As part of this , Delano asked nine professionals in Luxembourg’s financial sector how digitalisation has been changing investing. We sat down with , senior vice president and Luxembourg branch manager for State Street, to hear more about the topic.
“I would say there is a mixed view on what has been going on in the digital space and how the various actors are effectively embracing what was originally called a ‘digital revolution,’” Lamanna began, noting that he was providing his view as a service provider. This revolution, he argued, is now becoming more of “a ‘digital evolution’ of the financial market.”
“What we see is that the market is moving relatively slowly. The expectation is that digitalisation--which is looking at the interoperability between digitalised financial instruments versus the traditional financial instruments--is far from moving fast. It’s moving steadily, but certainly not fast,” he said. And “the resource allocation that is being put into digitalisation is not really ramping up.”
Moreover, “we see a difference between North America and the rest of the world,” Lamanna argued. “North America seems to be moving much faster than Europe as well as Asia.”
Different ways of “embracing” digitalisation
Financial sector players are also “embracing” digitalisation in different ways, he said. “Some actors are hiring people and putting them into a separated, digital division. There are others who are hiring experts in digital and aligning them with their core proposition as they see digitalisation being an integral part of the strategy, rather than being a specific digital division.”
The latter, Lamanna argued, is the view of a provider like State Street. “We believe that--on the back of the requests which are coming from our clients and what we observe on the market--it is better for us to have digital experts in the core services and core products to help them evolve [and] align along with the needs that are coming from our clients.”
Read also
“There are also other organisations that are asking third parties to help them to develop their strategy--so they’re not really spending money internally.” An additional category is the category of “companies that are retraining some of their people to be more effective and aligned with digitalisation.”
For Lamanna, there are a few key points when it comes to digitalisation in the financial sector. “It’s not a revolution, but it’s more an evolution. It’s steady--so no one is going to stop it.” Third, “there are different models that various actors that are adopting when it comes to getting ready for digitalisation.” And in terms of geography, “North America seems to be more advanced.”
More transparency, more efficiency, lower costs
Based on what State Street is hearing from its network and the people it interacts with, digitalisation comes with several benefits.
“There is an expectation which is coming from the market that the adoption of digital trading and interoperability between traditional financial instruments and digitalised financial instruments will give us more transparency, more efficient trading, as well as lower costs,” he said.
There is still a feeling of lack of regulatory clarity and consistency of interpretation from the various regulators across the different countries
“On the other side, it seems difficult--at the moment--to fully exploit those benefits, as there is still, I would say, constraints and concern on cybersecurity, in particular on the buy side,” Lamanna added. “It’s difficult to adopt public platforms, with respect to private platforms, where the reputation of the provider of the platform is still considered a very important element from a cybersecurity [perspective]--and security in general--of the infrastructure.”
“There is still a feeling of lack of regulatory clarity and consistency of interpretation from the various regulators across the different countries,” he said.
Asset managers more hesitant when it comes to digital assets
When it comes to “organisational type,” it looks like “asset managers are more hesitant than other organisations” like asset owners or insurance companies to adopt and ramp up efforts related to digital assets, said Lamanna. “The environment is difficult to navigate. There are still resistances in some actors to access permissionless networks--so, public networks--and others are preferring private permission networks.
“And if you think about it, all of this makes it more difficult to have interoperability across the various private networks, as well as between public and private, but also between traditional and digital.” This is “effectively slowing down” the development of the digital space.
Smaller companies lagging behind
What State Street has also observed is that “large companies are far ahead of smaller companies.” Larger companies are more likely to have dedicated teams or business units working on digital strategy, while smaller companies (not fintechs, but “typical intermediary actors that you see on the market”) are lagging behind.
Actors with less than €10bn in assets under management, based on State Street analysis, would be more likely to say they have not invested in digital assets, cryptocurrencies or even funds that have embedded digital assets, said Lamanna. “Asset managers or investment managers with over €100bn are much more inclined to tell us that they have invested into funds [with digital assets] or directly into digital assets.”
The observations, therefore, are mixed. “Probably asset managers are more hesitant--or less ready--because they don’t yet see such a big demand coming from their clients, so they don’t really think that this is a priority. They see it coming in the future, but not as a priority with respect to what their clients are asking for.”
Challenges at the juncture of a traditional and digital world
State Street, as a service provider, is “looking at integrating digital into our main products,” said Lamanna. “We have started with a dedicated digital division, and we have progressively looked into integrating and having digital experts and digital strategy in each of our products,” thus boosting synergies and meeting client demands.
“The biggest challenge that we face--as a big custodian--is the ability for our clients to hold digital assets which are sitting in different networks, and seeing them consolidated in one single place.”
The industry is at a juncture between the traditional and digital worlds. “We want to be ready to serve assets which are digitalised--or digital native--as well as at the same time serving traditional assets. Our clients are asking us to continue to do both.” As a result, “the challenge for us is clearly to have a consistent reporting and consistent methodology for digital assets versus traditional assets to satisfy our clients. And in this respect, investment in technology becomes totally clear,” whether it’s moving applications to the cloud or adopting applications that are ready for trading and managing digital assets.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .
An alternate version of this article first appeared in the .