Stop patching fragmented systems: why depositary banks must invest in integration and automation

By Paolo Maceratesi, CEO of Armundia Luxembourg

The hidden cost of fragmented systems

Luxembourg depositary banks managing Alternative Investment Funds face a paradox. Assets under custody have grown from $17 billion in 2018 to $100 billion in 2024. Regulatory expectations have intensified: CSSF and ESMA now require ESG verification, enhanced supervision of illiquid assets, and complete audit trails across increasingly complex structures spanning private equity, real estate, debt, and OTC derivatives.

Yet most depositaries manage this growing complexity using the same fragmented systems they relied on ten years ago: one software for master data, another for transactions, spreadsheets for controls, emails for documentation. When problems emerge—a failed regulatory check, a missing document, a manual reconciliation that doesn't balance—the response is always the same: add another patch, another manual process, another verification.

This "continuous patching" strategy carries costs that depositaries systematically underestimate. It's not just the time lost to repetitive manual activities. It's the operational risk that grows with each new layer of complexity. It's data quality deteriorating as information travels between disconnected systems. It's human capital—experienced teams—consumed by low-value activities instead of being invested in client relationships, strategic analysis, business development.

From patches to strategy: rethinking technology investment

The problem isn't lack of technology investment. Depositary banks are spending. The problem is they're spending reactively—to solve emergencies, plug gaps, add manual controls—rather than strategically.

The difference between reactive spending and strategic investment is clear. Reactive spending adds complexity to existing systems. Strategic investment removes complexity by replacing fragmented processes with integration. The former increases operational costs over time. The latter reduces them measurably.

When a depositary bank decides to invest in integration and automation, results are documentable. A Luxembourg depositary that replaced fragmented systems with an integrated platform measured the impact after two months of implementation: 40% reduction in onboarding times, 65% reduction in email usage for operational activities, 50% reduction in document management times. Manual errors in controls decreased by 90%. Audit effectiveness improved by 50% thanks to real-time audit trails. The overall result: 50% reduction in operational time and effort.

These aren't marginal improvements. These are transformations that free resources to grow, innovate, compete.

Integration and automation to liberate people

The most common misconception about automation is that its objective is reducing headcount. This perspective is shortsighted and counterproductive. The real objective of automation is liberating people from repetitive, low-value activities to focus them on what machines cannot do: building relationships, making strategic decisions, interpreting complexity, innovating.

A depositary bank managing alternative funds today employs experienced teams in activities such as: copying data between different systems, searching for documents in email archives, manually verifying whether received information complies with investment policies, reconciling data between disconnected platforms. These activities consume time, generate errors, produce frustration. Above all, they subtract time from what creates value: analyzing market trends, anticipating client needs, proposing innovative solutions, developing new services.

Integration and automation shift the balance. When master data, transactions, regulatory controls, and documentation reside in a single integrated platform, manual verifications become automated controls. Manual reconciliations become automated reconciliations. Searching for documents in email archives becomes a document suggestion system that indicates in real-time what's needed for each workflow. Errors from manual data entry disappear. The freed time is reinvested in strategic activities.

This approach doesn't eliminate people. It empowers them. A team that shifts from spending 70% of time on manual activities to 70% of time on strategic activities is a more effective, more motivated, more competitive team. It's also a team that generates greater value for the bank and for clients.

The modular approach: evolution without revolution

The recurring objection when proposing to replace fragmented systems with integrated platforms is the complexity of change. Depositaries fear "big bang" transformation projects that block operations for months, exceed budgets, fail in implementation.

The answer is the modular approach. Instead of replacing everything at once, banks can activate specific modules based on operational priorities. A depositary can start by centralizing master data, then add automated regulatory controls, then integrate document management. Each module can operate stand-alone or integrate with existing legacy systems.

This approach reduces risk by enabling gradual implementations, tested and verified before proceeding. It reduces costs because banks only pay for modules they activate, when they activate them. It reduces complexity because each module solves a specific problem without requiring replacement of the entire technology stack.

Modular architecture also enables adaptation to evolving volumes and requirements. When a depositary acquires new funds or expands into new asset classes, it can activate additional functionality without rebuilding infrastructure. When regulations change—and they change continuously—the platform adapts by automatically generating new reports and controls.

Invest now to compete tomorrow

Luxembourg depositary banks operate in a market that's growing rapidly but eroding margins. Core custody services are perceived as commodities. Competitive differentiation shifts to operational efficiency, service quality, ability to innovate.

In this context, continuing to patch fragmented systems is not a sustainable strategy. Each patch adds complexity, increases operational costs, consumes human capital on low-value activities. Depositaries that invest in integration and automation reduce costs, improve service quality, free resources to innovate.

The question isn't whether to invest in integration and automation, but when. Depositaries that act now build measurable competitive advantage. Those that wait accumulate technological and operational debt that becomes increasingly expensive to resolve.

The time to stop patching fragmented systems is now. The time to invest in integrated platforms that liberate people for strategic activities is now. Depositaries making this choice aren't just reducing costs—they're building the foundations to grow, innovate, and compete in the alternative funds market of the next decade.