Global Custody Market: At the Crossroads

by Anshuman Jaswal, PhD, July 31, 2012


The role of custodians is coming under increasing pressure from other parts of the securities services value chain. Until recently, custodians existed in a comfortable, symbiotic relationship with central securities depositories (CSDs) and prime brokers. But this status quo has been disturbed, with both custodians and CSDs needing to rethink their business models in line with market evolution.

The leading custodians have evolved over the last two decades into an important element in the securities markets. They are very big institutions with trillions of dollars’ worth of assets under their custody across the world. However, some recent developments mean that custodians and their operations are coming under greater scrutiny. Their clientele and regulators have both been demanding higher levels of transparency and accountability, placing increased pressure on their operations. A number of regulations are also expected to affect this market. These would reduce custodians’ business opportunities as well as their potential sources of revenue, while increasing compliance costs. In a new report, Global Custody Market: At the Crossroads, Celent looks at the recent development of the global custody market and discusses its future evolution in the aftermath of the financial crisis.

In terms of the level of market concentration in the global custody market, the top three firms control 67% of the market, while the top 10 firms together control 91% of the global market. Although the level of concentration is similar to levels a decade ago, we are now seeing a decrease in the number of players in the global custody market due to consolidation and the financial crisis, resulting in less choice for consumers.

“Global custodians have to rework their value proposition in this tough economic environment,” says Dr. Anshuman Jaswal, Senior Analyst with Celent’s Securities & Investments Group and author of the report. “The requirement for ring-fencing clients’ assets, as well as the demand that custodians take more responsibility for their subcustodians’ operations, means that there will be higher costs incurred by custodians.”

This report studies the current role of custodians in the securities market value chain. It discusses the level of market concentration and the recent performance of leading custodians globally. The report then provides an analysis of the leading industry trends, followed by a look at the re-emergence of outsourcing as a potential business opportunity for custodians. The impact of the requirement for greater accountability and transparency is analyzed in the last chapter.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary




Market Overview



Leading Trends in Global Custody Markets


Re-Emergence of Outsourcing by Asset Managers



Advantages of Outsourcing for Asset Managers


Accountability and Transparency Issues




Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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