Q+A: Regulations Re-Shaping Subcustody

Lee Waite, global head of direct custody and clearing at Citi, discusses the challenges in subcustody sparked by regulators’ increasing focus on worldwide financial transactions.

Global Finance: What are some of the challenges around subcustody?

Lee Waite: Among the pain points is the challenge of complying with all the various regulatory imperatives around the globe. Regardless of where they emanate from, they are mandatory; you have to find a way to handle them. That means changing processes, procedures and technology. It’s a matter of keeping up with regulation, while you’re keeping up with client demand, and while the industry in general moves south in terms of headcount. That’s true for both clients and providers.

GF: How is Citi dealing with these challenges?

Waite: We offer subcustody services in 62 countries, so we are subject to regulatory changes in those markets (e.g., AIFMD, UCITS5, Spanish market reform). We have a very broad book of business, a broad geographical scope, and we can leverage a “portfolio effect” to share expertise and costs.

GF: Citi has been recognized for its subcustody work particularly in North America and Latin America. Why?

Waite: One of the reasons that we’ve been successful in these regions is that we’ve been in these markets a long time, often for over a hundred years. We’ve got very good people on the ground, who understand these markets inside out and upside down. For example, there are some difficult political situations in Latin America. Our clients who operate in the region rely on our professionals there to make sure they’re getting the “bird’s eye view” relative to what’s going on with their clients’ assets.

GF: What are some of the ways Citi leverages technology?

Waite: You can’t be in this business and not have good technology, not when you’re moving money and assets around the globe. Our in-house processing engine, SECORE, ensures that most transactions are processed straight through. And when we have to go in manually, to connect for the last mile by tying in to a standard platform in a country, we have the knowledge and resources to do that so the transaction is seamless.

Thinking ahead, the greatest excitement in the technology space now is around blockchain. In the context of security services, blockchain will mean that transaction records are kept and updated automatically and simultaneously, across several locations in the Cloud. It has the potential to simplify processes and procedures, and it will be less expensive to maintain over time. It’s an area we’re interested in, and are watching carefully.