The number of sub custodians is set to contract as a round of consolidation hits the industry following the wave of regulatory changes that will change cost structures and push up costs.
In an interview with Euromoney | Sibos Insider, the global head of sub custody at SEB says that over the next few years the number of players in the market will dwindle as regulation pushes up costs, as well as harmonising Europe, which will leave some countries with no single market providers.
“The flood of 11 or 12 regulations are going to change the landscape for custody forever,” says Ulf Noren, global head of sub custody at SEB. “It will lead to major mandatory investments and an enormous need for collateral, which will be very expensive for the sub custodians as well as the end users. I think following this we will see a wave of consolidation, in some cases single market providers in places like the UK and Switzerland will disappear.”
SEB’s Noren also says that within the Nordic countries, where there are a range of domestic players, there will be a wave of consolidation that will lead to SEB and Nordea operating as the only sub custodians. This will be the result of the consequential costs from regulation changes making it difficult for small and single market players to survive over the next few years.
In addition, Noren says that in order for institutions to become more transparent it is becoming more and more likely that the cost structure for end users will alter. Currently clients of sub custodians receive a single transaction cost for all services. However, it is likely that cost structures will change to an “unbundled” format which will mean that every service will be itemised.
“I do believe that there will be an unbundling of costs and a separation of services,” says Noren. “Settlement services, asset servicing and inflow support will become itemised in a bid to become more transparent for the client.”
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