Established in May last year as an independent, separately capitalised subsidiary following the merger of French banks BNP and Paribas, BNP Paribas Securities Services (BNPPSS) comprises five distinct business lines, including the Multi-Direct Custody & Clearing (MDCC) offering, which provides direct clearance and sub-custody services in 11 European markets, with a 12th jurisdiction – the UK – set to be added next year.
The firm’s other activities encompass Global Liquidity Management, a cash and equity financing business closely aligned with the MDCC side, e-Banking Support Services, Global Issuer Services – a debt and equity issuing and paying agency service – and last, but by no means least, European Investor Services (EIS).
Historically MDCC and GLM have been the cornerstones of BNPPSS’ business, with the firm choosing to concentrate its efforts on the intermediary market, sub-custody and broker clearance. It is worth noting that since acquiring JP Morgan’s broker-dealer clearing network in 1995 (the sale of which JP Morgan, having returned to the custody fray since its merger with The Chase Manhattan Bank, must now be ruing), BNPPSS has expanded its capabilities to the point where it holds at least a 40% share of non-resident equity activity in the European markets where it operates. Indeed, as recently noted in Global Custodian magazine’s influential 2001 Global Custody Survey, where BNPPSS was rated top European global custodian: “It exerts a grip on the equity clearing business in Europe that not even Citibank can match – the French bank more or less owns cross-border equity clearing in Brussels, Frankfurt, Madrid, Milan and Paris”.
Given its dominance in this sphere, it is no surprise that BNPPSS is now looking to build up other parts of its empire, not least EIS, which was established in 1998 with a view to targeting those European institutional investors who had until that point remained peripheral to the firm’s securities services masterplan. In July EIS began offering global custody, fund administration, trustee and registry services out of BNP Paribas’ Dublin office, which had previously concentrated purely on commercial banking but now services both offshore and domestic funds, offering among other things performance measurement, distribution fee management and web-based reporting via the bank’s proprietary PB Link communications tool.
According to Peter Christmas, who heads up EIS sales and relationship management in the UK, the bank drew important lessons from the MDCC experience when it came to setting up EIS – although, whereas the majority of MDCC clients hail from the US or the UK, EIS boasts a far more continental clientele.
“We want to provide a pan-European service to pan-European clients, both for local and offshore funds, so instead of having a central processing facility with a local client service capability tacked on here and there, we process on the ground in France, Italy, Spain, Germany, Luxembourg and Dublin, and that will continue to be our major theme,” says Christmas. “Of course, we do also attempt to take advantage of economies of scale where possible – from a global custody perspective, for instance, we manage our subcustodian relationships out of Paris, so avoiding unnecessary duplication.”
While the mutual fund arena currently remains BNPPSS’ priority in Europe, Christmas recognises that the growth of those mutual funds will in large part be fuelled by the region’s emergent DC sector, particularly in those markets where there is no significant defined benefits business. “Increasingly, fund sponsors – be they pension funds or insurance companies – are looking at the products that the asset managers have already got,” he says.
An ever greater degree of commonality between these disparate client segments is inevitable, Christmas argues: “Again, take the UK – a large defined benefits market where the role of the custodian has traditionally been to provide a monthly accounting package, potentially overlaid with some form of performance measurement component,” he says. “As has already happened in the US, we expect to see a trend towards more frequent valuations, perhaps more of a daily value type product – and that, of course, starts to look more and more like a mutual fund.”
Indeed, this trend is evinced by new investment vehicles such as Luxembourg’s recently-inaugurated ASSEPs and SEPCAVs, structures which look like traditional SICAV products “but have some extra wrapping around them”, says Christmas. “Fund sponsors will be looking either for straight domestic mutual funds that fit into a DC wrapper or products which look very much like mutual funds,” says Christmas. “Both approaches also exist in the UK, with stakeholder pensions going into traditional mutual fund products while some of the other DC products are discrete funds that look like mutual funds. We would look to do processing for both those lines.”
BNPPSS is looking to partner with another institution to provide member recordkeeping services while it handles custody and fund accounting for pension plans. At the same time, it is also looking to bring fund distributors into the fold through the development of a new suite of products under the banner Fund Distribution Support. “We are looking at the processing capabilities we have around transfer agency and are examining how we can turn that around to make it a product for a distributor,” says Christmas. “At the moment the transfer agency products are aimed squarely at asset managers, but the same type of processing – holding records of fund participants, tracking fees, producing reports – is also appropriate for a distributor.”
Tim Steele is a freelance editor
timjsteele@btinternet.com

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