As the barrage of new regulations keeps coming, asset servicers must innovate to stay competitive, finds David Stevenson.
European asset managers have been on the receiving end of a torrent of regulation, adding more costs to their business. This is nothing new for their service providers, principally the custodian banking and asset servicing groups.
Many of them, like Jean Devambez, global head of product and client solutions at BNP Paribas Securities Services (BNP SS), see opportunities when managers are hit with further regulation, and not just the additional costs they also have to bear.
What seems to be a trend among the big three asset servicers in France – BNP Paribas Securities Services, Caceis and Société Générale Securities Services – is the desire to offer a ‘one-stop shop’ service for managers.
Joe Saliba, deputy chief executive of Caceis, the asset servicing firm owned by Credit Agricole, says the business offers such a service from asset execution to distribution.
“In terms of the one-stop shop offering it’s very important in the new regulatory environment. So, for example, in the case of derivatives and all the collateralisation that is required, we are making this easier on our clients.” he adds.
The European Markets Infrastructure Regulation (Emir) directive, which concerns derivatives, presents opportunities to Saliba, and to others with the right expertise.
For instance, Etienne Deniau, head of business development at Société Générale Securities Services (SGSS), says his firm has been awarded five contracts in relation to Emir.
For his part, Devambez points to Emir and Ucits V. “If you combine both, you start to have a business case, because on one side you comply with the new regulations [such as the] new request for the position keeping; on the other side you can generate some savings for the asset manager,” he says.
COMPETITION IS HEATING UP
Now that asset managers are lumbered with more reporting requirements and other onerous tasks, how do the three European asset servicing giants stand out to win mandates?
The Alternative Investment Fund Managers Directive (AIFMD) could be considered the gift that keeps on giving for asset servicers, creating a large amount of work for them already. As yet, though, it is difficult to see a clear winner in AIFMD-related mandates.
Deniau claims that SGSS acts as fund administrator for 50% of the alternative players under the AIFMD.
Caceis has created a separate division, PERES (Private Equity Real Estate Securitisation). Meanwhile, Saliba claims that his firm is the leader for alternatives in France and Germany, while in Luxembourg the firm is within the top two and has a good presence in Italy and Switzerland.
But when AIFMD first arrived, the opportunities were not immediately obvious. “When AIFMD came along, it was more like a tax. We said this cannot be helpful or healthy,” recalls Saliba. He decided to get under the skin of the alternative fund industry, hiring private equity specialists to build up the firm’s PERES section.
With AIFMD now firmly embedded in the European fund management industry, Solvency II is going to be the next major regulation when it goes live in January 2016. For some, a first-mover approach will win them business.
“We made the investment two years ago for Solvency II. I wouldn’t be surprised if at the end of the year there is a bottleneck in the market among smaller insurance companies, who will be coming to us,” says Deniau.
Due to the tripartite reporting that the directive demands, Deniau predicts that asset managers will be overwhelmed by volumes and that this will provide opportunities for security services providers. Those who have invested in a strong IT platform will be best placed to serve them.
THE AGE OF DIGITALISATION
If regulation is one disruptive factor in asset servicing, digitalisation is surely another. ‘Adapt or die’ seems to be the message at the core of this evolutionary stage and investments into IT platforms are a way of keeping ahead of the game.
“Digitalisation is a clear trend in France and other markets. [It impacts] asset managers because they’re selling products to investors, and even investors themselves have a strong focus on innovation,” says Devambez.
Deniau, of SGSS, describes how software is enabling his firm to move from back-office services to front-office solutions. He says the firm is getting closer to the front office of asset management by providing software solutions that hold positions and make simulations of transactions. This provides compliance, which asset managers can in turn make use of.
Saliba, of Caceis, foresees the next wave of customers, the millenials, using digital solutions far more often. He anticipates asset managers will take a direct-to-customer (D2C) approach to selling products, just as airlines use their own websites to sell flights. “The asset manager has to become more and more aware about firstly choosing some public distribution and also creating their own distribution channels. For that, we invested heavily into what we call our transfer agency platform, or distribution platform, to allow direct distribution,” he says. “We do everything.”
Devambez has also noticed this move into a B2C environment, although for fund dealing with private banks, he prefers business-to-business (B2B) rather than B2C technology.
“We see more and more thoughts on how we can connect our B2B technologies with B2C technologies. The line between pure B2B and B2C is becoming blurred. We have spent a significant amount on those innovations and digital opportunities,” he says.
One part of the digital revolution that has caught Devambez’s eye is blockchain, perhaps best known as the cryptography behind the security of bitcoin transactions. The firm doesn’t necessarily want to do anything with blockchain, “but we want to be on top of it. The asset managers have started raising questions about it,“ he says.
With so many disruptive factors impacting the France’s big three asset servicers, camps are emerging with regard to addressing the issues.
One way to stay competitive is offshoring, a concept SGSS has embraced with a wholly owned company in India that performs fund valuations. At the end of SGSS’s competition plan (see interview, page 20) the firm will have 3,000 funds in India, despite them being largely European, or 75% of its entire funds.
Saliba, on the other hand, has no interest in offshoring. “We don’t do Kuala Lumpur, we don’t do India, not because we have anything against them, we just felt we could achieve our productivity and our cost-effectiveness without doing that,” he says.
Since downward pressure on fees looks to be a mainstay in asset servicing, those likely to claim victory will be providers who can offer an entire suite of services to clients in France and elsewhere. Vive la (digital) revolution.
©2015 funds europe