Custody in transition

New forms of collaboration and partnering between investors, custodians and CSDs are emerging as a consequence of new technology and new regulatory frameworks. Are the value chains in custody breaking up? Will custodians become CSDs? Will CSDs become custodians? Whatever the answer, VP SECURITIES is ready for innovation in the Nordics, and the first steps have already been taken.


"Un-bundling” and “de-construction” are some of the words you come across when you search the Internet for banks and the future role of custody. By 2025, HSBC foresees*, that “Custody responsibilities will be divided into processing and servicing. Processing will be commoditized and low margin. It will not be limited to custodians and could be handled by specialist providers or industry utilities.” It seems likely that the custody industry will look very different in the future, and in this changing landscape new partnerships and new innovation will see the light of day. European constellations have emerged, such as Northern Trust and State Street partnering up with Deutsche Bank* and Euroclear, and UBS partnering up with Citi* and Clearstream. VP SECURITIES invites custodians and other market participants to innovative new steps and extended cooperation both for Denmark as a home market and also for the entire Nordic region.

“We will see closer cooperation with custodian banks, providing new added-value services to them and subsequently their underlying customers,” says Head of Custody & Settlement Products Martin Nadel from VP SECURITIES. “One of the most important drivers of this change is investor protection, and therefore connecting directly to the CSD and being able to settle in central bank money will be an attractive way forward, as these steps will significantly reduce counterparty risk. This will result in changes in custodian banks and their value proposition, as they offer more bespoke and unbundled services, and become more specialised in their offerings.

CSDR and greater harmonisation

VP already delivers dual reporting, which means that the same set of data is delivered directly to the next link in the value chain. This is just one first step indicating that the role of custodians is in transition. Technology in general and the European T2S infrastructure in particular are enabling innovation and change in the connections in the global custody landscape. Besides the harmonisation of regulatory frameworks like MiFID II, shareholder rights and CSDR, the business need for increased security and investor protection will drive innovative new solutions. 

VP recently obtained a CSDR licence as one of the first CSDs in the EU. From now on, VP will be regulated by a European framework and by the new Danish Capital Markets Act. The intention of CSDR is to harmonise the market for CSD services, improve settlement efficiency, increase safety for investors and liberalise the CSD market. This is all driving competition. For market participants, this provides the opportunity for more extensive cross-border issuance and settlement. Even though VP works within this international framework as a CSD, VP did not apply for a banking licence, emphasising its ongoing commitment to the role as a valuable partner for Nordic and international banks.

More diversity and choice

“Basically, we see a wide range of opportunities to support transformational change in the custody landscape. The need for investor protection, core banking services and risk mitigation is unchanged, and the common goal for CSDs and custodians will be to deliver more value to investors and their advisers. In the future we will probably see greater diversity and more choice related to custody, also due to a competitive landscape made possible by CSDR, for example,” says Martin Nadel.

While custodians have a core value proposition in the form of local market services and expertise in such areas as asset servicing, tax and local regulation, CSDs have a key role to play as providers of reliable and efficient processing. Digital services to support customer needs is the natural common ground where new innovation is likely to be fuelled by increased global competition.

“So this brings us back to the intro and the questions. Yes, we think that the custodial value chain will be breaking up. CSDs such as VP SECURITIES, in close cooperation with existing clients, will be able to deliver services and an improved set-up that supports the need for further safety and efficiencies. At the same time, no, we don’t see ourselves becoming custodians. And in the same way, we don’t foresee that custodians will become CSDs,” concludes Martin Nadel.

*Extra material:


T2S roll-out: opportunities and challenges for users

The final piece of Europe’s custody puzzle

Game Changers - Future Trends in Securities Services

Henrik Høj

Senior Relationship Manager

+45 2969 2860
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Collaboration with pan-Nordic banks and supporting the Nordic Capital Market is key to our joint success

- Henrik Høj, Senior Relationship Manager