BNP readies for NZX third-party clearing, global tech solutions, backs custody licensing push Investment News | Investment News NZ

BNP Paribas Securities Services is on track to roll out a suite of global solutions in the NZ market, according to top custody executives from the group on a whistle-stop tour of the region last week.

Philippe Benoit, the Paris-based head of BNP Paribas strategic business development and transformation securities services, said the group was committed to introducing more global “solutions” here with the long-awaited third-party clearing on the NZX expected to go live in the June quarter.

Benoit said a further NZX joint project to re-open a derivatives market on the exchange was also queued up for next year with other back-office services spanning private markets and sustainability reporting potentially on the agenda.

He said the Paris-headquartered organisation was already working on sustainability and ESG reporting tools globally, noting the introduction of mandatory climate-reporting for most NZX companies and fund managers was “a good segue to develop solutions”.

“We often use Australia and NZ to deploy new solutions first or even co-develop them,” Benoit said.

Franck Dubois, who fills the BNP Paribas head of Asia Pacific securities services role previously occupied by Benoit, said NZ was a key market for the custodian, particularly as KiwiSaver continued to grow in size and sophistication.

Making the trip to Australia (skipping NZ this time around) with Benoit last week, the Singapore-based Dubois said: “The growth of KiwiSaver, and superannuation in Australia, is seeing more appetite to invest internationally. That’s bread and butter for us.”

But at the same time he said the business catered to the specific needs of NZ clients such as regulatory and KiwiSaver reporting quirks under its ‘global, multi-local’ model.

The NZ business is also supported by Australia where BNP Paribas is a registered bank – a path eschewed by the group on this side of the Tasman where the regulatory costs outweigh any benefits of a local banking presence, Dubois said.

According to Benoit, the global, multi-local model is a distinguishing feature of the French bank-owned custodian as most rivals specialise in one or the other.

“The global and multi-local model is an important part of our DNA,” he said.

BNP Paribas Securities Services entered the Australasian market more than 20 years ago with its purchase of the Cogent custodial business from AMP in 2002 and now operates in 27 markets.

“We are the fifth largest custodian in the world and the biggest non-US custody provider,” offering another point-of-difference in the market, Benoit said.

The European flavour of the custodian also offers a “different taste” to clients, he said, with an equal emphasis on people and technology.

Over the last decade or so the firm has also expanded from servicing traditional assets to alternatives with strategic purchases and development projects in the hedge fund and private markets sector.

Today, the business houses about 90 per cent of client assets in its own network, deriving 31 per cent of revenue from asset managers, 30 per cent from financial institutions and corporates, 22 per cent from asset owners and the remainder in alternatives.

Keeping up with technology remains critical for custodians in a world where clients are evermore hungry for data and analytical tools, Benoit said, but the watchwords for the business remain security and safety.

For example, he said the firm is “experimenting” with solutions built on blockchain and artificial intelligence although neither are as yet scalable across core custodial services.

While blockchain is “attractive intellectually”, Benoit said the “challenges to delivering value” rest in the business case, interoperability and “bridges to the legacy system”.

Nonetheless, he said technology is poised to transform how the investment business operates including via some cross-industry collaborations as well as in-house innovation.

And the imminent arrival of third-party clearing service on the NZX shows the custodian is committed to keeping NZ in the technology loop, according to country head, Iain Martin.

Martin said the third-party clearing – and, eventually, the derivatives effort – should improve liquidity on the NZX, reduce costs and introduce more offshore investors.

He said the move highlights the global-local style of the firm that will also see the NZ business grow its sell-side client base.

Currently, BNP Paribas Securities Services provides custody to six of the 10 largest KiwiSaver providers as well as other administration services.

The NZ head also endorsed the recent Financial Markets Authority (FMA) change-of-heart on better regulation of custodians, which – unlike in almost all other countries – are not licensed here.

In its latest briefing to the incoming minister, the FMA says a recent report into custody along with a number of high-profile frauds have accelerated the urgency for tighter rules.

“These issues were also identified in a 2017 recommendation from the IMF’s Financial Sector Assessment Programme,” the FMA briefing says. “We anticipate putting forward recommendations to MBIE on where regulatory change might be needed.”

Licensing of custodians would provide investors with a greater deal of confidence that their money is where it should be, Martin said.

“We’re keen to see it happen.”