Thought Leadership

The perfect storm

If you're a depositary or custodian, you already know the drill: annual confirmations looming, reconciliation breaks piling up, and your team buried in spreadsheets trying to verify ownership of increasingly complex asset types. It's the regulatory requirement that nobody enjoys but everyone needs to get right.

Asset verification has become exponentially more complex over the past decade, and three forces are colliding to make it even harder:

- Regulatory pressure is intensifying. AIFMD 2.0 has expanded cross-border requirements. The SEC's proposed Safeguarding Rule would dramatically increase the scope of custody obligations. Regulators aren't just asking for better verification - they're demanding it, with tighter timelines and harsher penalties for getting it wrong.

- Asset classes are exploding. Your team used to verify listed securities and maybe some real estate. Now you're dealing with private equity, infrastructure assets, complex derivatives, digital assets, and loan portfolios. Each requires a different verification approach, different evidence, and different expertise.

- Operational costs are unsustainable. Annual surprise examinations for US RIAs can cost tens of thousands of pounds. European depositaries are spending weeks preparing year-end confirmations. And everyone's hiring more people just to keep up with the workload.

Meanwhile, your clients expect faster turnarounds, your auditors want more evidence, and your board wants to know why compliance costs keep rising.

The window Is closing

Here's the uncomfortable truth: as regulations tighten and asset complexity increases, the gap between firms with modern verification infrastructure and those using legacy processes is becoming a competitive moat.

The depositaries and custodians investing in automation today aren't just reducing costs, they're building capabilities that will be difficult for competitors to match. They're winning new mandates by demonstrating superior operational control. They're attracting talent because their teams work on interesting problems, not mind-numbing reconciliations.

Meanwhile, firms still relying on manual processes are facing a difficult choice: invest in modernisation now, or find themselves unable to compete for complex mandates, unable to attract talent, and increasingly exposed to regulatory risk.

Where to start

The good news? You don't need to transform everything overnight. The most successful implementations start with a focused pilot:

• Select a single fund or portfolio with relatively straightforward assets
• Implement automated workflows for the most time-consuming verification tasks
• Measure the impact on cycle time, error rates, and staff capacity
• Build the business case for broader rollout based on real results

The firms that start today will be ahead of regulatory requirements, ahead of their competitors, and ahead of client expectations.

The firms that wait will find themselves explaining to boards, auditors, and regulators why their operational risk is increasing whilst their competitors' is falling.

Read the full article to explore a modern approach to asset verification on the Circit website.