Despite the millions spent every year on IT, there is still an awful lot of paperwork involved in the custody business. Even where banks have set up networked PC-based systems with their clients, the office fax machine is still kept busy with flashes" about changes in regulatory systems or hot market developments, trade confirmations and much, much more.

It is no surprise then that custodians are looking to the Internet to take some of the load. Many believe that the services currently being provided to clients via other distribution channels, can be delivered over the Internet faster, more conveniently and at a lower cost for both client and custodian.

"The marginal cost of sending a message over the Internet is very low," says Marc Fiore, vice president in charge of Bankers Trust's Web site ventures. "Certain transaction confirmations can be sent over the Net rather than faxed. This greatly lowers costs, especially on international transmissions."

But despite the obvious attractions, Internet use by most major custodians is fairly low key. While a search request for "global custody" throws up almost 400,000 mentions, this includes any reference to either global or custody. The number of Web sites devoted to actual custody operations is negligible.

Most major custodians have a Web site, but many are little more than static advertising hoardings - "this is who we are; this is what we can do for you". In some cases, however, the Internet is being seen as a way of gaining a competitive advantage.

UBS, which admits to having lost market share over the last few years, is poised to go beyond the simple "provision of information" applications. The bank iscurrently running a pilot scheme with a large Zurich-based insurance company using Internet technology to offer a two-way communications link. As well as basic information, the client can access cash and stock accounts, communicate with the account manager and give stock exchange and brokerage instructions.

Marcus Urben, vice president in charge of custody client relations, hopes the system will be available to institutional clients by the end of the year. "We move the data 'Intranet' using UBS's own data network around the world. It is very cheap - the client only pays from his office to his local UBS branch."

Among larger custodians, Bankers Trust is probably more advanced than most. Its Global Institutional Services Division has developed its web site over the past year to distribute up-to-date information to clients. It too has plans to extend its client service capabilities, developing the Internet activities into an interactive information exchange vehicle for global enquiry tracking, a real time channel for the distribution of product information and for virtual conferencing for client advisory board meetings.

Chase Manhattan, is another to have a "clients only" section behind its main Web site. As Midge Donald, manager of Internet developments, explains, "We can send clients up-to-date information on particular markets; operational procedures for making investments, settlement practices, that sort of thing." Clients will soon have access to market risk evaluations, where the risk of doing business in a particular market is assessed based on factors including regulatory and trade practices.

"We are also currently experimenting in using the Internet for downloading data to clients," says Donald. "Based on their ID and password, clients are allowed to take chunks of data, download it and manipulate it in whatever way they want."

The UK's Lloyds Bank Securities Services has one of the more attractive Web sites, with lots of articles and photographs of top executives. At the moment however, it does not have any client-specific applications, although this is something that managing director Wayne Kitcat says they are looking into. Kitcat sees the Internet as having the potential to open up the custody field. "What bedevils the industry is that clients are locked into custodians by their systems. The Internet offers a much more portable way of changing custody arrangements."

While there are still problems with security and reliability, speed remains the major stumbling block. Anyone who has used the Internet will know that, at certain points of the day, it can be very slow. For this reason most moves in the custody area at the moment involve leased "extranet" or ISDN lines.

Like Bankers' Fiore, custodians believe that "The Internet is becoming a very natural way to do business." At the moment however it is just one of many calls on their IT spend. Kitcat has no doubts that the Internet will play a bigger part in the future but points out that the whole industry is facing a massive amount of IT work in the next few years either because of the euro or "Year 2000" considerations. "The Internet will come, but at the moment our focus is on more critical needs," he explains. David Hunt"