Unlocking the future: Transforming custody account opening through technology

A panel of experts recently gathered for a Global Custodian roundtable to discuss the main challenges in custody account opening and highlight how new technologies, behavioural changes and industry collaboration can help transform the process.

The process of custody account opening has long been a cumbersome and inefficient experience, crying out for automation and technological intervention. Hardly a tale that’s unique in the securities services world of course, but one that’s perhaps been less under the spotlight than others.

Lengthy timelines, repetitive document submissions and inconsistent standards have plagued custodians, sub-custodians and their clients for some time. However, as technological advancements continue to reshape financial services, a paradigm shift is occurring, with automation and digitisation paving the way for greater efficiency and improved client experiences.

A recent Global Custodian roundtable discussion brought together industry leaders to explore the challenges of custody account opening and identify the key solutions that will drive transformation. The discussion highlighted the pressing need for innovation and collaboration in modernising account opening processes.

The challenges

David McNally, Global Head of Product Management for Securities Services at Deutsche Bank, set the stage by outlining the fundamental challenges faced in custody account opening, emphasising the multifaceted nature of the issue.

“It’s an entire web of complexity – regulatory, operational, and technological hurdles that slow things down, frustrate clients, and increase costs for everyone,” he said.

One of the primary obstacles is regulatory fragmentation. Each market has its own compliance requirements, documentation standards, and oversight mechanisms, making account opening an arduous exercise in navigating a labyrinth of rules. Regulations such as KYC/AML, FATCA, and local tax laws add layers of scrutiny, turning what was once an administrative function into a full-scale regulatory undertaking.

A prime example of this complexity is the Designated Depository Participant (DDP) framework in India, which places custodians at the forefront of investor onboarding, requiring them to ensure regulatory compliance before an account can even be opened.

Adding to these difficulties is the reliance on manual processes. Paper forms, wet signatures, and disparate data formats create inefficiencies that prolong onboarding timelines and introduce operational risk.

As McNally noted: “Every time a document needs to be scanned, verified, or re-entered, the risk of human error increases.” This lack of standardisation across markets and institutions further complicates automation efforts and stymies scalability.

An industry in need of standardisation

Suren Sankar, Managing Director, Global Custody, State Street, underscored the interconnected nature of these challenges, explaining how different stakeholders - including buy-side firms, global custodians, and sub-custodians - face similar pain points.

“What’s interesting is that all of these pain points are interconnected,” he noted. “The bifurcated processes across custodians and sub-custodians create duplicative efforts, leading to inefficiencies and increased costs.”

One of the most significant contributors to delays in account opening is the sheer volume of required documentation. The manual verification of thousands of pages of legal agreements, corporate documents, and tax forms results in protracted onboarding timelines.

State Street, for instance, processes over 300,000 documents annually, with multiple touchpoints for review.

“If every document is reviewed manually, the inefficiencies multiply,” Sankar added. “We need to move toward a data-led process where documents are structured and leveraged efficiently.”

Why has change been slow?

Despite widespread recognition of these issues, the pace of change has been slow. According to Oliver Maxwell, Head of Global Regulatory & Document Solutions at S&P Global Market Intelligence, this is due in part to legacy infrastructure, which limits institutions’ ability to integrate new solutions seamlessly. Additionally, financial institutions, particularly custodians, have traditionally been conservative, prioritising compliance over innovation. “The weight of regulatory risk has historically stifled innovation,” he noted. “Firms have been hesitant to disrupt existing processes due to concerns about compliance failures.”

However, there is evidence that this mindset is shifting. The industry is beginning to recognise that maintaining the status quo is no longer sustainable. Sankar pointed out that while change has been happening, the challenge has been the speed of transformation. “There’s no lack of commitment to improving account opening,” he said. “The problem is that the sheer scale of the task has made it difficult to execute efficiently.”

The role of technology

The panellists agreed that leveraging technology is the key to overcoming these challenges. By integrating automation, data analytics and cloud-based solutions, financial institutions can streamline processes, reduce costs and enhance client experiences.

Maxwell illustrated this point with an analogy: “If I want to order a takeaway, I use Deliveroo. They don’t cook my food, but they have the infrastructure to connect me with the restaurant, process payments, and provide real-time updates. This level of transparency and efficiency should exist in custody account opening. Why should we tolerate inefficiencies in our professional lives that we wouldn’t accept in our personal lives?”

To achieve this level of seamless integration, the panellists highlighted how industry must focus on three key areas.

The first is around interoperability and API connectivity, ensuring that all market participants, from buy-side firms to custodians and sub-custodians, can communicate efficiently through standardised data models and APIs.

The second is around the digitisation of documentation - transitioning from manual document handling to automated data extraction and validation processes to minimise errors and improve processing speed.

And finally, cloud-based solutions – which was championed by McNally in particular who highlighted the benefits of the cloud’s scalability, security and seamless integration. Leveraging the scalability and flexibility of cloud computing can help the industry break down data silos, enhance security and drive real-time process improvements, he said.

McNally went on to emphasise that regtech solutions and AI-driven platforms are already making a difference.

“AI-powered tools can scan and interpret regulatory changes in real-time, flagging compliance requirements across jurisdictions,” he explained. “Smart contract technology can enforce compliance rules during onboarding, further reducing risk and inefficiencies.”

Overcoming barriers to adoption

Despite the clear benefits of technology, adoption remains a challenge, with budget constraints being the primary barrier. The industry must take a long-term view, recognising that investments in technology yield significant returns over time.

Sankar added that buy-side firms must also be reassured that integrating with new digital solutions does not require significant effort or disruption. “We’ve built solutions that offer multiple points of entry – whether through APIs, third-party integrators, or dedicated user interfaces – so that clients can connect in the way that works best for them.”

As the discussion drew to a close, the panellists agreed that transformation will require industry-wide collaboration. Historically, firms have developed solutions in silos, but there is now a concerted push to work together.

“We need to stop viewing custody account opening as a competitive differentiator,” Sankar said. “It should be a standardised process that benefits the entire industry.”

Maxwell echoed this sentiment, urging the industry to be proactive: “Be brave. Be curious. Look for solutions that challenge the status quo. If we don’t evolve now, we risk being left behind.”

With regulatory expectations evolving, client demands increasing and technology advancing at an unprecedented pace, the time for action is now. Those who embrace digital transformation will not only drive efficiencies but also enhance their competitiveness in an increasingly dynamic market.