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Magazine Issues » October 2019

Custody: 2019 custodian directory

BuildingsThe Funds Europe directory features custodians who responded to our survey. A Q&A section with senior executives focuses on challenges for fund managers, blockchain and the business outlook.

 

 

 


Arnaud_ClaudonARNAUD CLAUDON, HEAD OF ASSET MANAGERS, BNP PARIBAS SECURITIES SERVICES

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
We firmly believe that blockchain technology has a role to play in solving some specific financial industry pain points. We are using smart contracts in our activities to help connect entities and automate the flow of data between them.

We have also been using blockchain technology in a number of initiatives to develop next-generation platforms such as Planetfunds, a fund distribution tool connecting fund buyers and sellers to ease the KYC [know-your-customer] process and speed up trade settlement.

Through our investment in Digital Asset Holdings, we are closely involved in the Australian Securities Exchange’s forthcoming blockchain-based replacement for CHESS (Clearing House Electronic Sub-Register System), and in the Hong Kong Exchange and Clearing’s blockchain platform development for Stock Connect.

What, if any, drawbacks of blockchain are there?
Blockchain is still looking for a large market, as more work remains to be done to bridge the gap between this promising technology and real-world use cases. This includes huge IT developments as well as an adaptation to customer needs and habits.

Another concern is scalability and privacy: blockchain has limited capabilities in these areas right now, and even though improvements on this front are expected, they are slow to materialise.

Finally, the regulatory framework needs to evolve further in order to help blockchain-based operating models to emerge.

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
The Central Securities Depositories Regulation, which will come into force in 2020, will have a profound effect, imposing fines for late settlements and making for safer and more integrated post-trade infrastructure. It means asset managers need to get serious about settlement, review their processes and invest in IT and trade processing where needed. Custodians also have a huge role to play.

At BNP Paribas Securities Services, we are rolling out our new Smart Chaser technology, which uses the latest artificial intelligence and predictive analytics technologies to spot trades which are likely to fail before a problem even arises. This enables us to warn clients and their brokers on their live trading activity in good time so they can take action promptly.

If there is one area of development linked to asset servicing that you would like fund management firms to concentrate on to improve the functioning of the industry, what is it?
We think a key challenge for the industry is to improve information to end investors. Investors typically receive reporting from their fund managers via different channels and in a variety of different formats, making it difficult for them to get a single, meaningful view of their investments. They also require more insights on the social and environmental impacts of such investments.

This is why we have launched Ffyn, a start-up owned by BNP Paribas Securities Services. Ffyn aims to become a single source of information for the mutual fund industry by bringing together asset managers and institutional investors on a centralised platform where they can access and exchange fund information easily and efficiently. Using cloud-based and artificial intelligence technologies, Ffyn tracks the latest qualitative and quantitative fund information, delivering it in a standardised format to enable institutional investors to monitor their investments easily and efficiently from one central place.

We are also collaborating actively with various stakeholders in the industry to drive forward the use of ISO20022 standard data models in the development of Application Program Interfaces, with a few to create the right framework for data exchange protocols.

What is your outlook for the asset servicing business in the next 12-18 months?
The asset servicing industry is in a period of significant change. The industry is having to meet growing client demand for technology, data and regulatory solutions at a time of growing competition between providers and low margins. On the other hand, clients are keen to invest in fewer but deeper relationships with their asset servicers. The future belongs therefore to those asset servicers who will be able to transform their business, bring a broad range of solutions to their clients and reinvent themselves in some cases.

BNP Paribas Securities Services
9 rue du Débarcadère
93500, Pantin, France
www.securities.bnpparibas.com
+33 (0)1 42 98 10 00

Ultimate parent company origin: France
Global number of employees working in custody: 11,698
Global assets under custody: $11,590 billion
Global assets under custody EMEA: $10,475 billion

Senior executives in Europe: Patrick Colle (Paris), general manager; Alessandro Gioffreda (Milan), head of continental Europe; Arnaud Claudon (Paris), head of asset managers


Daron_PearceDARON PEARCE, CHIEF EXECUTIVE, EUROPE. MIDDLE EAST AND ASIA, ASSET SERVICING, BNY MELLON

What is your outlook for the asset servicing business in the next 12-18 months?
We see top-line growth continuing, but it is an increasingly competitive business as the bigger, more complex asset managers and asset owners are shrinking the number of asset servicing providers they work with. We see this as an opportunity. Doing a great job for our clients and demonstrating the value we can bring means they are selecting us for new mandates or consolidating with us.

There are three investment industry trends that are set to impact asset servicing into 2020 and beyond. First is the increased interest in launching new ETF fund ranges in Europe from both US and European asset managers. Second is the rise of private markets – with private debt being a particularly strong growth area. Third is the accelerating investor appetite for responsible investment. Investors are looking to asset servicers for analytics to then make informed ESG-based investment decisions. ESG investment analytics will develop quickly over the next couple of years.

TOM CASTELEYN, GLOBAL HEAD OF CUSTODY

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
We see blockchain technology as fundamental to asset servicing. It is not necessarily revolutionising the industry, but it has the potential to go a long way towards sorting out many of the inefficiencies. We are actively involved with a number of proof-of-concepts, including via consortiums. There’s no big bang here – instead, many benefits will gradually flow in terms of efficiency, cost and the client experience.

What, if any, drawbacks of blockchain are there?
With any process improvements, there is the problem of running them in parallel with older processes. With the payoff only coming once there is a 100% shift – which could be five years or more away – the business case to invest is that much harder for everyone involved. There is also the issue of standardisation. Blockchain is very ‘black-and-white’ while our industry is full of different regulations, market practices and interpretations. We have some way to go in standardising processes across the industry before blockchain can be fully viable.

BNY Mellon
46 Rue Montoyerstraat City, Brussels
B-1000, Belgium
www.bnymellon.com
+322 545 8111

Ultimate parent company country origin: US
Global number of employees working in custody: n/a
Global assets under custody: n/d
Global assets under custody EMEA: n/d

Senior executives in Europe: Hani Kablawi (London), global CEO, asset servicing and EMEA chairman; Daron Pearce (London), CEO, EMEA asset servicing; Leoninque van Houwelingen (Brussels), CEO, The Bank of New York Mellon SA/NV; Tom Casteleyn, Brussels, global head of custody product management, asset servicing, BNY Mellon


Arnaud_MissetARNAUD MISSET, CHIEF DIGITAL OFFICER, CACEIS

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
At this stage, blockchain technology looks less likely to be able to replace the complex in-house systems of asset servicing companies according to the results of many working groups studying distributed ledger technologies. However, the same working groups have uncovered many new business use cases such as asset tokenisation.

Custody of digital assets is a logical extension of the role asset servicing companies play in the world of traditional assets, where access keys to tokens are held by custodians. France in particular is making significant steps in creating a suitable framework for this digitalisation with its new Pacte law that establishes a new optional visa regime for tokens issued in an ICOs to provide investors with better information and protection.

What, if any, drawbacks of blockchain are there?
We believe the industry got somewhat caught up in the hype at the outset and made several assumptions that led to blockchain not meeting initial expectations. There remain concerns about volumes and speed that blockchain can handle (although these are not totally valid points). The industry also jumped into creating private blockchains, which went somewhat against the spirit of the DLT idea. Since then a collaborative approach has been favoured which will definitely see the technology benefit the industry and investors better than if an individualistic approach is favoured.

ERIC DEROBERT, HEAD OF COMMUNICATIONS AND PUBLIC AFFAIRS

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
Many regulations such as MiFID [the Markets in Financial Instruments Directive], Priips [Packaged Retail and Insurance-based Investment Products] and soon SFTR [Securities Financing Transaction Regulation] are having an impact on our business, especially in terms of reporting. However, the regulatory framework, resulting principally from Emir [European Market Infrastructure Regulation], has profoundly strengthened clearing and collateral obligations, requiring players to adapt their strategies. Collateral needs will continue to grow in 2019 and 2020 as the players involved become more numerous such as counterparties impacted by initial margin requirements for uncleared OTC [over-the-counter] derivatives in phases 4 and 5. From now on, efficient collateral management requires investors to have a precise overview of their pools of collateral distributed between their various activities and the different geographical areas where they are present. All these processes are complex. What was once a traditional back-office function has become a more strategic imperative for front, middle and back offices, where knowledge of the margin called and how to cover it are key elements in the investment decision.

Finally, what is your outlook for the asset servicing business in the next 12-18 months?
We look at industry trends over a longer period, and believe that industry consolidation and the resulting broadening of the service offering to enhance ESG [environmental, social and governance] and pensions-related services will continue apace as evidenced by our two ongoing operations with Dutch Kas Bank and Santander Securities Services, subsidiary of Santander Group. With a focus on the imminent future, following the publication of the ESA [European Supervisory Authorities] consultation paper proposing amendments to Priips in November 2018, legislative changes may be undertaken in 2019 to address in the short to medium term the issues that have arisen. Finally, the growing ETF investment trend looks set to continue and interest in the private equity and real estate industry continues to grow, fuelled by the search for returns that are uncoupled from the traditional markets in the current low interest rate environment in the eurozone.

Caceis
1-3, place Valhubert
Paris 75206, France
www.caceis.com
[email protected]
+33 1 57 78 00 00

Ultimate parent company origin: France
Global number of employees working in custody: 1950
Global assets under custody: $3,272 billion
Global assets under custody EMEA: $3,193 billion

Senior executives in Europe: Jean-François Abadie (Paris), CEO; Joe Saliba (Paris), deputy CEO; Philippe Bourgues (Luxembourg), managing director Caceis Bank, Luxembourg branch, member of the executive committee


Pervaiz_PanjwaniPERVAIZ PANJWANI, GLOBAL HEAD OF CUSTODY AND FUND SERVICES, CITI

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
DLT [distributed ledger technology] benefits are subject to the network effect and therefore we believe that the most effective DLT implementations will be at the financial market infrastructure (FMI) level. FMIs such as central securities depositories (CSDs) are at the top of the value chain as therefore DLT adoption at this level allows for the entire value chain to integrate into the same network. Citi is leveraging its extensive sub-custody network to engage with FMIs globally to develop solutions at CSD and the central counterparty (CCP) level. Our vision is to then integrate our custody and funds business into these networks, and then ultimately our clients in order to reimagine process flows and significantly improve data and operational efficiency.

ID2S was the first regulated CSD in the world operating on DLT, regulatory approval was received last year and the first securities were issued, traded and settled in July this year. (Citi is a shareholder in ID2S.)
Additionally, Citi is also partnering with clients to develop tokenised asset solutions. DLT enables illiquid or immobile assets to be digitised, fractionalised, traded and settled and Citi is exploring several interesting use cases of this nature.

What, if any, drawbacks of blockchain are there?
There are several technological challenges that need to be overcome – however, the technology is maturing rapidly. For instance, scale and latency no longer appear to be a challenge as specialist fintech firms have developed new DLT solutions from the ground up to be able to support financial services transactional volumes. The current challenges in our view are fragmentation and diverging standards, and complexity of implementation.

As this technology is relatively new in our industry, we are seeing multiple different use cases and protocols under development and therefore it is a challenge to build an efficient integration mechanism that connects to multiple networks.

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
One of the main regulations affecting global custody is the Central Securities Depositories Regulation.

CSDR consists of two main parts both of which have impacted Citi. First, rules on the organisation and conduct of CSDs to promote safe and smooth settlement, which is focused on the CSDs’ organisation. Then uniform requirements for the settlement of financial instruments in the European Union, which is focused on settlement activities, addressing all market participants.

The first of these requirements is targeted at CSDs, but as Citi acts as custodian to several CSDs, and is also a CSD and ICSD participant, this has required us to carry out numerous enhancements, across operational processes, record-keeping and client asset segregation disclosures.

Citi is more directly impacted by the second of these requirements, which comprise a reporting obligation on ‘settlement internalisers’; ‘settlement discipline measures’ to prevent settlement fails; and settlement discipline measures to address settlement fails (penalties and buy-ins).

Citi has completed its development of a settlement internaliser reporting engine and has successfully made the first returns required in mid-2019, despite teething problems experienced by some of the regulators.

Settlement discipline measures coming into effect in 2020 will affect Citi’s clients more so than Citi itself, but we are in the process of developing solutions that will assist clients in avoiding any negative impact of these measures.

If there is one area of development linked to asset servicing that you would like fund management firms to concentrate on to improve the functioning of the industry, what is it?
There is continued focus and requirement to standardise corporate action processing across all markets globally. Technology is a key driver and while event end-to-end automation is challenging, as much automated processing is key which would also include systemic instructions and payments in line with SMPG [Securities Market Practice Group] standards. This will benefit all market participants in a cost-pressure environment.

Additionally, with the introduction of the Shareholders Rights Directive in 2020, the relevance of timely, accurate and transparent reporting of proxy votes has become vitally important to all market participants.

On that basis, Citi has invested in a new digital proxy voting platform, Proxymity. This market-leading platform directly connects and authenticates the issuer and investor and makes the voting process more efficient, accurate and transparent. The platform began offering UK market coverage for the 2019 proxy season, with additional markets being piloted and implemented throughout 2019.

Finally, what is your outlook for the asset servicing business in the next 12-18 months?
We will continue to see consolidation in the industry led by the regulatory, cost pressure, product differentiators and technology. Asset servicing businesses as a whole need to embrace these key challenges and drive the strategic change forward.

As one of the largest global asset servicing providers, Citi has put together a robust five-year strategy that addresses the industry/client challenges by leveraging data and tech at the forefront of our solution and service strategy. We are well underway on the execution path of our global strategy in partnership with our clients to ensure we drive our collective businesses forward.

Citi
Citigroup Centre, 25 Canada Square, Canary Wharf
London, E14 5LB, UK
[email protected]
+44 2075082528

Ultimate parent company origin: US
Global number of employees working in custody: 6,900
Global assets under custody: $20,500 billion
Global assets under custody EMEA: $7,800 billion

Senior executives in Europe: Pervaiz Panjwani (London), EMEA head of custody and fund services; Rob Ranson (Dublin), EMEA global custody and fund services; Fiona Horsewill (London), EMEA head of product development and strategy for custody and fund services


MIKE HUGHES, HEAD OF GLOBAL CUSTODY, JP MORGAN

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
The Central Securities Depositories Regulation stands out as particularly impactful both for us as a custodian and for our global client base. Having recently implemented new regulatory reporting focused on internalised settlements, we and the industry are now fully focused on preparations for introduction of the Settlement Discipline regime in September 2020. The new regime provides new requirements for the prevention, monitoring and remediation of settlement fails, ultimately leading to settlement penalties and mandatory buy-ins.

The regulation is challenging and impacts all parties involved in settlement in European markets from CSDs [central securities depositories], custodians and brokers, and ultimately including buy-side investors regardless of where in the world the trading parties are located. Even parties who never fail to deliver themselves will be impacted by a new obligation on the receiving party to initiate a buy-in for trades which continue to fail for more than four days (or seven days, depending on the instrument).

What is your outlook for the asset servicing business in the next 12-18 months?
The outlook for asset servicing over the next 12-18 months continues to be heavily influenced by technology and regulatory developments. We will continue to see a drive for improved efficiency in operational processing through the deployment of new and emerging techniques and technologies, including artificial intelligence, distributed ledger technology and enhanced data analytics, across the post-trade industry. In particular, we expect new technology developments and market participants to focus on improving industry harmonisation across post-trade services; whilst over time, we expect investors to increasingly enter into new and emerging assets which will need servicing.

In terms of the regulatory outlook for asset servicing, this includes implementing significant regulations, such as the EU’s Shareholder Rights Directive II, in the next 12 months; whilst we expect regulators to increasingly focus on areas such as cyber security, operational resilience and outsourcing, as well as corporate governance accountability and transparency.

JP Morgan
25 Bank Street
London, E14 5JP, UK
[email protected]
www.jpmorgan.com
001 212 270 6000

Ultimate parent company country origin: US
Global assets under custody: $25,400 billion
Global assets under custody EMEA: $6,300 billion

Senior executives in Europe: Mike Hughes (London), head of global custody


Clive_BellowsCLIVE BELLOWS, HEAD OF GLOBAL FUND SERVICES EMEA, NORTHERN TRUST

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
Many aspects of asset servicing are ripe for change due to the manual nature of many day-to-day processes. Blockchain’s seamless capabilities have the potential to simplify many of these by integrating settlements, ledger updates and other interactions directly between the parties involved. This could drive enhanced accuracy and transparency across the board. The technology could also help improve efficiency, liquidity management and settlement cycles, while reducing financial risk and compliance costs.

Northern Trust has introduced a number of blockchain-related innovations. In 2017, we launched our blockchain solution for private equity, representing the first commercial deployment of the technology for this market. We processed the industry’s first blockchain-supported live capital call in November 2018, offering end-to-end automation of the capital call process. We further pioneered the capability to deploy legal clauses as smart contracts directly from a digital legal agreement on to our private equity blockchain in April 2019.

Most recently, by transferring our blockchain platform for private equity to Broadridge in June 2019, we opened up the technology to the wider market, paving the way for the digitisation of the asset class.

What, if any, drawbacks of blockchain are there?
Blockchain technology developments are progressing at an unprecedented pace. But blockchain still needs to reach a level of maturity where the industry and regulators are confident that safe, low-risk implementations can be delivered.
Widespread industry adoption of the technology will require significant further collaboration across the finance services industry, the introduction of new accepted technical and security standards, as well as legal and regulatory adaptation.

Finally, what is your outlook for the asset servicing business in the next 12-18 months?
The outlook for the asset servicing business is one of further change and rapid evolution. While continuing to provide traditional solutions such as custody, fund administration and depositary services, we will see asset servicers such as Northern Trust leveraging their years of expertise in working with data, security and technology to create innovative solutions for clients.

As such, the asset servicing business will play a heightened role in supporting the further rollout of new technologies and the implementation of best practices across the investment industry.

The Northern Trust Company 
50 Bank Street
London, E14 5NT
www.northerntrust.com
+44 0207 982 2000

Ultimate parent company origin: US
Global number of employees working in custody: 14,041
Global assets under custody: $8,500 billion
Global assets under custody EMEA: $2,900 billion

Senior executives in Europe: Teresa Parker (London), CEO EMEA; Toby Glaysher (London), executive vice president and head of global fund services international; Clive Bellows (Dublin); executive vice president and head of global fund services EMEA; David Marlborough (London), chief risk officer EMEA and APAC region


Paul_StillabowerPAUL STILLABOWER, MANAGING DIRECTOR, GLOBAL HEAD OF PRODUCT MANAGEMENT, RBC INVESTOR & TREASURY SERVICES

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
Distributed ledger technology (DLT) is most certainly relevant to the asset servicing industry – the larger question is the pace at which it is adopted. Given the nature of ‘true’ DLT as a decentralised and permissionless network, adoption of the technology within an institution will be easier than between institutions – more so in the financial space where trust and control remain central to the current management mindset, and an absence of standards will slow adoption. However, focusing on the technology side of DLT is less helpful then defining use cases for issues that need to be solved and determining whether DLT is the best approach for solving them.

There remain considerable obstacles to utilising DLT, not least in the unclear regulatory, fiscal, AML [anti-money laundering] and legal spaces. Within RBC, these are key areas of focus for us to achieve greater clarity and alignment before widespread adoption can be considered. For these reasons, alongside considerable progress in developing practical system and operational capabilities in the DLT space, RBC has a holistic approach through an enterprise-wide crypto asset oversight committee that looks to develop and oversee broader ‘guard rails’ for individual programmes of work.

What, if any, drawbacks of blockchain are there?
There are practical drawbacks with DLT in that it is a computationally heavy approach to dealing with some of the simpler use cases proposed. However, far larger issues arise with the associated implied changes to the regulatory, fiscal and legal environment of asset servicing as well as the overhang of reputational risk associated with dealing in crypto assets. Adoption in the asset servicing environment may therefore initially manifest itself through bilateral or closed networks before wider adoption is achieved.

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
At present, one of the main regulations affecting our European business is the Central Securities Depositories Regulation. The elements of CSDR which are most challenging for our asset servicers and clients include a new settlement discipline regime (including cash penalties for fails) and requirements for ‘internalised settlement’ transactions and its trade reporting. Where we are internalising settlement (e.g. securities lending), RBC I&TS is looking to develop tools which capture and report all the relevant information, and, concerning the settlement discipline regime, as there are serious economic consequences for clients of non-compliance, we are investigating possible solutions.

If there is one area of development linked to asset servicing that you would like fund management firms to concentrate on to improve the functioning of the industry, what is it?
Improving the AML/KYC due diligence process has been discussed in the industry for years. There have been various efforts to establish industry utilities to share and process AML/KYC due diligence documentation, but they never got off the ground. This is an area of significant pain for clients and their investors, driving additional cost and impacting the investor experience across the asset management industry as a whole. Adopting best practices and common standards by jurisdiction would be a significant improvement.

More broadly, I hope to see our industry embrace the opportunities of data and technology, as we have been doing here at RBC I&TS. There are many industry initiatives where new technology is being embraced, but it is often on a bilateral basis. If we as an industry focused on a few use cases and adopted aligned data standards across known problem areas such as corporate actions or transaction reference data, this would be an effective way to promote efficiency and risk reduction in the market.

Finally, what is your outlook for the asset servicing business in the next 12-18 months?
We expect continued headwinds to impact the asset services industry over the next 12 months. In particular, we believe the investment industry will continue to face pressures itself and will, in turn, continue to press their asset services providers on fees. In response, asset services providers need to be disciplined and focused on the right clients and geographies, they need to deliver high-quality services that represent value for money and a best-in-class client experience, and they must implement robust and flexible technology solutions to meet evolving client data needs.

RBC Investor & Treasury Services
2 Swan Lane
London EC4R 3BF, UK
www.rbcits.com
+44 020 7653 4000

Ultimate parent company origin: Canada
Global assets under custody: $2,407 billion
Global assets under custody EMEA: $1,620 billion

Senior executives in Europe: Francis Jackson (London), head of global client coverage; Joanna Meager (London), global head of client operations and head, UK, RBC Investor & Treasury Services; Philippe Renard, Luxembourg, CEO, RBC Investor Services Bank S.A.


Niklas_NybergNIKLAS NYBERG, HEAD OF PRODUCTS GLOBAL CUSTODY, SEB BANK

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
The potential of DLT technology, within the field of asset servicing, is great, perhaps even revolutionary. But there are several challenges that must be solved before it can reach a larger adoption and become a general-purpose technology that many believe it will be. When it comes to asset servicing of traditional financial instruments, a likely scenario is that the technology first will be adopted by the incumbent market actors who will set-up blockchains that aim to benefit from costless verification and provide a transparent, secure technical solution that is faster and more efficient than current solutions. Harder to predict, though, is the success of more disruptive initiatives that fully adopt the peer-to-peer model that aims to bypass any intermediaries. That will probably take a longer time and most likely not driven by the incumbent parties.

In the field of asset servicing, SEB has been part of initiating market collaboration with the vision to replace current and inefficient mutual fund trading and transfer agency processes with a DLT-based technical platform connecting all market participants.

What, if any, drawbacks of blockchain are there?
For the right use case, a blockchain-based solution could provide a far better solution than current solutions. But some of the drawbacks and challenges must be overcome. As a new and complex technology, the initial cost of implementation could be high due to scarcity of human capital, learning and adoptions cost. There are still several legal uncertainties related to, for example, the decentralised and distributed nature of the technology.

If hybrid solutions are implemented that try to combine the best aspects of centralised and decentralised systems, then it could actually result in more complexity and inefficiency than the current situation. In blockchain/DLT solutions, not only do we need to standardise communication formats (compare to Swift messages) but in many cases, we also need to agree on the logic, i.e. the smart contracts that are often integrated in parts of blockchain solutions. We would need to agree and run the same versions in order to end up with the same results. This adds complexity, but the advantages if successful could be vast.

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
It is difficult to name one main regulation affecting our business. We all know that there has been a huge wave of regulations in the financial industry. That, together with the focus on digital transformation of financial services, puts pressure on both banks and regulators. We are operating in an environment that is subject to shifting dynamics. The changing digital landscape raises questions about the use and ownership of data and the boundaries of regulation, in light of differing supervisory approaches to new products and services. A few regulations and directives that are currently undergoing either impact assessment or implementation within SEB’s asset servicing business are: CSDR, penalty schemes being adopted by market utilities and infrastructure providers; the Shareholders Rights Directive; and EBA guidelines for outsourcing.

If there is one area of development linked to asset servicing that you would like fund management firms to concentrate on to improve the functioning of the industry, what is it?
We think that the European cross-border fund processing landscape is suffering from a fragmented infrastructure, manual handling and poor standards. This is, of course, not a problem only for fund management firms – all participants in the value chain must put in resources and investments to develop an international standard that will ease the pain many participants have in the form of operational risk and high cost.

Finally, what is your outlook for the asset servicing business in the next 12-18 months?
In general, SEB’s outlook for the asset servicing business is positive. SEB’s current double-digit growth rate will continue during the coming 18-24 months. Institutional investors in the Nordic region are assumed to continue to re-evaluate their current providers due to increasing regulatory and cost pressure. SEB can clearly see that institutional investors in the region not only re-evaluate their custody provider, but to a larger extent are questioning their own in-house capabilities too, in terms of efficiency, competence and risk, which paves the way for the outsourcing of non-core functions. These two forces work to the benefit of SEB’s position in the region as a one-stop shop for institutional investors.

SEB
Kungsträdgårdsgatan 8
106 40 Stockholm, Sweden
www.sebgroup.com
+46 771 621 000

Ultimate parent company origin: Sweden
Global number of employees working in custody: 600
Global assets under custody: $965 billion
Global assets under custody EMEA: $965 billion

Senior executives in Europe: Tomas Engel (Stockholm), head of sales; Joakim Alpen (Stockholm), head of large corporates and financial institutions; Johan Torgeby (Stockholm), CEO


Etienne_DeniauETIENNE DENIAU, SGSS HEAD OF STRATEGY, SOCIETE GENERALE SECURITIES SERVICES

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
A digital representation of assets allows a better circulation of assets, what market participants call a greater velocity, the capacity to exchange assets almost immediately. Furthermore, if these digital representations, these tokens, are properly designed, it would take little time to bundle them or to split them into parts, in other words, securitisation and stripping made easy.

With blockchain, the credit checking, the settlement and subsequently the safekeeping of the representation of the asset could be done at once while trading would most probably be made elsewhere. Such immediate processing would require the use of a standard unit of account linked to one of the main existing currencies. This is why there is such enthusiasm for stable coins, since there is no token that is a legal tender yet.

Issuers and investors need to know and apply the requirements of all applicable laws, regulations and tax systems. This includes identifying counterparties (KYC), checking the origin of funds (AML), making declarations of threshold crossings, checking foreign ownership restrictions, as well as reporting capital gains, or even withholding tax. This applies to security tokens too. Many issuers and investors will have to rely on third parties to make sure they are compliant.

Considering the number of initiatives, these digital markets will stay fragmented for several years before a cross-chain of integration is built or before a leading platform emerges. In the meantime, it seems necessary to rely on trusted intermediaries to provide a single interface for all these chains, convert cash to and from these chains, to safeguard the keys to access them or even hold the tokens themselves.

Imagining this world of digitisation is quite easy. Guaranteeing the reality of the assets represented by the tokens, and possibly their condition of these assets, understanding the rules or assessing the fairness of a joint ownership agreement, or applying taxes would also be additional services required by participants.

The current EU infrastructures – with RM, MTF, OTF, CCP, T2S, CSD and Target2 – have a proven reliability record for safely issuing and exchanging securities leveraging regulated intermediaries. They may be capable to reduce their turnaround time and list more assets than just securities.

On the token side, providing that law, regulation and tax requirements are met, granting direct access to retail that are holding 30% of securities will first be an education issue but it might bring an incredible efficiency for other types of assets like non-listed securities or real estate.

Societe Generale is deeply involved in crypto assets (and not in cryptocurrencies). It is participating in many market initiatives such as R3, LiquidShare, or IZNES (fund registrar). It has also issued securities on its own blockchain

What, if any, drawbacks of blockchain are there?
A bank can only use blockchains that are not private and permissioned, to meet know-your-customer and anti-money laundering obligations.

Secondly, the pseudonymity of most blockchain might not protect transaction confidentiality. Thirdly, immutability should be taken into consideration.

Finally, abiding laws and regulations across different jurisdictions is a real challenge. To give a simple illustration, some countries have ruled that databases should be located within their borders. This might be a challenge for a cross-border blockchain.

Which is one of the main regulations currently affecting your business in Europe, and what is it that makes it such a challenge?
The Benchmarks Regulation (BMR) is triggering a very large amount of work to redocument prospectus and contracts, as well as marketing materials, to introduce the new benchmarks.

The implementation of the Central Securities Depository Regulation (CSDR) and especially the settlement discipline will require more from all market participants.

If there is one area of development linked to asset servicing that you would like fund management firms to concentrate on to improve the functioning of the industry, what is it?
With more APIs being offered by providers, clients have now the opportunity to design and drive the services they receive. They become co-responsible for the quality of service.

What is your outlook for the asset servicing business in the next 12-18 months?
Global assets under custody has been increasing steadily, almost doubling during the past ten years. There is a wave of consolidation in the asset owner segment as well as in asset manager segment.

Societe Generale Securities Services
Perspective Defense,
Bat B, 5 Rue du Débarcadère
Colombes, 92700, France
www.securities-services.societegenerale.com

Ultimate parent company origin: France
Global number of employees working in custody: 4,000
Global assets under custody: n/d
Global assets under custody EMEA: $4,699 billion

Senior executives in Europe: David Abitbol (Colombes), head of SGSS; Christophe Baurand (Colombes), head of coverage, marketing and solutions; Guillaume Heraud (Colombes), head of marketing


JÖRG AMBROSIUS, EXECUTIVE VICE PRESIDENT, HEAD OF BUSINESS EMEA, STATE STREET

Do you believe blockchain will revolutionise the business of asset servicing, and how? What have you been doing to research and experiment with this technology?
Blockchain could ultimately become a standard for financial transactions and real-time settlements, increasing transparency and efficiency in a highly fragmented industry; a fantastic prospect for the industry and one that represents exciting, new opportunities. As some commentators have suggested, one that has the potential to drastically reduce demand for traditional custody services. There will still need to be on and off ramps to the blockchain, meaning a ‘digital custodian’ is needed to enable ‘tokenisation’, and ‘creation and maintenance of smart contracts’. Also, for a system based on encryption, there may be a need for secure maintenance of personal encrypted keys. All these are new components in the value chain. A trusted adviser such as State Street could play such roles and provide the respective services. We have started to experiment in three ways:

  • Internally, as part of core software development;
  • Selectively partnering with vendors and other partners in this space to conduct private trials; and
  • Participating in a handful of consortia of the world’s biggest banks and technology companies. For example, we are part of the Utility Settlement Coin (USC) project; and are also a member of the Post Trade Distributed Ledger Group (PTDLG), which aims to research and identify opportunities and associated benefits of blockchain technologies.

State Street
20 Churchill Place, Canary Wharf
London E14 5HJ
www.statestreet.com
+44 20 3395 7000

Ultimate parent company origin: US
Global assets under custody: $24,800 billion
Global assets under custody EMEA: $4,500 billion

Senior executives in Europe: Joerg Ambrosius (London), head of State Street EMEA

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