To make or to buy?
Since the investment industry in Europe took off in the late 1980s, administrative systems are getting old and need updating. This means a considerable investment from custodians and third-party providers. New packages are coming onto the market to match developments in the electronics industry, but service providers are having to face the same question: Do we make or do we buy?"
Combining the two is an option shown by Banque Paribas, which uses PB-LINK, a telecommunications system developed in-house, and the Claris accounting system bought from Line Data Finance in Paris, a leading provider of French accounting systems. Paribas up-dated it in-house to access the international marketplace.
Two service providers in particular are investing heavily in developing systems in-house: Luxembourg-based European Fund Administration (EFA) and UK-based European Financial Data Services (EFDS).
The collaboration of Banque Generale de Luxembourg, Kredietbank, Banque de Luxembourg and Banque et Caisse d'Epargne de l'Etat, has ensured EFA certainly has the economies of scale to invest in systems. Its estimations show that it will "be able to fully replace our systems every three to four years," says CEO Tom Seale.
EFA is developing a system geared towards "one common ap-proach", one standard interface with their promoter clients. "So if you were dealing with us in London, Belgium or Luxembourg, it will all be exactly the same system, the same service levels." The accounting package has been designed essentially for the mu-tual fund market but also does the type of accounting necessary for defined contribution (DC) pension products. The software development is in its last stages for the first modules and EFA is now in the process of testing them, locating bugs and making corrections.
EFDS was set up in 1995, a joint venture between DST and State Street and mainly serves the retail market but is investing heavily in administration systems which will put it in better stead to adapt to a European DC marketplace. Charles Eppinger, CEO explains: "Strategically we very much have an eye out now on how the pension markets change and what impact the new budget is going to have and at that time we will end up making a decision of do we want to go into the DC business and do we do it on our own or through all-iances and acquisitions? So we are very much watching the markets, but it is hard to predict."
EFDS is working on a "multi-million-pound project" to build a system called Fast2000 which should be operational by the end of the year and will take EFDS further in-to the international marketplace. "What we have done is build it from first principles" says Epping-er. "We looked at the characteristics of the UK market, of Luxembourg and Dublin and then the US experiences and really combined them to see what kind of flexibility we need." EFDS is hoping to be able to adapt Fast2000 to DC schemes but, says Eppinger, only when "the definition of the products are determined".
The new system will be multilingual and will operate in multiple currencies, though it is also Euro compliant. Separate modules have been allocated to cater for each European country's tax and regulatory requirements. "We de-signed it so you can almost plug in and plug out each country's taxation and regulation. When you build a record-keeping system, al-most 35% of it can be regulatory and taxation implications - it's a big part of any international systems development on the record-keeping side in particular."
He adds: "It's set up so in the fu-ture as we expand we can put in a German module and so on. We are preparing ourselves based on our experiences worldwide, but until we see the direction and the direct format, you can't bring something to a conclusion."
EFDS' current clients will be moved over to the new system ov-er the next few months and into 1998. The UK will be the main market in 1998 with the rest of Europe seen as a "1999/2000 activity". Rachel Oliver"