Despite new challenges over the past year, Societe Generale’s Gildas Le Treut, Stéphanie Gaudoux, and Alain Rocher say the pandemic has provided a tremendous catalyst for change and has created opportunities for service providers in France
What trends are you seeing within France’s asset servicing industry?
Stéphanie Gaudoux, head of coverage, France: Despite high market volatility and a significant increase in transactions in 2020, our industry and all service providers have risen to the challenge. The ability of our business and systems to adapt and to design new solutions to sustain business is testament to the success and, ultimately, an excellent sign of the resilience of our models.
Nevertheless, there are some major challenges created by the environment. Some of them have been around for a while such as low interest rates and continuous pressure on prices of service charges from the final investors. These challenges, together with the acceleration of the development of new technologies and the need to select the right one, means the financial industry has had to swiftly adapt.
The pandemic has reinforced the key role our industry has to play in innovation, digitalisation and even exploring new areas such as blockchain and cryptocurrencies.
At the same time, the long-lasting pressure on margins is continuing and asset managers are focusing more on their comparative advantages and consequently outsourcing part of their core business. For example, this can be seen in middle office activities and demand for software as a service for their portfolio management system (PMS). Asset servicers are investing a lot to meet these growing demands. At Societe Generale Securities Services (SGSS), we have developed CrossWise, a fully integrated front-to-back platform, for this purpose.
Meanwhile, interest rates have remained historically low, thus encouraging investors to seek alternative yield sources. Research shows that they plan to allocate more capital to private markets in 2021, with the expectation that over the next five years, it is expected to almost double again in size. Due to this move and the diversity of private assets, service providers are adapting their services to very specific needs. This strong demand helps the development of new niche players, such as fintech and regtech. Traditional players are invited to become more agile and innovative in data management. They have done it by improving client experience through co-construction and ever more digitalisation of their processes.
Gildas Le Treut, head of sales and relationship management: Another significant trend is the growing appetite for sustainable assets. This area is thriving with sometimes unstructured initiatives but, with new regulations underway, all asset managers will have pressure to add the environmental, social and governance (ESG) factor within their strategies. Service providers, such as SGSS, will be at their side to provide them with the necessary analytics. Finally we see new complex regulations continuing with the implementation of the Central Securities Depositories Regulation (CSDR), and the Sustainable Finance Disclosure Regulation (SFDR), etc. All these trends require rapid and large investments that asset managers either can’t afford or may not be equipped to deal with, therefore they are addressing their needs to service providers who are able to mutualise their investments.
Where does France’s financial services industry stand next to its competitors in Europe?
Gaudoux: The French financial industry can rely on its strengths and a dynamic local market with major international banks and asset managers. The financial industry benefits from talented highly-educated financial engineers, and very active and innovative fintechs in various areas.
In addition, Brexit should help the Parisian finance district and benefit from investments’ transfer in Europe and asset managers’ implementation in the largest financial centres. It also offers opportunities for job creation and income.
Last but not least, France is considered to be at the forefront in terms of ESG and impact investment and intends to promote its expertise in its dynamic move towards more standardisation of concepts, leveraging innovative investment methodologies and driving positive initiatives.
What opportunities are on the horizon for France within its asset servicing industry?
Treut: The pandemic has provided a tremendous catalyst for change and has created many opportunities and challenges for service providers.
Due to the rapid evolution, service providers must be at the side of fiduciary actors and move from simple service providers to true partners in many different areas: to support asset managers who need to meet all their commercial targets, address regulatory or operational challenges and to give them the ability to focus on their core activities and deliver performances. As such, asset servicers should be actively promoting new added-value services in several ways:
With operational outsourcing solutions for the new part of the value chain (dealing desks, middle office, portfolio management systems, etc) but also providing integration in platforms encompassing the largest suite of services from the front office to post-trade functions. In SGSS, it is CrossWise, an integrated front to back service offer for mid-size asset managers developed with Simcorp. In the private market world, SGSS is also developing a new advanced middle office service incorporating the widest functionalities to meet highly demanding private markets clients.
Taking the digitalisation of processes and communication to the next level is also one of the main outcomes of the COVID-19 crisis and we don’t see this trend stopping. Asset servicers are at the heart of this evolution and invest a great deal in data management to deliver a better client experience. As an example, at Societe Generale, we have been migrating all customer accesses to wholesale banking services to a single web platform called SG Markets, integrating application programme interfaces.
Supporting clients to navigate through regulations and to extract opportunities for business development is also a major request by clients. All regulations insist on transparency. For this need, SGSS is developing new possibilities for clients to enhance data usages through added value reporting covering the widest range of requests.
Accompanying investors and asset managers in the operational implementation of their ESG strategies. Whether in the investment decision process or ESG data management, SGSS can help them in the pre and post trade controls, reporting as well as monitoring their commitments in terms of corporate governance.
To support investors and asset managers’ strategy in all asset classes while integrating ESG issues and the appetite for digitisation, service providers are building partnerships with specialists and with cutting-edge fintechs/specialists to bring together the best expertise. At SGSS, we have selected and integrated in the value chains, partners such as Simcorp for CrossWise or MFex for fund distribution or the Fintech Addventa for automated factsheets comments generation.
How has T2S and the success of blockchain technology helped the French asset servicing industry?
Alain Rocher, head of knowledge management strategy and market infrastructure: The European Target 2 Securities (T2S) platform has completely fulfilled its objective of streamlining and securing settlement-delivery at European level. It makes it possible to process all transactions on interest rates, shares and Undertakings for Collective Investments (UCIs) in the Eurozone while also offering high-performance collateral management functions. The advent of T2S has undoubtedly greatly facilitated the harmonization of the status and role of central securities depositories (CSDs) in Europe.
As for blockchain, it is perhaps still too premature to speak of success insofar as it is only really successful for the management of cryptocurrencies like bitcoin for which it was specifically created. Regarding security tokens, there are still points to be clarified, in particular the responsibility of the issuer of security tokens in a blockchain (remember that bitcoins have no identifiable issuer). There is also the protection of investors in listed securities to be considered, which is in fact posed differently in a decentralised infrastructure such as the blockchain, compared to a centralised infrastructure such as a CSD.
What regulations are ongoing in France?
Rocher: In general, French regulations are very dependent on European regulations. France’s current thinking and work, therefore, essentially relates to revisions or new draft European directives and regulations.
The revisions concern, for example, CSDR; the regulation on central securities depositories and the Alternative Investment Fund Managers Directive (AIFMD); the directive on alternative investment funds, but also the Packaged retail investment and insurance products (PRIIPs) and Markets in Financial Instruments Regulation (MiFIR) for all matters relating to investor protection and information reporting, as well as how infrastructures work.
As regards new projects, they mainly relate to digital finance, sustainable finance and phase II of the Capital Market Union (CMU). In terms of digital finance, we are mainly focused on two legislative proposals on crypto-assets: one on the pilot regime for tokenised financial securities and the second on crypto-assets not currently covered by regulations (stable coins, utility tokens etc). Regarding sustainable finance, also known as ESG, for us, it is above all a question of seeing the impacts of the implementation of sustainability and transparency criteria on already existing regulations such as MIFIR, AIFMD or UCITS.
Phase II of the CMU impacts us on post-trade aspects and should only require a few adaptations of the Shareholders’ Law Directive, as well as certain improvements in withholding and tax recovery procedures. Although this is not a regulation strictly speaking, we are nevertheless also following major market initiatives such as the technical consolidation of the T2S and T2 platforms scheduled for November 2022, which will be accompanied by the migration of Swift payment messages according to the ISO 20022 standard. The same applies to the launch in November 2023 of the Eurosystem Collateral Management System (ECMS) platform for collateral management by the central banks of the Eurosystem.
