ concept, where KYC information will be hosted centrally – effectively in an in-house KYC repository. If the investor has already been on-boarded to a fund in one jurisdiction, we may have 80% of the KYC data that we require to on-board this investor in a different location. Consequently, once the repository is live, we would only need to approach the investor for the missing information. Throughout this process, the investor would receive real-time status updates (on their smartphone, for example) charting progress and indicating which documents are still required.”

What implications does Brexit have for your Luxembourg asset servicing strategy? And, beyond this, what are the key messages we should draw from our discussion?

“Northern Trust launched a programme shortly after the Brexit referendum in 2017 to prepare for the UK’s exit. In March 2019, we established a new European bank in Luxembourg, after redomiciling our EU bank from the UK to ensure continuity of Northern Trust’s products and services. Clients have welcomed the opportunity to connect with our new banking headquarters on the EU continent, while offering linkage to our branch in the UK and other locations. In combination with our acquisition in 2017, this has helped to create an active pipeline of new business which last year resulted in the addition of nine new client relationships, including alternative funds.”

As featured in Funds Europe’s Luxembourg report. Read the full version here.

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© 2020 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors.For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch; Northern Trust Global Investments Limited; Northern Trust Securities LLP. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, RCS B232281; Northern Trust Global Services SE UK Branch, 50 Bank Street, London E14 5 NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA # 160018. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – Capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License # 12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA.