Justin Chapman is the global executive for securities services and the global head for market advocacy and innovation research at Northern Trust. As part of his remit for the securities services business, he is responsible for capital investments in the core systems, and technology used to deliver client products, and execution of new models. On the advocacy and innovation side, he works with regulators, governments, central banks, and associations to discuss new business models and opportunities. We caught up with Chapman to discuss how Northern Trust tackles innovation, what he believes are the key changes in the securities servicing industry, and how the organisation is approaching challenges around data.
What is Northern Trust’s approach to innovation?
On the innovation and research side, I’m funded separately to the rest of organisation in terms of developing demonstrable value and disruption for external business models and internal business models through deployment of technology and innovation.
I can do joint ventures, I can invest in companies, I can build technology, I can do different adjacent businesses. We get much more free rein in terms of innovation, but it is all business driven. It is all driven with a value proposition in mind, where I or one of the other executives will sign up to a value proposition, I will invest in that business technology or company to demonstrate the value as a hypothesis, and if we demonstrate that value, we then take it forward in either the business line or independently run that as a company separately. So, it is very different in terms of innovation than what you would see from an organisation that creates a lab. We do proof of value, we don’t do proof of concepts which is a very different animal. It absolutely comes out with a business outcome, or a client outcome, or a demonstrable risk reduction, or something that is truly impactful moving into the business.
On the market side, I have the market strategy for our 103 markets, so that is how we access exchanges, issuers, central securities depositories, central counterparty clearing houses, other banks or financial intermediaries and who we select as providers in those 103 markets. Also, that is changing at the moment. We are seeing a growth in the number of markets in the digital market space. We are starting to see things like bond markets appearing where you can have digital issuance of assets, and they operate very differently and have different access points, different liquidity points for our clients. The view is that over the next three or five years there will be significantly more markets in the current stack, but sometimes more competing markets with different types of products sets, different client basis, and different profiles in terms of how assets are issued for the end financial institutions.
Do you see a convergence in focus between advocacy and innovation?
It is absolutely critical. Interestingly, the advocacy and innovation research group started out as an advocacy group not an innovation group five or six years ago, post the Lehman Brothers, trying to look at all the implications of the regulatory changes. We were trying to make sure that there was sensible regulation, that was practical, implementable, and would deliver safety to our clients. But the more our advocacy moved on, the more technology influenced the potential models. What we don’t want to have is regulators regulating technology, that kills technology. What we really would like to do is make sure that when we think about new models and operations the regulator sees the benefit of the return on the regulatory environment as well.
If you think about new ecosystems and how things work and are put together, sometimes the business model changes so the regulator needs to look at the activity rather than the companies doing the activity sometimes to make sure that we are keeping to the same standards. A good example is the cryptocurrency world at the moment which is an unregulated market in structure. You have an exchange that is a market maker, a broker, and a custodian. In any other market structure would never have that in one concentrated entity because of the risk associated with doing that, you would need Chinese walls and you need safety.
How are you navigating challenges around data?
The problem is with data in our industry it’s either inaccurate, not very timely generally, or is very costly to maintain and keep fresh in one particular location. So the trend for what we call data lakes, and simulation of data warehousing is good because it is the only way to get the information you need, but it is quite challenging to keep that fresh and updated and then run the appropriate insights over that. Also, you only have the subset data that is given to you for that particular instant. There is a valid set of products that we offer around that sort of structure, but if you think about the future, I would much prefer services on data than data as a service, because actually what the intelligence is, is the ability to have something that will go get data at a real time in point and deliver an outcome that gives value rather than the ability to store data and produce a report of X.
This is why AI is more important because actually what you can do is have impact analysis, you can have trends, you can even create consequential requests for further data based upon triggers that you build into your algos.