The Future of Custody Services: Driving Relevance And Value In A Transforming Landscape

As East Africa’s financial markets continue to evolve and align with the global trends, the importance of securities settlements is becoming more pronounced. Initially seen as mere back-office operations, these services are now acknowledged as key considerations that bolster investor confidence and stimulate economic growth.

With projections indicating that Kenya’s pension sector could surpass Ksh. By 200 trillion (roughly $1.8 trillion) by 2040, it is imperative for custodians to innovate and evolve continuously.

This global trend of positive trajectory in the custody space is evident, with assets under custody expected to reach around $60 trillion by 2025. Locally, the Retirement Benefits Authority periodic reports indicate that assets under management grew from Kes 1.398 trillion in Q1 2020, soaring to over Ksh. 2.3 trillion as at December 2024, a remarkable 64%% growth for the last 6 years.

On the other hand, the capital markets space grew at an even quicker pace. The total assets under custody in the collective investments schemes space grew from Kes 76.3 billion in Q1 2020 to 496.2 billion in Q1 2025, a + 500% growth in the last six years. This positive growth projected by these two industries presents custodians with enormous opportunities to showcase expertise, innovate, and provide enhanced product offerings that are agile and aligned to today’s fast-evolving investment industry.

The growing institutional demand for reliable custody and securities solutions underscores the necessity for these services, particularly as investment portfolios respond to an increasing demand in the alternative investments space, specifically virtual assets and tokenization..

To stay relevant in this dynamic landscape, custodians must adopt a multifaceted strategy. Embracing advanced technologies is crucial, as investors now expect real-time access to their portfolios and transactions. This has prompted custodians to adopt innovations such as blockchain and artificial intelligence, which can improve operational transparency, streamline processes, and reduce inherent risks, ultimately enhancing service delivery.

Additionally, custodians need to provide more than just asset safekeeping. Modern investors are looking for partnerships that offer valuable market insights, effective risk management, and tailored solutions. By introducing clients to alternative investment opportunities, like green bonds or impact funds, custodians can set themselves apart in a competitive marketplace while promoting social impact through their investment offerings. The rising emphasis on environmental, social, and governance (ESG) considerations suggests that custodians who prioritize these factors can contribute positively to the environment and create a more sustainable future.

Compliance with regulatory standards is crucial for building and maintaining client trust. As financial markets continue to evolve, so do regulatory frameworks. Custodians who actively engage with regulators and stay informed about legal changes will be better positioned to adjust their services accordingly. This proactive approach not only safeguards clients’ assets but also cultivates the necessary trust, an essential quality in an increasingly complex financial environment.

Furthermore, collaboration among industry stakeholders is key to enhancing custody services. By working closely with regulators, financial institutions, industry associations, and professional bodies, custodians can help create an ecosystem that fosters innovation and progress while maintaining professionalism and globally accepted practices and standards. Additionally, prioritizing investor capacity-building initiatives is vital. For instance, during the recent launch of the Absa Custody Business, the forum brought together industry regulators, pension administrators, institutional investors, fund managers, and members of the third estate. Such platforms facilitate dialogues on current and emerging trends, investor needs, challenges, and possible innovations in technology and regulatory space to address these concerns.

The surge of digital assets further underscores the need for custodians to innovate. For instance, as cryptocurrencies gain traction in East Africa, custodians must develop solutions that mitigate the unique risks associated with these assets. Implementing secure solutions for digital registers and offering tailored insurance coverage can attract tech-savvy investors looking for reliable partners in this new landscape.

Overall, the future of custody and securities services in East Africa hinges on custodians’ ability to provide enhanced value through innovation, transparency, and adaptability. By embracing advanced technologies, nurturing strategic partnerships, adhering to regulatory standards, and expanding educational initiatives, custodians can significantly contribute to economic growth and attract further investment.

Looking ahead, the outlook for these services is promising, with assets under management projected to increase by an impressive Ksh. 50 billion each month. This rapid growth presents an attractive opportunity for leaders in the sector. Absa aims to be a key player in this space by offering customer-centric solutions, facilitating seamless cross-border investments, including leveraging our Euroclear capability for access to foreign currency Eurobonds and gold Exchange Traded Funds. Our strategic partnerships with leading global fund managers and custodians also present exciting opportunities for clients seeking to hedge risks with foreign currency-backed investments in offshore markets. Alternative investments.

As the industry continues to evolve, it is our responsibility to ensure that we align with the future and consistently deliver value to our clients and investors.

Read Also: Absa Bank Launches Custody Business In Kenya

Timothy Ndemwa is the Head of Custody Business, Absa Bank Kenya