Cookie policy

By pursuing your navigation on our website, you allow us to place cookies on your device. These cookies are set in order to secure your browsing, improve your user experience and enable us to compile statistics. For further information, please report to our cookie policy.

Article (22/240)
Breaking through in the US
Breaking through in the US
Back

Breaking through in the US

13/02/2019

Six years ago, BNP Paribas was the only top five global custodian without a presence in the US. Since then, it has established a New York-based operation. How has the bank approached the challenge of breaking in to such a mature market?

As the crucible of the global custody industry, the US market has long been considered one of the most mature both in terms of infrastructure and operational capability. For institutional investors into the US, sub-custody services have generally been handled by local divisions of the major global custodians. This has been reflected annually in the Global Custodian Agent Banks in Major Markets survey, where the same four institutions – BBH, BNY Mellon, Citi and JP Morgan – have long dominated the respondent pool.

“We used to use a sub-custodian, but you can’t really be considered a true global player without a local presence in the US.”

Florent Thiry, Americas Head of Financial Intermediaries & Corporates, BNP Paribas Securities Services

In the past two years however, a European global custodian, BNP Paribas, has registered prominently in the survey. Given that the US custody market has been well served by established indigenous providers, why did BNP Paribas feel there was a commercial opportunity for it to join this group as an ‘outsider’?

According to Florent Thiry, Director and Americas Head of Financial Intermediaries & Corporates, BNP Paribas Securities Services, the initial trigger was a perceived strategic need to have a local custody offering based in the US. “As the fifth largest custodian in the world, it was obvious to us we needed to have a local presence here. It is, after all, the biggest market in the world,” he says. “We used to use a sub-custodian, but you can’t really be considered a true global player without a local presence in the US. Today, out of the 90 plus markets in our global custody network, the US is one of the 27 countries in BNP Paribas’ proprietary custodial network which accounts for 90% of client assets.”

The bank initiated both a global and local custody offering in the US in 2012, which Claudine Gallagher, Head of the Americas, BNP Paribas Securities Services was sent over to establish. Since then, it has expanded its related fund administration business, acquiring the global hedge fund administration business of Credit Suisse in 2015. “Earlier this year, we closed on the acquisition of Janus Henderson [US administration business], which will allow us to offer mutual fund administration in the US. Our goal is to be a full-service provider here,” says Thiry.

Client base

Rather than attempt to compete head on with incumbent providers from the start, BNP Paribas set out to meet the needs of the broader corporate group. “We first moved all the BNP Paribas branches that had custody elsewhere onto our platform,” says Thiry. “The next focus was to attract European clients, where the BNP Paribas name is well known. If you look at our client base now, it basically consists of three groups: clients from within the wider corporate group, European clients and US clients looking for a global custodian.”

In addition to mainstream global and local custody, the bank offers broker-to-custody and account operator models. The former is available to clients based in Europe and Asia and offers order entry, routing, monitoring and advanced execution. Under the latter, the client maintains full operational control over its end client’s assets, while BNP Paribas operates its DTCC account, handling all custody-related processes such as trade settlement, corporate actions, tax reporting, proxy voting, reconciliation and cash management. “I’d say there’s a trend to the account operator model in the US,” says Thiry. “The accounts are in the client’s name, so they bear the risk, but do not have the burden of connectivity to the CSD or the integration of the data back from the DTCC, which is generally in flat file format. There’s an opportunity to help such clients streamline their operations.”

Technology

All of these services run off the same IT platform. “We have a single system for local and global custody. One advantage of being a recent entrant to the market is having the latest technology, which allows us to be particularly competitive with cut-off times,” Thiry explains.

The system is managed centrally. “We have an IT lab in Pantin, France, but also some dedicated IT people here working for the US market with operations based in Jersey City. We also have what we call a ‘dual office’, based in Lisbon. Staff in Lisbon have the same access to the platform as our people here in New York,” says Thiry. “As a French bank, we have a lot of European clients who we can service in European hours, so they don’t have to wait till early afternoon their time for answers to questions. They can directly contact our Lisbon hub. In that way, we can provide 16 hours of daily processing and service coverage, including sameday cut-off for voluntary corporate actions in the US.”

Thiry estimates that at the moment, some 25% of European clients go via Lisbon. “We are also working to attract the US assets of Asian clients through our Asian offices,” he says. “The concept would be that the client could have an account here directly or they could use one of our Asian hubs.”

Local clients

When it comes to attracting US-based clients, Thiry acknowledges that it isn’t easy. “The US market is very mature and, as we know, it is something of an operational burden to move from one custodian to another,” he says. Nevertheless, he sees the appropriate combination of technology and pricing levels as an attraction. “There’s also what I would consider an underserved part of the US market that we can target, including midtier institutions, where we can draw on our global custody experience to explain global market distinctions,” he says. One specificity, for example, is the tax side. Others are liquidity and risk management. “Given the experience in the US, it’s not always obvious that in some foreign markets, especially in Asia, there can be a huge risk from not settling on time,” Thiry notes, adding that cybersecurity is another area that’s not really commoditised.

While admitting the bank is not the cheapest available, Thiry suggests that its relatively modest scale in the US means the bank is able to provide tailor-made services. “You’re getting the depth and breadth of resources of a major global custodian with a more boutique service experience,” he says.

Client requirements

Beyond the core service, which by all accounts is well-handled by all major service providers, Thiry detects a shift in service priorities among potential clients. “When I look at the past two years of RFPs we’ve received, clients are not really that interested in the way we vault securities, process trades or handle corporate actions.

“One advantage of being a recent entrant to the market is having the latest technology, which allows us to be particularly competitive with cut-off times.”

Florent Thiry, Americas Head of Financial Intermediaries & Corporates, BNP Paribas Securities Services

It’s taken for granted that we know how to do that,” he says. “The shift I see, and this year in particular, is that they are really asking for advice. This year during the RFP process with two of our main prospects, for example, we had to analyse all of their internal systems and were then able to provide the most appropriate offer, which in that case was an account operator facility.”

Thiry is also looking at continental opportunities outside the US. “We see some interest from Latin American asset managers and pension funds,” he says. “We used to service these clients from Spain, but now they can have a direct relationship with us in New York. To help with that we’ve put in place a client window in Bogota. We do have a presence in Chile, Colombia and Brazil for local custody in those locations, but global flows can be redirected here.”

Article originally published in Global Custodian magazine.

social-links