Q: Financial firms are making significant investments in digital technology to support their operations and clients. For BNY’s corporate trust business, what is your technology investment strategy to support your structured finance debt issuer clients?
Nagel: With decades of experience and expertise across global capital markets, asset classes and transaction structures, we see firsthand how the securitization market is evolving. We are one of the leading trustees of ABS securities and have traditionally been the top provider of auto and credit card backed securities. We are also a major global trustee in the fast-growing CLO space.
ABS issuance has increased 20% in the past year to $332bn, according to GreenStreet, and with this growth we are seeing key developments. There is a growing mix of traditional issuers and new entrants that are innovating such as fintechs. We are also seeing issuance with new and more innovative or esoteric types of underlying assets, which are backed by non-traditional asset types. According to FINSIGHT, the ‘esoteric ABS market’ has increased by more than 40% over the past year and includes royalties, data centers, fiber and cell towers, for example.
In response, we continue to work with clients and innovate. Some of the transactions we have been involved in include working with traditional issuer clients on mortgage insurance linked notes — credit risk transfer securitizations by mortgage insurers — and securitizations backed by new types of cash flows such as music royalties and renewable energy sources. We have also worked with new entrant fintechs on home equity line of credit (HELOC) securitizations.
Our strategy aims to ensure that our product development capabilities and technology roadmap are fully aligned with the evolving state of the market and our clients’ needs.
Q: Of multiple digital investment areas, which have been a priority for your corporate trust business most recently?
Nagel: We continue to invest across the corprorate trust business focused on scale, resiliency and innovation.
Many of our clients, and particularly large financial institutions, are growing rapidly and need to find a trusted partner that can truly enable their growth. The complexity of deal structures is also increasing.
For example, CLO servicing is inherently complex due to the active management nature of its structure and diverse loan portfolios. The sheer volume of loan data requires accurate reporting and robust systems. Similarly, ABS servicing faces new challenges due to the diversity and complexity of underlying assets. As such, we are focused on creating the digital infrastructure that allows them to readily scale. Importantly, it is underpinned by BNY’s financial strength and resiliency.
Another key focus area is innovation and collaboration with fintechs and clients. We have a dedicated team focused on identifying fintech firms and industry initiatives that can enhance our strategic roadmap. We have successfully worked with AccessFintech and others on a range of initiatives such as streamlining and optimizing loan data reconciliation processes and enabling rapid ISIN issuance for clients.
Finally, capital markets continue to evolve towards increased digitization including via digitally native issued bonds aiming to provide investors with faster access to their assets through seamless settlement. We are actively involved in these efforts and proud to have been recently appointed custodian and paying agent for the European Investment Bank’s issuance of a digitally native bond on Goldman Sachs’ digital assets platform.
Q: Some of the greatest interest in technology among financial institutions has been in AI. How is BNY thinking about and investing in AI?
Nagel: BNY is on a multi-year journey with AI. Recent advancements in generative AI and large language models have only reinforced our belief that this technology is transformative, reshaping both how we work and the broader financial industry.
In support of this, we have made a significant investment in this area. We are the first global bank to deploy the NVDIA AI supercomputer. Today, we have a dedicated enterprise team that unites our AI expertise across the firm, enabling us to upskill our employees and responsibly drive adoption of AI technology at-scale.
Within corporate trust, we are dealing with vast amounts of documents and complex unstructured data. We are increasingly embedding AI into our operations for document review, data processing and reconciliation. We maintain much needed human oversight and enable more efficient and accurate anomaly detection, data driven decision making and more. We also see opportunities to develop purpose-built smart assistants for structure finance, which could further scale our ability to support clients and improve our employee experience.
Q: What is on your mind as you look ahead?
Nagel: We are steadfastly executing our current roadmap, yet simultaneously iterating and planning for the future based upon client feedback and market developments. Our goal is to ensure we’re positioned to help clients achieve their financing ambitions, and our investment in technology, talent and capabilities means we are equipped to work with clients to respond and even anticipate their needs as the market continues to evolve.