The Belgian custody market remains protected by regulations which mean that funds must use a domestically registered custodian, with most business done by the larger custodians.

Although a draft investment law would lift this restriction along with a number of others but it is yet to be enacted, so for the moment domestic players remain protected.

The custodian must be a domestic Belgian supplier, an institution that is regulated by the Belgian central bank. In the draft legislation for a revision to the central restrictions it will be any EU registered institutions. The European passport will apply," explains Brian Hill of Watson Wyatt in Brussels.

However he notes that the legislation was prepared over three years previously. "I think you will find that everybody's view is that it will come into operation three months from whenever you ask the question."

If and when the law is passed, he expects some of the larger funds that use multiple manager structures to consolidate arrangements with the global custodians.

Global custodians have found ways to offer their services to funds.

Jean Francois Schock of State Street explains that the bank will often offer a common trust fund entailing management and custody by the US company but that this method enfringes the custody rules.

"We have been tampering with that for some time and have created something to replicate this structure according to the European rules. We run a series of single country index funds which we transport throughout Europe but which are domiciled in France," says Schock.

Walter Mes, head of safe custody at Kredietbank, does not see much competitive threat to the custody market.

Marketing for the custody operation is done through the fund manager. "What we are asked for is competitive service, timely payment of coupons in the correct currency and if not in the original currency with a competitive foreign exchange rate, good communication and corporate actions."

Some clients, he says, ask for standing instructions on optional dividends, while they always invest in equity by rounding to the smaller unit - "a service that some institutional investors ask for as well".

Bertrand De Temmerman for Generale Bank says it offers all settlement services and the classic custody package.

"We give a full service for custody: corporate actions, dividend payments etc and we are also are in a position to do the proxy voting service on the Bel 20 for banks and pension funds." He admits that they are not in the position to give the stand- alone PC reporting service that a global custodian can. Some pension funds have been looking for this but he believes no other Belgium bank is in a position to do so either.

Raf de Smet, client support for Belgium pension funds and institutional clients in custody for BBL points out that banks have only had to set up sub-custodian networks from about eight years ago when funds began to invest abroad.

"Now we do the global custody with pension funds, so we have taken some new sub-custodians, to give us real time, changement on securities." The bank now offers a new software package to pension funds and institutional clients known as BBL Finance Link, based on the Swift message system.

He points out that some additional services such as performance attribution are covered by other players such as consultants while securities lending falls foul of the investment restrictions due to be changed in the draft law. He emphasises that the bank will be able to provide a full service shortly after any law is passed.

In terms of international competition, de Smet believes that there is limited competitive threat. For domestic Belgium companies in particular, both government and funds themselves want a Belgium custodian.

When subsidiaries of multinationals, particularly from the US, want one global custodian the bank can also meet this demand. "We have created tripartite contracts with the pension fund and the global custodian, with BBL taking the responsibility under the Belgium control office for pension funds. We do the mandatory reporting and pay the Belgium withholding tax monthly or yearly depending from client to client," says de Smet.

Of the group's which responded to our custody questionnaire, at end 1997, BBL had Bfr1,953bn of assets under custody for all clients within Belgium, 64% of these were for Belgian clients. For Kredietbank the equivalent figures were Bfr926bn, of which 79% was for Belgian clients; for Bank Nagelmackers , at January 31, 1998, the figure was Bfr70bn, all for local clients.

Assets in custody for Belgian clients outside Belgium were for BBL Bfr154bn and for Kredietbank Bfr613bn.

For Kredietbank, custody assets in Belgium for in-house clients came to 70%, while for Bank Nagelmackers, third-party clients' custody assets amounted to 80%."

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