There are unlikely to be any major new entrants to the master custody arena in Australia as the impact of the Financial Services Reform Act (FSRA) may see further consolidation, according to the head of ANZ Custodian Services, Philip Dowman.
Dowman says that custody in Australia is looking more and more the natural home of the major banks in circumstances where the implications of FSRA have combined with growing technical complexity to have many of the smaller players reviewing their futures.
“I think many of the smaller players are probably revisiting what it means to be in custody in circumstances where recent changes have made it clear that the large banks are the natural owners,” he says.
It is in these circumstances that Dowman believes there is scope for further consolidation to occur within the industry in Australia.
He points to the exit of the Commonwealth Bank of Australia (CBA) more than a year ago as being indicative of decisions being driven by questions of scale.
The CBA decision to divest its $130 billion fund services business was broadly attributed to the bank lacking the scale and strategic fit.
Dowman says the CBA decision was probably partly attributable to it having a retail rather than a wholesale focus.
“There has certainly been no indication of major new entrants and it seems to me that there may yet be some scope for further rationalisation,” he says.
At least one of the indicators of change occurring in the custody arena has been the propensity of players with a large foothold in administration to outsource their so-called “vanilla” custody operations.
Dowman says, for instance, that ANZ Custodian Services is involved in such arrangements and that it has been working well.
He believes there’s little likelihood of new players entering the Australian custody arena in circumstances where such entry requires substantial scale and where the margins are comparatively thin.
These thin margins, when weighed against the perceived risks, have acted as a disincentive to new entrants.
“People simply don’t see core custody as something which is scalable,” Dowman says.
