Northern Trust offers internal fund accounting, data tools to clients

Custodian bank Northern Trust is building tools to improve oversight and transparency in the services it provides to its buy-side clients.

The objective is to help asset managers meet their obligations to regulators and their end investors. Though these obligations have always existed, they haven’t necessarily been a priority in conversations with asset managers, says Caroline Higgins, Asia-Pacific head of global funds services at Northern Trust. The bank aims to change that.

“For example, in fund accounting, we have tools that allow us to complete our oversight of our activities that evidence that. Our clients are looking for us to deploy that same tool to them so that they’re overseeing the exact same data and the same controls that we are using as part of their oversight of us. By giving them access to the same data and some of the ways we do it, they’re actually evidencing our process and our controls. Historically, they would have just been evidencing the output,” she tells WatersTechnology.

Some of the controls within fund accounting include tolerance checking and managing outstanding reconciliation items.

With the latter use case, clients would be able to see in real time what those reconciliation items are, what was still outstanding when Northern Trust produced the net asset value (NAV)—used to represent a fund’s value—and whether the commentary around those reconciliations was correct, as well as whether they were accounted for correctly.

Higgins says some clients are working on this with Northern Trust in Europe, and the firm will roll it out more extensively over the next 12 months. For now, clients will access these tools via Northern Trust’s existing portals, but in the future, they will access them through Northern Trust’s data mesh.

Our clients are looking for us to deploy that same tool to them, so that they’re overseeing the exact same data and the same controls that we are using as part of their oversight of us

Caroline Higgins, Northern Trust

“Once we roll out the fund accounting, we can probably see clients looking for other ways they can oversee different types of activities, whether that’s flows for transfer agency, investor flows or investor activity. And secondly, how they access overall data for their own internal purposes, which could be for consolidated reporting or outputs for their own investors,” Higgins says.

In May, Kelley Conway, executive vice president and head of corporate and digital strategy at Northern Trust, told WatersTechnology that the firm is building a cloud-based data marketplace and may make it available as a data source to external clients.

As of May, Northern Trust had populated the marketplace with some of its internal transactional data, some of its reference data, and some external data via Snowflake, one of its cloud partners in the project.

Northern Trust also uses Microsoft’s Azure cloud, along with elements of Collibra’s data intelligence platform. The marketplace front-end was built in partnership with data mesh specialists Esynergy, although the bank has taken over full development and maintenance of that.

The idea for the marketplace came from Conway seeing other firms adopting data meshes before she joined Northern Trust in 2021.

“While I was at Accenture, I saw companies moving onto a data mesh construct, and I was intrigued by it because it pushed the ownership of data away from the technology organization and into the business and operations. To me, that’s always been an issue, because the business side asks tech for data, then says the data is wrong—well, that’s not the tech organization’s job,” she told WatersTechnology.

Northern Trust first envisaged the marketplace as internal, but then began thinking about using it externally as well. To do that, Conway said the firm would need to spend more time on security and control features before making it available to external clients.

Buy-side firms are increasingly looking for more insight into the processes they outsource to custodian banks like Northern Trust. This is in line with findings from the 2024 edition of Northern Trust’s asset management survey, which found that the top two strategic priorities of asset managers over the next two years are to enhance quality and accuracy, and to improve investor experience.

This is a change from previous surveys, which indicated that cost control was the top priority for asset managers, particularly in the aftermath of the Covid-19 pandemic.

Higgins says asset managers are adopting a more defensive strategy now. Keeping an investor and deepening an existing relationship takes precedence over finding new business and costly onboarding measures.

“We are seeing the push both from institutional investors and even retail investors, but for institutional investors, it’s really about increasing transparency and reporting because they have a lot of obligations to their underlying investors,” she says.

At the heart of that is the heightened significance of data and analytics. Asset managers typically take data from multiple sources, and are now looking for more consistency and transparency so they have more oversight of the data they’re releasing to clients in turn.

Regulators are pushing for firms to have more oversight of their third-party providers, too.

“You’ll see in some of the regulations that are coming out in Australia, like the Australian Taxation Office (ATO) third-party data [governance] that’s now requiring asset managers when they lodge their data to the ATO, they need to stand over that data, as well as the controls around that data. And then from the CPS 230 regulation, there are requirements around oversight around evidencing the controls of what’s been completed,” Higgins says. 

CPS 230 and ATO guidelines aim to enhance the reporting obligations to build an overall picture so that these organizations can monitor the effectiveness of the system

Nigel Jansz, Invartis Consulting

The ATO third-party data governance applies to superannuation funds, managed funds and insurance companies to ensure accurate reporting of third-party data from sources such as custodians and other outsourced service providers. On the other hand, CPS 230 by the Australian Prudential Regulation Authority (APRA), which takes effect next July, looks at ensuring operational resilience at banks and insurance and asset management companies.

“There’s an overarching theme of you can delegate the activity, but you can’t delegate the responsibility. We are seeing clients move away from being satisfied with a comprehensive key performance indicator-type of report, to really deep-diving into the details and going to the next level and asking, ‘How do you do it? What do you do? I need to evidence that.’ The regulators are holding the manager accountable for the work that they’ve outsourced to ensure the manager can actually stand over the outsourced process,” Higgins says.

This differs from asking whether an NAV is accurate or not—which may have been the end of the question previously. But now, and as Higgins says, when the regulators talk about accuracy, they’re talking about the next step up: confidence in the data and controls.

This could include looking at the calculations, or the controls a firm has over the system and people in the process.

Nigel Jansz, country head for Australia and New Zealand at Invartis Consulting, a management consulting firm for the investment management industry, says one of the biggest challenges buy-side firms face is adhering to regulatory requirements and having the underlying data available to meet those obligations.

“I know that regulatory reporting creates additional [requirements] for these organizations to comply with as they need to have timely reconciled data available to meet these obligations. CPS 230 and ATO guidelines aim to enhance the reporting obligations to build an overall picture so that these organizations can monitor the effectiveness of the system,” he says.

He adds that APRA seeks to enforce these standards by managing the operational risk to improve prudential safety and overall business performance. “It is hoped that through this disclosure regime that participants will build stronger governance and controls, thereby only improving the overall performance of the financial system,” Jansz says.