APIs in securities services. Creating an industry standard

APIs (Application Programming Interfaces) are becoming a key part of our industry’s digital transformation. But what are they and how exactly are they being used?

APIs in securities services – creating the industry standard

APIs (Application Programming Interfaces) are becoming a key part of our industry’s digital transformation. But what are they and how exactly are they being used?

Put simply, APIs are codes that are utilised by computer systems to communicate in ‘conversation mode’, asking questions and obtaining answers in real time. Basic interoperability programmes supporting information exchanges can be traced back to the 1960s[1]. Yet the growth of APIs in the last decade has been nothing short of astronomical. Aside from improving connectivity, APIs can help companies augment user experiences and acquire insights into customer behaviour[2]. The technology giants (i.e. Facebook, Google) were the first to spot the commercial opportunities of APIs but the financial services industry has followed suit with 75 of the top 100 banks now operating API platforms[3].

Harnessing the power of APIs

The challenges of interoperability, complexity, along with the search for efficiencies are well documented in our industry and whilst APIs may not be a silver bullet, they can provide a powerful tool to allow securities services providers to deliver increased value to clients if adopted effectively.

Firstly, we can look at the volume of data exchanged between organisations in the post-trade industry and the increasing need for information to be made available in near real time. Many large firms, including BNP Paribas Securities Services, have invested in the underlying building blocks to aggregate and deliver data. They have optimised data governance, quality, lineage and security, putting firms in an ideal position to leverage APIs to unlock data in real time.

The challenges that come with the growth in complex asset classes have provided the need for new data feeds to facilitate this expansion. Whilst in the past, technological change could not always keep up with growth; we believe service providers are better placed to deliver on new data requirements in a flexible, efficient and timely manner – ultimately helping to reduce risk for clients.

The old joke is ‘Faster, better, cheaper. Choose two of the above.’ In the securities services industry, we are seeing a real drive for efficiencies, improved customer experiences and faster processing times. While significant progress has been made to improve straight through processing rates and reduce breaks through the use of Robotic Process Automation, Artificial Intelligence and Machine Learning, there are still process areas that rely on traditional phone and fax for information exchange. System-to-system communication and real-time status updates via APIs provide a potential low cost route to further enhance efficiency while delivering improved experiences to customers.

Collaboration is key

The API Programme at BNP Paribas Securities Services has been developed by working hand-in-hand with our clients. This has ensured a strong focus on delivering real solutions to our clients’ key pain points. To date we have prioritised our API investigation and delivery in areas such as NAV Calculation and Distribution, Settlement Instruction and Settlement Status, Corporate Actions as well as exploring how APIs can help with regulations such as SRD II and CSDR.

Of course, driving product or technology innovation within the confines of a single business is one thing. Creating a sensible framework allowing these technologies to obtain mass market adoption is an altogether different challenge. If emerging or disruptive technologies are to achieve scale, they will need to be underpinned by not only the same levels of security and resiliency as existing channels, but adhere to robust albeit flexible standards.

At present, client access to data at their various counterparties is not homogenised, meaning users receive proprietary information in multiple, unique formats. This adds to customer costs, complexity and risks, acting as yet another barrier to achieving interoperability. In a recent BCG survey of asset managers, 70% of respondents stated that they were concerned about API interoperability when exploring API solutions with their providers.

Setting the standard

Only through a single, industry-wide API standard will the benefits of this technology be fully realised. Standardisation will outline the principles, methodologies and data definitions covering the ways in which information is exchanged or relayed across clients and their service providers. A standardised set of rules will help reduce the risk of inaccurate data being disseminated while simultaneously streamlining the procedures by which firms collect, aggregate and use data. Such standards must also include guidelines covering data governance so as to ensure APIs comply with global regulations and rules.

Any harmonisation of API standards will undoubtedly accelerate with the involvement of organisations such as SWIFT. SWIFT has played an instrumental role in promoting standardisation across global securities markets over the last few decades, most notably in its efforts in supporting the delivery of uniform financial messaging standards through ISO 20022. In fact, SWIFT is already involved in API standardisation discussions, having recently published a blueprint for common API standards following engagement with various European banking standards bodies, STET and NextGenPSD2.

To this end, BNP Paribas Securities Services is already partnering with SWIFT to standardise our API catalogue to ISO20022 as a first step to help drive API standardisation.

APIs: What comes next?

APIs have the potential to significantly transform current market practices, and how our industry processes data and provides services.  However, unless API processes undergo standardisation, the sharing and use of data will continue to be inconsistent and open to misinterpretation.

The establishment of an API standard will be dependent on the industry working together. Assuming this industry consensus can be reached, API technology will become even more engrained in the securities services ecosystem and has the potential to unlock new value for all participants. The tech giants have proved the use case for API adoption; now it is the turn of our industry to work together for the benefit of all our clients.

[1] API Economy. Deloitte. Accessed at https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/technology/deloitte-uk-api-economy.pdf
[2] Evolution of the API Economy. IBM. Accessed at https://www.ibm.com/downloads/cas/XG8RYO63
[3] White Paper. APIs in Securities Services. BCG. SWIFT. Accessed at https://www.swift.com/news-events/news/new-swift-and-bcg-report-says-securities-industry-ripe-for-apis