Deutsche Bank Securities Services has successfully piloted a solution using distributed ledger technology (DLT) to enable further automation of custodial services. The solution addresses the transparency requirements within many custodial services, such as around the tax processing of asset holdings at an ultimate beneficial owner level, and streamlines complex data and reconciliation processes for both the bank and its clients.
Currently, this level of information is not generally disclosed to, or captured by, sub-custodians, with data provided in spreadsheets as and when needed and across multiple levels of disclosure. This leads to the manual collation of data and reconciliation challenges for the counterparts in the value chain.
Deutsche Bank’s solution allows for sharing of the same information to authorized counterparts, removing duplication and, at the same time, permitting access to the beneficiary details to the relevant party only. Importantly, the solution will function without disrupting the effective omnibus settlement account structure currently in place – which hugely benefits global custodians and/or counterparts up the value chain – minimizing the impact on current infrastructure and operations.
The first implementation of the solution will help reform the shareholder information disclosure in Europe for global and sub-custodians, as set out in the Shareholder Rights Directive II, followed by tax processing automation and further product build-out. After initial implementation in Europe, the solution will subsequently be rolled out to other regions in which Deutsche Bank Securities Services operates.
Going forward, it could also be used by broker-dealers to provide desk-level transparency, especially important as the industry becomes more focused on disciplining inefficient trade settlement performance through measures such as settlement failure penalties, as stipulated in the Central Securities Depository Regulation.