The demands of the European Commission’s vision for the Single Euro Payments Area (Sepa) have become more urgent and rigid, leaving little room for commercial forces but as Frances Maguire reports, legislation may be the only way to achieve full Economic and Monetary Union.
Traditionally, Swift’s involvement with non-financial institutions has been limited but now serious in-roads are being made to provide an easier way for corporates to benefit from the secure network.Frances Maguire reports.Back in 1996, the board of Swift rejected the suggestion that corporates might use the bank-owned co-operative’s network to communicate with their banks, instead of the banks’ proprietary systems. Until relatively recently only a select number of multinational corporates were able to access Swift, and even then only to confirm foreign exchange transactions with their bank counterparties.
Outsourcing offers the opportunity to pick and choose the best services and products from a provider that excels in that area. Frances Maguire looks at how this new model is changing the face of the financial services industry.Global consolidation, enabling large banks to compete locally through acquisition, and the subsequent pressure upon local banks to compete at a global level, are the two main drivers for a new focus upon outsourcing and white-labelling in the financial sector.
As if migration to Swift’s new internet protocol platform, SwiftNet, was not challenging enough, banks now need to find out how to best use the new technology. Frances Maguire examines why the payments industry is beating the securities users to the new offerings.From the beginning of this year, Swift began levying fines on banks that had not fully migrated from the old Swift X.25 network to SwiftNet in time. However, while SwiftNet gives banks a new roadway, migration is only half the story.
Having the right custody model in place entails being prepared to embrace change quickly. This year, it will be critical for banks to get tough on standardising in areas where they have strived to add value, says Frances Maguire.Custody, and its related services, has now become synonymous with large lift-out deals in which the custodian banks take over the systems and staff of fund managers’ back offices and run them. However, new research into the securities services sector argues strongly that the lift-out model is flawed and unsustainable, and that unless the custodian banks react quickly, they are leaving themselves open to selective cherry-picking by prime brokers and other specialists.
A swathe of outsourcing deals has seen global custodians moving into the middle offices of investment managers – and even edging towards the front offices. However, Frances Maguire finds that the global custodians are not taking their own advice on outsourcing.The custody market has already undergone a great deal of consolidation. Several Tier 1 banks have sold up their custody arms to one of the banks that now make up the top five largest global custodians, as custody was deemed a product offering that needed both scale and to be part of a wider business relationship to be profitable (see news story on Citigroup’s purchase of ABN Amro’s custody operation).
Frances Maguire profiles JPMorgan Chase’s ITS division. Newly renamed and empowered in 2001, it is set to grow organically and inorganically. Peter Lighte, head of Europe and Asia, believes that “being joined at the hip to the investment banking sector” is the secret of success
While the consultation continues on how the EU might achieve a harmonised infrastructure for cross-border transactions, Frances Maguire finds that another highly charged debate is going on: should ICSDs and CSDs compete with global custodian and agent banks?When is a bank, not a bank? When it’s an international central securities depository (ICSD). At present, both Europe’s ICSDs, Euroclear and Clearstream, are banks, and despite moves by Euroclear to restructure its banking and its depositories into separate entities, and the European Commission’s accusation that Clearstream is abusing its “dominant supplier position”, the fact still remains that both ICSDs offer “bank accounts” to their securities customers that do not pay interest.
Much has been said about the need for greater consolidation in the securities industry, especially to bring together the fragmented clearing and settlement infrastructure in Europe but, as Frances Maguire finds, consolidation is not always what it is cracked up to be.