European Custody Market Guide 2010

European Custody Market Guide 2010

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Euro Custody Survey
Plus: Country-by-country guide, CEE focus, legislation, unbundled services

Europe Examined

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Investor Services Journal | European Custody Market Guide 2010

Market Overview

European Custody
Market Guide 2010

S

ince the last European Custody Market Guide the financial world has encountered the most momentous 12 months in modern times. That some of the biggest financial institutions no longer exist - or exist independently – is only the beginning. Every institutional player connected with the custody industry from beneficial owners and private investors to service providers and exchanges – will have been challenged by declining and volatile global markets and will have had to address certain investment paradigms that until recently might have been assumed as certain. Losses incurred by this decline have not been ubiquitous, however. The hedge funds market has seen some winners through well-timed tactics, and indeed some of the biggest pension funds have been increasing their allocations into the alternative space – often as part of a long-term strategy. Similarly, the pension funds sector in Europe has pockets of relative success, and this sector’s emergence as the source of money lending has been intriguing. Innovations have also defined the landscape. Exchange traded funds have exploded among institutional investors. New multi-lateral trading facilities have fragmented the European trading landscape, with challenging implications for clearing and settlement. The lines be-

tween mainstream and alternative funds have been further blurred, demanding an ever-widening and agile service from custodian banks safekeeping the assets. A new terminology has also developed amid the turmoil. ‘Operational risk’ has broken out of the lexicon of middle and back office compliance to becoming a widely discussed and scrutinised concept. ‘Stability’ has become the most popular word for banks to market their services. European regulators and institutional investors alike have increased the pressure to address these buzzwords. In this market guide, Michelle Carroll of Kinetic Partners explores the disclosure requirements demanded of a custodian. Our exclusive ‘EuCu’ survey also uncovers the growing concern among institutional investors to understand the working of their service provider, as well as key insights into the frequency and size of new custody mandates. We also feature fascinating and timely insights from guest authors into Europe’s emerging region - from Russia and the Ukraine to the Baltic countries - as well as the growing demands for the best technology. As banks restructure, markets gain confidence and legislation currently in draft form solidifies, a new chapter has begun. n Ben Roberts, Editor
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Investor Services Journal | European Custody Market Guide 2010

Contents

Supplement editor: Ben Roberts ([email protected]) Senior account manager: Trish De La Grange ([email protected]) Account managers: Tarik Rekiouak ([email protected]) Business development managers: James Olweny ([email protected]) Mark Needham ([email protected]) Commercial director: Jon Hewson ([email protected]) Senior web developer: Peter Ainsworth ([email protected]) Operations manager: Sue Whittle ([email protected])

European Custody Market Guide 2010

Features 4 8 ISJ’s ‘EuCu’ Custody Survey Europe at a Glance

Legislation 14 16 IFRS 7 and the disclosure debate Fund Services Bundle Theory - Fund Services

CEO: Mark Latham ([email protected]) 2i Media 16-17 Little Portland Street London W1W 8BP T: +44 (0) 20 7299 7700 F: +44 (0) 20 7636 6044 W: www.ISJtv.com

Technology 20 The Technology Challenge, by Robert Mattsson Axen, Nordea Markets 22 26 28 Eastern Wisdom, by SEB Russia Market Player: Sberbank Key Company profiles

© 2009 2i Media All rights reserved. No part of this publication may be reproduced, in whole or in part, without prior written permission from the publishers. ISSN 1744-151X. Printed in the UK by Pensord Press.

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Our many years of experience and our high technical standards provide a firm foundation for your securities businesses. With a great deal of flexibility, we fulfill your own particular needs and also look after special wishes. If you want to know more about our comprehensive securities service (brokerage, custody, clearing services) in Austria and Central and Eastern Europe, please contact us at [email protected]

Let us take care of the precious things in your life.
You are in good hands with our custody service.

www.erstegroup.com

Investor Services Journal | European Custody Market Guide 2010

EuCu Survey

European Custody Survey 2009
Investor Services Journal invited the major custodian banks to give feedback as to the services they offer, the changing needs of their clients and how the difficult market circumstances generally has affected their business. For full results go to ISJ.tv/eucu09

1. Which of the following custody services or technologies do you provide to your clients? 16.7% Post trade services (eg, clearing) 15.8% Sub custody 14.2% Core custody 8.3% Client reporting 8.1% Securities lending 8.0% Cash management 6.4% Other 6.2% Fund administration 6.1% Transfer agency/accounting 5.9% Fee billing 4.3% Collateral management
Post-trade services such as clearing and sub-custody were the most common services offered by the institutions, followed by core custody. The graph shows the proportions for each ervice based on the statistics of if they only offered one (ie, the most common occurring services), though typically, most respondents offered multiple services (eg, sub-custody and fund administration). One respondent added that their clearing offering extended to remote members.

2. Please estimate the total value of mandates you have won per quarter for the last year.
This answer received a mixed set of results, which underlines the competitiveness of the industry along with the uneven market landscape. One respondent claimed that the average mandate won between the third and fourth quarter of 2008 increased from EUR6 million to EUR8 million. This dropped back to EUR7 million in the next quarter, with only EUR2 billion so far in the second quarter of 2009 when the survey was sent. Another reported that a mandate value of EUR300 million in the third quarter leapt to EUR1.8 billion ad was up to EUR3.5 billion for the beginning of 2009. But another had mandates of around EUR20 million for the third quarter of 2008, adding: “The value of portfolios were very low due to clients’ portfolio liquidation and low market ratio.”

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Trusted assurance
A global professional services boutique focused exclusively on the asset management industry
Since inception in 2005, Kinetic Partners has earned a reputation amongst investors as providing highly specialised audit professionals, supplying trustworthy assurance. Operating as one seamless, global team with high personal standards, we are fully committed to our responsibility to investors and to the asset management industry as a whole. We believe a valuable audit requires a personal, senior and hands on approach by a small, focused team, that will present an unbiased and independent approach to the betterment of investors but who is also willing to work with other service providers to reach solutions. Kinetic Partners is one global audit team with offices in London, Dublin, Grand Cayman, New York and Geneva providing services to various investment vehicles, onshore and offshore, ranging from private equity partnerships, credit funds, to long/short equity SPCs. An integrated team, we remove any need to transfer audit results from one geographical team to another, thus limiting the chances of last minute issues or missed filing deadlines and will remain responsible for your fund audit until its completion. Kinetic Partners provides a full range of audit and assurance, consulting, tax, technology, forensic, corporate recovery and corporate finance services to the asset management industry.

Michelle Carroll t: +44 20 7862 0845 +353 1 475 0520 e: [email protected] David Walker t: +1 345 623 9905 e: [email protected] Philip Briggs t: +44 20 7862 0827 e: [email protected] Neil Griggs t: +44 20 7862 0843 e: [email protected]

We are proud of our professionalism, skepticism, technical know how, understanding of the industry and our reliability. You will benefit from Kinetic Partners as your funds auditor, knowing that your trust is well placed; we look forward to building a strong partnership with you

www.kinetic-partners.com

Investor Services Journal | European Custody Market Guide 2010

EuCu Survey

3. Has this number of mandates increased or decreased from the previous year? Increased (66%) Unchanged (33%)
Overall, two-thirds of the respondents saw an increase in the number of mandates they had won in the last year. This could be because clients such as pension funds might seek to reallocate their assets and the emphasis of their investments, and so conduct request for proposals.

4. Has the average size of the mandates increased or decreased from the previous year?
Two-thirds of respondents also found that the average size of the mandates was roughly unchanged compared with the same period the previous year (ie, Q3 and 4 in 2008; Q1 and 2 2009). This may seem surprising given the background pressures on pension fund assets over the last year that has led to today’s debate concerning beneficial owners’ access to the proceeds from cash collateral pools in the US

Unchanged Increased

5. Please rank what you perceive to be the level of importance for each issue for your client? (1 high importance to 6 no importance) Operational risk Regulatory compliance Transparency of operations Transparency of cost Corporate actions 1 57.3 17.2 0.8% 12.1 0 2 0 32.9 42.8 28.5 17.6 3 14.2 15.1 14.7 16.3 15.6 4 28.5 34.8 13.2 0 35.2 5 0 0 28.5 42.8 14.5 6 0 0 0 0 17.1

This question produced perhaps the most intriguing results. Operational risk was perceived as a highly important concern among the clients of the custodians, with more than half giving it the top ranking. Regulatory compliance was deemed the next most pressing, with almost 50% choosing 1 or 2 for importance. By contrast, all respondents ranked portfolio reevaluation as a matter of little importance compared to the other topics of discussion. In the middle, the transparency of cost was deemed a concern for many, though more than 40% believed it less necessary. Corporate actions was almost evenly weighed in importance.

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Investor Services Journal | European Custody Market Guide 2010

EuCu Survey

6. Which of these scenarios do you think would have the most significant effect on custody and secyurities services this year ? (1 high importance to 6 little or no importance) 1 2 3 4 5 6 17.2 28.9 19.5 New/More MTFs 12.5 15.8 6.1 0 35 29.2 32.4 3.2 Further short selling bans 0.2 14.5 15.2 17.2 14.5 2.6 Increased reg. on alt. funds 36 32 48.9 15.6 1.5 0.3 Increased requirements on reporting 1.7 0 0 Market stability 52.6 31.9 17.4 0.1 0 0 0 84.1 Global solution for transfer agency 15.9 0
Custodians believed that market stability is the key factor to the rest of the year – with half giving it the ‘highest importance’ ranking. The increased regulation of alternative funds would be the next issue influential on the custody market. These responses were likely have been given soon after the already-contentious draft directive from the European Commission that will restrict the operations of hedge funds in Europe unless they comply to certain leverage and administrative standards. Certainly US pension funds have been staunch in their allocation to alternative assets during the financial crisis, with funds such as CalPERS hinting that it may increase its allocation in some areas, such as private equity. The feedback on the importance of a global tranfer agency offering was curiously split between extremes; this could be influenced by the emphasis each custodian has on this service.

7. An increased number of pension funds in the last year are seeking an unbundled service where, for example, their provider of core custody is separate from their agent lender or collateral manager. Have you perceived an increase in enquiries for unbundled services? Yes Unchanged Decreased
In extension to the importance for the client of the transparency of what they are paying for, half of custodians reported that there has been an increase in the amount of conversations they are having regarding the ‘unbundling’ of services.

8. Are you expanding into new markets this year?

“NO”

All respondents replied in the negative. Some might have expanded their network enough for the time being; some might be reneging on previous plans. Probably most commonly, custodians are seeking to consolidate and secure existing relationships until more stable market conditions occur, and so are shelving expansion plans in the meantime. n
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Investor Services Journal | European Custody Market Guide 2010

Market Overview

Europe examined
A guide to the major custody markets across the continent and an update on the events over the past year

Austria
ustria remains a vital sub-custody gateway for US and European banks to gain access to central and Eastern Europe. Though some market players had increasingly seen more traffic coming the other way – from diversifying fund clients in Czech Republic looking for exposure into more developed markets – the pressures on the region as a result of the withdrawal of foreign investment greatly reduced this. The three significant players in sub-custody are Erste Bank, Raiffeisen and Bank Austria/ UniCredit. Erste Group AG has around 50% of the market share for assets under custody, with the other two banks commanding around 60% based on transactions as they have clients based on the broker-dealer community. By mid last year Erste had bought up 10 banks in the CEE region. Alexander Schleifer, head of custody at the bank, told ISJ at the time: “We see that there is a demand, clients are using the banks we acquired for several securities services, we developed the
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custody services in these new countries, we see interest and demands from our existing clients, a lot of RFPs asking what we can offer in these markets.” “The CEE banks we bought up were more or less retail banks, so we have a strong retail base of domestic clients investing in the home market but also abroad and using the Erste Group for securities services. This is currently one of the big projects, to further develop the custody service they offer to domestic clients and to foreign clients and this is how we as an Austrian based company expanded our regional approach.” The expansion in this way has become more prominent, as there is growing consensus that the niche providers serving a single market will have found, and will continue to find, the environment difficult in attracting mandates. Bank Austria/UniCredit is the biggest custodian for international brokers, and has relationships with global custodians such as BNY Mellon. The legislative system in the

Investor Services Journal | European Custody Market Guide 2010

Market Overview

country is very similar to Germany. Austria has one of the most technologically advanced central securities depositaries in the world, and the low market risks and high settlement rate as key elements of its growing reputation. For investors, the special purpose vehicles allow a saving in capital gains tax (CGT) whereby a CGT payment I only made upon the distribtuon of the fund, so capital can be built up over time. Any external bank wanting to set up an SPV in the country require a license

Market wisdom:
“The biggest problem for the Austrian market is its small size. There is a lot of stock at critical mass that is under the radar.” Gunter Schnaitt

Statistically speaking:
RZB: Number of asset management companies: 4 Number of funds: 469 Asset under custody: EUR38.2 billion.

Benelux
Belgium, the Netherlands and Luxembourg have great variety between them in terms of pension fund history, fund types, investment outlooks and service. In the Netherlands, pension fund are overseen by a board of trustees, a fiduciary manager and a custodian. A fiduciary manager will hire and fire the asset managers, sculpt the tactical asset allocation and help the trustees – who have ultimate responsibility for the fund – define a strategy. They will also hire the custodian,

which can give an independent view while providing core and ancilliary custodial services. How pension funds are valued, and the frequency of valuation, has been one of the most significant events in the Dutch market in what has been called the New Financial Framework. Asset/liability ratios before were calculated as if the interest rate was fixed at 4%. Now, the Dutch National Bank demands that asset/liability calculation is based on the real interest rates – which had dropped at the end of 2008 - with a pension fund altering its exposures in accordance. Thus, a greater balance was struck between the asset side and the liability side. More frequent adjustments to portfolio calculation continue to shorten the investment outlook for many pension funds. In recent months, Dutch pension funds have been hit by sharp declines in their funding ratios. As a result most of the funds regulated by the De Nederlansche Bank had to submit a proposal that stipulated their plans for recovery. According to statistics at Bureau Bosch, the biggest pension funds have been hit the hardest. The ABP fund’s finding level declined by 50% from 140% to 90%. The DNB usually requires a three-year investment plan when funds drop below 105% funded. This has been extended based on the economic circumstances. In Belgium, there are three pillars of pensions: the state plan, the corporate plan and the private plan – and the country is dominated by the first and third pillars. A government pension plan is more generous in Belgium than a lot of markets, and there are tax breaks for private plans, meaning the corporate plans are playing catch up. Luxembourg has an expertise for domiciling funds. It has been more than two years since the legal draft for specialised investment funds that replaced
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Investor Services Journal | European Custody Market Guide 2010

Market Overview

the undertakings for collective investment legislation. SIFs have a looser regulatory structure and attractive tax regime. Domiciled funds, plus insurance and reinsurance funds are putting their assets in custody accounts, according to Olivier Scherrer at BNP Paribas. SIFs also provide access to funds of hedge funds, private equity and real estate. The country has also seen an increase in ETFs launches.

Market wisdom:
“Domiciled funds as well as insurance and reinsurance funds are putting their assets in Luxembourg custody accounts... the lightly regulated SIFs allow qualified investors a wide investment policy ” – Olivier Scherrer, BNP Paribas

Statistically speaking:
BNP Paribas’ assets under custody: Belgium 9%, Netherlands 7%, Luxembourg, 84% (Source: BNP Paribas)

France
The French market has plentiful opportunities for custodians, and in particularly strong and varied in the insurance and private equity markets. For the non-resident market, the dominant player remains BNP Paribas. In the domestic market, BNP Paribas is joined by Societe Generale Securities Services and Caceis, the fund administrator. In the domestic market, large insurance companies such as Axa often manage their in-house reserves. This can include life insurance policies, which allow retail investors to buy securities or shares of funds
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in a wrapper that is tax efficient. These companies - whether purely French or part of a foreign parent, such as Allianz – therefore need custodians for the accounting and administration. These insurance companies also promote the asset management services to third parties – such as pension plans or fund of funds managers. There are also, of course, the traditional asset management companies such as Credit Agricole Asset Management and independent asset management companies that have between five and 15 billion such as Metropole Gestion – where people buy shares of these funds but also a mandate to these firms for managing assets. The third strand of asset management is private equity. Some of the largest international private equity firms have a subsidiary in France, such as 3i and Blackstone, and these firms are managing French domiciled private equity funds and they have been growing very quickly and this business is very large. The fourth type of management is real estate. Such companies, like the insurance firms have been are setting up their own asset management companies to manage the real estate assets they have in their books.

Market wisdom:
“What is interesting in the French market is that, contrary to maybe all European markets, it’s dominated by services provided by banks that are originally French” – Sebastien Danloy, SGSS

Ireland
Despite the pressures on the Irish economy, the country remains a home for many custodian banks and domiciled funds, including hedge funds. The country services

Investor Services Journal | European Custody Market Guide 2010

Market Overview

approximately one-third of the world’s hedge fund assets, and is a strong advocate of the UCITS model. There is a significant business in custody for both Irish-domiciled funds and nonIrish funds based in centres such as Cayman and Bermuda. The ‘bundled’ custody service has as strong tradition in Ireland because it is a more institutional market place than other domiciles. Ireland has also witnessed the increase in hedge funds seeking to launch UCITS products in the market, as much for the opportunity to gain assets under management as a drive for greater compliance with regulatory scrutiny. The best news is that with significant achievement over the last 20 years the regulatory environment in Ireland has an enviable reputation when it comes to international best practise. An acknowledged open and transparent tax regime, Ireland is the only international location of significance not to be included in the many lists of “offshore” jurisdictions. Funds of funds - particularly funds of hedge funds, have seen significant redemptions from institutional investors and high net worth clients, principally due to liquidity issues. Dublin has been a key recipient in the growth in the European ETF industry, which reached EUR91.228 billion in assets under management at the end of 2008, according to data from Lyxor Asset Management.

Statistically speaking:
Total funds administered in Ireland Q3 2008: 10,899 Q4 2008: 10,855 Q1 2009: 10,704 (Source: Central Bank and Financial Services Authority and IFIA)

Italy
Declines in the final payout in statefunded TFR schemes has encouraged more Italian workers to move from a government pension to those invested in market-based funds. At the same time, the financial fallout has wiped an estimated EUR300 billion off of the balance sheets of these funds. The choice between a state and private scheme is currently irreversible – a contentious issue that has slid down the list of priorities of the Italian authorities in the last year. A minority of workers moved into the market-based funds scheme, though the market losses were still significant. Further, some say that more people - and their companies in turn - need to focus on ‘topping up’ their retirement with private schemes and escape the traditional mindset of a sufficient state-based scheme. But the mutual funds industry remains curtailed by uneven regulation. Funds domiciled in Italy are taxed daily based on their net asset value; funds domiciled elsewhere are only taxed when the holding is sold, putting the domestic funds at a disadvantage, and the daily tax has two effects: firstly, reporting performance that already factors in the tax often gives them a lower return compared to those domiciled elsewhere. Performance pressures has caused a lot of consolidation in the funds market.
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Market wisdom:
“Even during the market meltdown of 2008, investors worldwide poured more than USD260 billion into ETFs. To date, Ireland has been the domicile of choice for cross border ETFs in Europe” - Andy O’ Callaghan, PricewaterhouseCoopers

Investor Services Journal | European Custody Market Guide 2010

Market Overview

Market wisdom:
“There was a lot of emphasis on the new pension fund industry in Italy when it was launched after the 1993 reform, but it didn’t really take off because of the mindset of the population.” – Stefano Catanzaro, BNP Paribas

and Burgundy – a platform owned by a consortium of 12 Nordic banks – has potential to boost the market. Banks such as the Swedish firm SEB continue to expand into the Baltic region and Russia. At the end of 2008 the bank had 660 offices.

Market wisdom:

Nordic region
The Nordic market is starting to pick up in the downturn. For custodians, transaction volumes declined after an October 2008 peak though are now returning to pre-September 2008 levels. In Norway the short selling ban is still in place. Danske Bank in Denmark has a securities lending operation though few banks have the facilities to engage with the bank’s repo or share buy-back deals, according to sources. The increase in the cost of collateral is adding costs to custody charges overall. Equities, particularly large cap, have been favoured by many institutional investors over more alternative products. In January 2009 four financial services and securities bodies – the Federation of Finnish Financial Services, the Danish Securities Dealers Association, the Norwegian Securities Dealers Association and the Swedish Securities Dealers Association created a joint organisation called the Nordic Securities Association. The body attempts to harmonise regulation across the region. In the same month, Euroclear Nederland (NEC) and Finnish Central Securities Depository (APK) terminated the link between the two countries. Greater liquidity and trading volume has been introducted to the markets following the establishment of new MTFs
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“In sub-custody, 2009 money will be spent primarily on mandatory investments following the reshaping of the Nordic markets that follows the re-shaping of the nordic markets that follows rom the implementation of central counterparty clearing” – Ulf Noren, SEB

Russia
Despite the inroads into the securities services market by banks such as SEB, Russia remains a challenge for foreign investors. Just a few banks, such as ING, act as subcustodians for the global players, though local players such as Rosbank and VTB are gaining market share. Perhaps most significantly, the country still lacks a central securities depository – one characteristic that tends to divide ‘developed’ and ‘emerging’ markets. Despite talk since 1998, and a new provisional date set for 2013, it is difficult to see the two main depositories in the country – DCC and the NDC – will be joined with a more internationally friendly partner. No CSD still puts a premium on trading, with assets held in the name of the sub-custodian with their registrars. The lack of set regulation for corporate actions remains another stumbling block. A company is frequently only obliged to pay dividends within the calendar year, rather than the typical Western standard of 30

Investor Services Journal | European Custody Market Guide 2010

Market Overview

days. The market also still lacks a deliveryversus-payment mechanism, though some custodians make individual deals with their sub-custodians.

company’s overview for 2008.

Market wisdom:
“In the face of a far-reaching liquidity crunch, the stock exchanges have emerged as a clear liquidity benchmark and a model of reliability and transparency” Antonio Zoido, chairman and CEO, BME n

Market wisdom:
“Foreign players don’t have enough understanding of the local market because traditionally they have only catered for the global book” – Rami Bourgi, SGSS

Spain
The Spanish custody market is dominated by Banco Santander, BBVA, BNP Paribas and Citi, with additional service innovations from RBC Dexia, although for the majority of foreign players the country still represents a tough nut to crack. Unless you are a Spanish bank, or have more than a certain number of people in the market or a developed retail branch, options are few, though there are no restrictions if you are a global custodian holding Spanish assets for clients domiciled elsewhere. Pension pooling – where a large multinational brings together all its individual country and regional pensions within a single fund to benefit from the economy of scale – is not yet a significant part of the Spanish custody landscape. The Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A, or BME, the holding company that has integrated the stock exchanges, AIAF fixed income market, derivatives market and the country’s clearing and settlement systems, including IBERCLEAR, is the largest market in the world for corporate debt trading volume, at EUR2.4 trillion, and the third largest stock exchange in Europe, according to the

Investor Services Journal | European Custody Market Guide 2010

Legislation

IFRS 7 and the disclosure debate
Michelle Carroll at Kinetic Partners analyses the progression of disclosure regulation and what it means for custodians
In August 2005, the International Accounting Standards Board (IASB) issued IFRS 7 “Financial Instruments: Disclosures” to be applied to investment funds for annual periods commencing on or after 1st January, 2007. No one at that time thought this meant that the standard would apply to exposure to prime brokers. The evolution of funds disclosure shows how the interpretation of the funds’ risks has moved. Concentration risk was supposed to be about geographies or instruments, not global trading infrastructure. In fund financial statements today, not only are there realms of data regarding specific financial instruments under IFRS 7 but there is also notes regarding the prime

s we currently all lurch our way through finalising fund financial statements, there are patterns developing regarding disclosure. Making the appropriate amount of disclosure has never been so keenly felt. I am a fan of the principals guidance supported (ever decreasingly) by the International Financial Reporting Standards (IFRS). But one man’s interpretation of “material risk” is not necessarily another’s and this is where animated debate can come to border on being a marked waste of precious time, where there is a lack of common direction as to what appropriate disclosure means. Specifically I want to discuss the qualitative disclosures required under IFRS 7 and the implications for custodians. Twelve months ago, who would have thought about custodian risk and IFRS 7 in the same context. But today, post Lehman Brothers, post Madoff, post Weavering, we are - or at least we should be - thinking about what disclosure we should be making regarding all fund third party providers albeit, I don’t think that IFRS 7 was ever written with the intention of disclosing exposures to third party providers.
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“Twelve months ago, who would have thought about custodian risk and IFRS 7 in the same context”
broker relationship and the custodian relationship. Paragraph 31 of IFRS 7 states that: “An entity shall disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the reporting date.” It goes on to say that narration of how that risk has been managed is also required. And thus, where two years ago there may have been only minor mention of third party contractors, today’s accounts provide a much fuller picture of the relationship as a risk to

Investor Services Journal | European Custody Market Guide 2010

Legislation

“If the worst case scenario were to present itself, and litigation were on the horizon, I want to know I have robust support in place behind my decision not to disclose”
be managed, not as a provider of services to the fund. Although generally, third party contractors have been reluctant to disclose details of remuneration or service level agreements, the flip side is that in this more litigious environment, a lack of appropriate disclosure can be an extremely high risk and costly omission. Particularly for those custodians taking on dual roles, say acting as trustee or prime broker. As an example, I have not seen any fund financial statements which disclose all the sub-custodians or how the risks of the use of the sub-custodian are managed. But should we be asking ourselves, why not? I’m not advocating disclosure of sub-custodian relationships but what I am advocating is that, if the worse case scenario were to present itself and litigation were on the horizon, I want to know I have robust support in place behind my decision not to disclose. To make good, sensible disclosure, I think the following helps bring things back to grass roots. None of this is rocket science, but with everybody re-writing disclosures with their own agenda in hand, I think this simple guidance makes sure that everyone understands what is required. The appropriate amount of disclosure is a balance of: • 1. providing useful information to the users of the financial statements,

• • •

2. meeting the relevant accounting standards (in both letter and spirit), 3. not putting the fund at a disadvantage by disclosing too much, but, 4. at the same time, not exposing the fund if there were to be litigation by disclosing too little.

There is an opportunity to use this discussion of IFRS 7 disclosure as a way of uncovering how comfortable directors and management are with their providers and the service level agreements (SLAs) or contracts they have in place. Directors are responsible for providing useful information in the funds financial statements and if they have a third party provider unwilling to assist with this disclosure, maybe further interrogation is required to ensure that the best interests of the investor are being met. Maybe these debates are not entirely without merit after all. n
About The Author Michelle Carroll Expertise Audit & assurance Career summary Before joining Kinetic Partners, Michelle worked for PricewaterhouseCoopers (PwC) in Sydney and London, specialising in assurance reporting within the investment management industry in both countries. She has gained global experience working in IM markets in Luxembourg, Monaco and Bermuda. While at PwC she focused on Corporate Governance, specifically controls assurance reporting to support the growing market demand for further transparency over third party providers. Michelle’s specialist skills include risk management and auditing of investment funds, including reporting under s404 of the Sarbanes Oxley Act. t: +44 20 7862 0845 e: [email protected]
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Investor Services Journal | European Custody Market Guide 2010

Service Styles

Bundle theory - fund services

The desire to offer the maximum number of fund services to a client has kept alove the market debate surrounding the price and value of bundled, or unbundled, custody. Anthony Harrington gets market insight.

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he drive towards cost control and value for money by fund managers in all sectors, from the pension funds to mutual funds and even the hedge fund sector, has been sharpened the losses sustained through the downturn. In a buoyant market there is less immediate concern about the loss of one or two points; in a falling market, every penny counts. This has intensified the debate around bundled versus unbundled services from suppliers.

Chris Adams, global product head, alternative funds at BNP Paribas, has responsibility for all the bank’s service offerings to hedge funds. He argues that the bundling/unbundling argument has a degree of complexity to it. The old adage that it is easier to sell seven products to one client than one product to seven clients is of course as true in this space as in any other. But the more services a client takes from a new service provider, the more the execution risk involved in delivering those services, particularly in the transition period from one service provider to another, increases. “In particular, with some of the large outsourcing deals we have seen in the last five or so years, the execution risk is massive. For large multi national clients with multi asset classes, and with significant numbers of people involved, the level of consumption of management attention, IT time, oversight and governance is huge,” he says.

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Investor Services Journal | European Custody Market Guide 2010

Service Styles

This provides an important context, he suggests, to the natural desire of service providers to deliver the maximum possible portfolio of services to clients. “The issue is, how do you get to this point from start up? Some of the big deals in the industry are still in the process of migrating services five years into this kind of all-in contract, and that is not comfortable for anyone involved,” he says. Trying to transact a transition of this magnitude to a complete bundled offering in one “big bang” moment is phenomenally difficult. He adds that another defining context to the debate is that there are very few asset managers who wake up in the morning and say to themselves, “Wow, I am really looking forward to working with my service provider today!”. In the real world the client wants the service provider to be essentially invisible as the service level agreement is achieved 100% of the time, and for the job to simply get done at a reasonable price. However, since clients always have a change agenda of one sort or another, there are always ongoing meetings with service providers. The problem with the unbundled “best of breed” approach, he suggests, is that it is self evident that from the client’s standpoint, interacting with seven service providers is much more complex and has much more of a management overhead associated with it, than dealing with one provider. Moreover, identifying the source of an error can be vastly more complex when there are multiple service providers. Another point, he says, is that “other things being equal, clients will get a better price for each service with a bundled set of services.” Moreover, there are some services that will just not be on the table unless the client has taken a bundle of services. In BNP Paribas’s case, this might be maintaining the shareholder register, for example. “We know what we need to receive to make an

“Some of the big deals in the industry are still in the process of migrating services five years into this kind of all-in contract” Chris Adams, BNP Paribas
acceptable return, based on the cost and the risk of delivering particular services and there are some that are just not economical in and of themselves as sole services,” he says. Bank of New York Mellon (BNY Mellon) provides tailored services for hedge fund and prime brokers, financial institutions and pension funds. Staffan Ahlner, who heads up the BNY Mellon’s global collateral team, says that people have been “taking a hard look at bundling” both from the client and from the service providers’ perspective. “In particular, what is driving this is that the traditional assumption that profitable activities would pay for less profitable activities is having to be rethought as a consequence of changed market circumstances,” he says. Declines in profitability of traditionally profitable areas have caused service providers’ profitability models to falter. Daron Pearce, head of UK and Ireland at BNY Mellon Asset Servicing says that what investment managers are looking for from supplier relationships is simplicity and control. “We can simplify their
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Investor Services Journal | European Custody Market Guide 2010

Service Styles

arrangements and structures and make their lives easier. However, we should not pretend that operational matters are always top of their agenda,” he says. Pearce argues that it is perfectly possible to provide fee transparency in a bundled arrangement. “We quite often have bundled arrangements but very transparent, unitised fee arrangements. Even where you have dynamic drivers for costs, such as transaction volumes and reporting frequencies, you can still get a very clear sense of the charging structure in a bundled service,” he says. BNY Mellon has a broad, sophisticated asset servicing product capability, and no two clients will take exactly the same mix of services, so even in a bundled arrangement there is a lot of tailoring, he points out. Mark Westwell, senior vice president and head of customer management in the UK for State Street, says investment managers want the bill they receive at the end of the month to be relevant and compatible with the service they receive and with the types of fees that their peer groups are paying in the market. “One of the big changes we are seeing is the move from segregated funds to pooled vehicle portfolios. Where funds used to invest directly into the markets, they are now moving to buying units in pooled vehicles and this changes the nature of the service provision,” he says. Traditionally State Street would have earned part of its fees from custody provision, but that falls away in a pooled investment, so the pricing dynamic has to change. Similarly, State Street and other providers are seeing much more of a move by investment managers to OTC derivatives trading. “Many of the historic fee structures in place did not reflect the right pricing for this new approach,” he says. As growth in OTC derivatives increases, there is much more demand for collateral management services, and that in turn changes the
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dynamics of the price agreement between service provider and client. “We have also seen a considerable growth in passive hedging strategies by pension funds to cover their global equity investment exposure, since their liabilities are in Sterling,” he adds. At the same time, there has been a very sustained growth in interest in performance measurement and risk management services. “How does all this flow back to service pricing? Clearly some of the traditional pricing approaches are no longer as appropriate as they were,” he says.

“Where funds used to invest directly into the markets, they are now moving to buy units in pooled vehicles” Mark Westwall, State Street
Every service provider with an interest in developing their own business will naturally look at their relationship with every client from the standpoint of that client’s impact on the provider’s P&L. So if whole tranches of fees drop away because of changes in the client’s investment model, the providers costs will increase and some difficult conversations will have to take place to ensure that the relationship returns to a suitable level of profitability for the provider. While clients have a natural interest in finding the lowest fee structure that is compatible with the standard of service that they are seeking, it is a foolish manager indeed who diverts energy into trying to cut the supplier’s revenue to the bone. This is an industry that needs sophisticated support and that does not come free, bundled or unbundled. n

Custody services with a broader horizon
Are you looking for a single point of entry to the Nordic and Baltic region? Or do you have your eyes set on a specific local market? Nordea is the leading Nordic custodian and the only truly Nordic player with well-established banks in Finland, Denmark, Sweden and Norway as well as a strong presence in the Baltic countries. A dedicated relationship manager supported by a specialist team will always be able to offer you a winning combination of regional competence and local insight. Our size, experience and connections with key players make us a sustainable provider in the evolving Nordic and Baltic securities markets. To capitalise on our expertise, please contact Ms. Anne-Lise Kristiansen, tel +47 2248 6238, email: [email protected], Ms. Nina Groth, tel +45 3333 6124, email: [email protected] or Mr. Teemu Pihlatie, tel +358 9 165 51008, email: [email protected].

nordea.com

Making it possible

Nordea Bank

Investor Services Journal | European Custody Market Guide 2010

New Architecture

Technology challenge

Amid wider trading innovations, custodians must also ensure they have the best systems, writes Robert Mattsson Axen of Nordea

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here are a number of challenges for the custody business which put pressure on one of the most vital parts of our way of performing and serving as custodians: our technology. The world is changing at a very high pace. This puts pressure on all custodians to further develop their technological and infrastructural capabilities.

Evolving market
We see a world where new MTFs pop-up with new technology and the old regulated exchanges are switching their trading platforms to new ones. On the CSD level we see plans to switch, develop and change the infrastructure. T2S is reality in just a couple of years, and in at least Sweden and Finland we will join Euroclear’s Single Platform. We see that CCPs are entering the new markets like the Nordics. And clearly, if SWIFT’s new XML standard messaging and format
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ISO20022 will pick up speed these new solutions will definitely affect the securities industry in the future. We also see a greater service demand from our clients, together with regulators, requiring more information and reporting. Simultaneously there is a pressure to lower the price for the services delivered. Last but not least, we should never lose track of all necessary controls and processes that need to be in place in order to keep the operational risks to a minimum. All in all, as custodians sit in the middle of all this, it requires technologies that are up to the task. Custodians need systems that are prepared to survive in an ever-changing world. Generally custodians use in-house built systems that have been developed during a number of years, including masses of knowledge and functionality, and to a great extent they are very efficient with low cost. But often these systems are developed in a world that evolves in a fairly stable

Investor Services Journal | European Custody Market Guide 2010

New Architecture

fashion. The world we see now is where you would like to use the important components and features (stable, efficient and with low running cost) with new appended features. These new attributes are speed and flexibility. In summary we already know that there will be changes, but not in more detail what the changes will be. Therefore it is important that a custodian has considered and solved the following characteristics regarding technology in the next coming years:

Speed
Speed in the custody world is not the same thing as for front office. For us there are two areas where speed is important and where our systems need to support our business with. First, it is how fast we as a custodian can adapt to a new business environment and the requirements on our business. Second, it is how fast we as custodian could find potential problems and resolve them. This is what we require of

“Custodians need systems that are prepared to survive in an ever-changing world” Connectivity
With a number of changes in the world around us, custodians need to ensure that they have good connectivity and integration possibilities both externally but also internally. SWIFT is usually the main communication channel for custodians, but in order to adapt to both the infrastructural changes and the demands from clients as well as other stakeholders, custodians need to have platforms that offer other integration possibilities at the same time. our systems ie changes can be implemented quickly and that the systems support our personnel to find and sort out open issues. The custodians already have a system like this in place or have technology providers delivering this type of solution to a relative low cost will be the winners in the years to come. A very important issue regarding technology in the coming years is how you manage to get to a IT cost structure that could adapt to the new changes and challenges - ie, how you could move from a normally high fixed IT cost to a variable cost base. In general, the custodians and technology providers that succeed to be on top of the infrastructural changes and challenges will definitely have a more pleasant journey.n About The Author Robert Mattsson Axen has 20 years experience in financial services. He has worked in positions in product development and client relations for banks, broker dealers and service providers. Prior to joining Nordea he was responsible for OMX Front Office products worldwide.
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Flexibility
Integration is a key part, but also flexibility in the system. You need systems that can adopt to a changing environment, where probably your internal processes and procedures need to change and the technology has to support that. Your clients and also the regulators will require new type of information and reports. Depending on your clients this could vary and the systems need to be flexible to cope with this.

Investor Services Journal | European Custody Market Guide 2010

Central & Eastern Europe

Eastern wisdom
SEB examines the investment environment of a number of Central & Eastern European markets and assesses their potential as custody service markets
EB is a major European provider of Custody Services with a strong grip of the four Nordic Markets (Denmark, Finland, Norway and Sweden) and has established a presence in the Baltic custody arena since 2000. The bank enjoys a dominating market share in Lithuania and between 35% and 40% market share in Estonia and Latvia, following several major mandate wins the last two years. In 2006 SEB established Custody Services in Ukraine where rapid growth has taken SEB to a top-four position in the market and the latest addition in the CEE is Russia where SEB started up in 2008. SEB is among the six largest providers of sub-custody services also in the Russian market. This growth in all five CEE markets we service is primarily coming from the need of the clients to have a model where a regional assimilation of services, expecting the service levels and level of commitment in the CEE to mirror those of the Nordics From a custody perspective, all three Baltic markets are small with a market cap far less than EUR15 billion. The major infrastructure investments in the three Baltic markets was taken in connection with OMX’s acquisitions of the exchanges and central securities depositories (CSD) and no major investment has been made in infrastructure lately. The markets function well and international investors will easily feel themselves as home here as in any developed Western European market.
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We see a lack of consistent regulatory environment, an absence of asset servicing guidelines, very strict and cumbersome documentary needs, lack of a DVP-environment, obstacles relating to currency regulation and the comparably instable political environment. Paired with a somewhat un clear attitude towards international investor protection, the challenges are manifold and not solved over night.

Ukraine

In Ukraine, the expected consolidation of the exchanges and trading platforms is slow but consolidation of trading volumes have already happened to a great extent. The creation of a CSD with real CSD features is very good news and key to the market. SEB, together with ING, Citi and Unicredit, has established a forum for best market practice and nourishes high hopes for this forum to make a difference in introducing further internationally accepted mechanisms into this interesting market. We expect the Ukrainian market to add more foreign suppliers to the pamphlet and that a consolidation will only happen once the market has reached more of its full potential. SEB has a very experienced, passionate and energetic team in Kiev that in many areas nare driving the market although the banks history

Investor Services Journal | European Custody Market Guide 2010

Central and Eastern Europe

in Ukraine is comparatively short.

Russia
SEB started Russian sub-custody in St Petersburg in August 2008. SEB is a full service provider and we have put substantial focus into building superior Asset Servicing capabilities as: • Corporate governance issues are still a concern • Non-contractual, manual, timeconsuming and labour-intensive • No single source of information (issuers, “de facto” CSDs, data-vendors, mass media) • Dividends can be paid annually and quarterly • No pay date, no ex date principles (payment period is in place) • Record date determines entitlements • No automated electronic data feed • Claims of entitlement is not supported by market infrastructure An equally important factor has been to cater for an organisation that to an unusually great extent focus to mitigate the major market risks. In order to do that, a major study pre-opening identified and outlined ways to mitigate the following risks: • Absence of a CSD • Absence of a foreign nominee concept • Manual registration process and wide geographical distribution of registrars • No centralised source of corporate actions information • No true DVP, offshore settlements in USD • No fixed settlement date for equities • Delays in dividend payments • Proxy Voting – no split bulletins • Tax Exemption/Reclaim processes
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A lot of the international focus the past 6-7 months have been on the economy in the CEE states and the degree of problems they are running into in trhe midst of this unprecedented crisis.

Economics in focus
The problems in Central and Eastern Europe will not be easily resolved, despite bail-outs from the IMF and others. CEE is the region of the world that has been hit hardest by the global credit crisis and recession. One major reason is that for a relatively long time, economic growth was based on credit expansion and borrowing in foreign currencies. A continued credit crunch – mainly due to contraction of financing channels from the West – will have increasingly adverse effects on investments and consumption. The economic downturn will thus be pronounced during 2009, especially so in the three Baltic Markets and Ukraine. These four markets are countries characterised by large external imbalances. They have very large financing needs, after often explosive credit growth. The share of total borrowing denominated in foreign currencies is very high. Standing outside this gloomy picture is commodity producer Russia. The region’s largest economy entered the current crisis with sizeable budget and current account surpluses, which will turn into deficits this year due to lower energy prices. Russia, too, experienced a rapid build-up in private debt, but foreign loans represent a reasonable 30 per cent of total borrowing. The banking system is backed by the government’s strong financial resources, but smaller privately owned banks are under pressure and some of them may not survive. more.

Investor Services Journal | European Custody Market Guide 2010

Central and Eastern Europe

A bit more on the Baltics

Because of the acute crisis, Central and Eastern Europe need various forms of help from the IMF, EU and individual Western European countries to sustain their financial systems. The G20 meeting in early April manifested a desire to provide expanded aid to vulnerable economies via the IMF and other channels. The financial systemic risk has decreased. The region’s economies will remain sensitive to shifts in general risk appetite in the financial markets as well as continued downgrades in the credit ratings on their borrowing. The recession in the Baltic countries will be very deep and lengthy. The global outlook has darkened and their competitiveness has weakened further. Currency depreciations elsewhere in Central and Eastern Europe, as well as in Sweden – which is an important market for Estonia – are squeezing exports. Meanwhile the Baltic governments are continuing their painful austerity policies; in Estonia and Latvia further fiscal tightening measures are on the way. The Baltics are combating economic imbalances by means of pay and price cuts, or “internal devaluation”. Certain leading indicators have admittedly shown clear signs of stabilisation in recent months. This is mainly true of household optimism. In manufacturing, however, indicators have continued their slide and remain at record-low levels. This means that no economic recovery is imminent, although GDP declines will slow during the second half of 2009. We expect Estonia’s GDP to fall by 12% this year and 2.3% in 2010. Latvia’s economic slide will be in the same range: 14 and 3%, respectively. Lithuania’s downturn will be 9 and 3.5%. These economic collapses are a reaction to previous overheating, which was driven by exploding credit and property markets, most accentuated in Latvia and Estonia.

“The region’s economies will remain sensitive to shifts in general risk appetite in the financial markets, as well as continued downgrades in the credit ratings on their borrowing”
Because of the drastic downturn in domestic demand, the two fundamental imbalances in the Baltic economies – large current account deficits and high wage-driven inflation – will ease. This trend has already made some headway, especially in Estonia. Current account deficits, which stood at 9-13% of GDP in the Baltics last year, are rapidly on their way down. The main reason is that imports are now falling more than exports. Our main scenario is still that internal devaluation will continue and that the Baltic currency pegs will hold up. This is based on the assumption that the countries will continue to receive international (IMF, EU and individual EU countries) support for their fixed exchange rates. The IMF is expected to accept a 2009 budget deficit in Latvia of up to 7% of GDP, somewhat larger than the 5% maximum it had stipulated earlier; this requirement had been set as Latvia’s policy response when the country received a large bail-out loan package from the IMF, the EU and individual EU countries late in 2008. After being temporarily suspended, the loan programme can thus resume. As part of this compromise, the government will implement further large budget cuts. Lithuania, too, is increasingly in need of an IMF/EU bail-out. n
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Investor Services Journal | European Custody Market Guide 2010

Russian market player: Sberbank
berbank of Russia is a unique enterprise in many senses. We have got a history we are deservedly proud of, a great credit of trustworthiness from our customers and the society as a whole, a powerful infrastructure and client base, qualified and experienced staff. The scale of operations of Sberbank makes it one of the biggest banks in Europe. This is the basis that enables our future growth and development, along with possibilities and potential for Sberbank’s further successful evolution, linked mainly with its strong competitive position in the Russian market. Sberbank Custody Services Department has been active since the introduction of this type of services appeared in the Russian Federation in 1997. We are one of the largest banking custodians in terms of volumes of assets under custody and the number of customers served. We offer to our clients - both residents and non-residents of the Russian Federation - a full suite of custody services for Russian and foreign securities. Rendering custody services to our clients, we use individual approach and high quality products, including value added services, and more. We graduate our tariff policy at a maximum level, taking into consideration prime cost of operations on accounts of our customers. One of our main features is that due to the size and shareholder structure (almost 60% of Sberbank’s shareholder capital belongs to the State) we carry a so called ‘social function’, and offer retail custody services all over the country, across 11 time zones. Information: Sberbank Custody Services clients can physically deliver instructions and receive reports in more than 900 Sberbank branches
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Market Player Profile

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(out of more than 20,000 outlets) from Kaliningrad region to the Far East. As of 1st May 2009 Sberbank Custody Services attends to more than 257,000 custody accounts. We split tariffs for custody services rendered to legal entities and individuals. In our business we never practiced averaged or generalized tariffs such as flat fee for complex custody per monthly, quarterly or annual services. Our credo is: ‘every customer pays only for those services which were rendered to’. We understand that if we choose a complex custody tariff structure, it brings additional complexity in determining cost of operations fulfilled, as well as in automating the process of calculation and invoicing to our clients. Nevertheless, when we choose between the notions “labour-intensiveness” and “quality of services”, our choice remains “quality”. The quality and transparency in servicing our customers – is one of the main tasks we face. If we look at Sberbank’s tariffs for custody services we see the varied approach towards establishing fees for different types of operations. For example, for operations that change the balance on customers’ depot account, there are eight various tariffs, depending on type of operation fulfilled: internal transfer; change of position resulting trades at organised securities market; roll out of securities from custody; delivery versus payment operation; operation on exchange of Sberbank’s promissory notes; encumbering of promissory notes for settlement; encumbering of securities on credit agreements; fulfillment of steady instructions. Our invoices contain detailed descriptions of clients’ operations and fees due in accordance with custody tariffs. When necessary, on customer request, we prepare fully detailed invoices free of charge. It reflects all the operations for every day during the period of the main invoice. As a separate expense item we provide to

Investor Services Journal | European Custody Market Guide 2010

Market Player Profile

our customers the calculation of our direct costs charged by the registrars, transfer agents and other custodians or depositories for the fulfillment of customers’ instructions. These expenses are reimbursed to Sberbank by the customers additionally in accordance with tariffs of the third parties - providers of services based on separate invoices. Sberbank Custody Services applies a special approach to customers with considerable volume of assets in custody. For this category of client negotiation, mutually profitable tariffs are determined, what is fixed in additional clauses to the custody agreement. For the developing securities lending market in Russia, it is possible to use discounts from basic tariffs for safekeeping of securities that can potentially be lent. Legal issues are a substantial problem - in particular, on participation of shares lent in general shareholder meetings, as well as corporate action income rebate by borrower. Though mutual relations of the counterparties on voting and income rebate matters are subject to bilateral agreements, there are no standards in the Russian Federation in this field, making securities lending a rather difficult process. In terms of corporate action there are certain risks of non-fulfillment of rights on securities lent – that is, the right of vote at the shareholders meeting, the right on dividends or other distribution on securities, etc. Sberbank of Russia has a wide country network and renders custody services all over the Russian Federation in 11 time zones. Taking this into consideration as well as non-uniform development of the Russian regions, Sberbank offers various tariffs for custody services depending on a particular territory of a region. Despite the broad network the tariff policy of Sberbank in terms of custody services (types of services, cost of operations) is set in the head office. Regional branches of Custody Services are liable for their tariffs within established “forks”. Regional branches are free to run their individual tariff policy for their local customers. All this is aimed at finding an

individual approach to every client and meet understanding and vital interest among our customers. This “complex” tariff structure is possible due to usage of centralised Automated Informational System “Depositary” (in-house product of Sberbank). This assures strict observation of the legislative requirements to custody services established in the Russian Federation. This software has got very high degree of protection and fidelity. Information safety measures represented in the system correspond to the highest standards and ensure safekeeping and confidentiality. Automated Informational System “Depositary” combines the databases of all outlets rendering custody services. It enables custody services officers in the head office to perform operations on all depot accounts opened in anywhere in Russia in online mode, as well monitoring custody operations performed in the regional branches. Sberbank Custody Services concentrates on achieving the optimal balance between competitive tariffs and high quality services to ensure satisfaction of active customers and to attract potential ones. Its personnel constantly perfect their skills and analyse existing services and tariffs of competitors in order to offer their own models of quality products to customers.The main sources for development of competitive advantages in custody services are a combination of manpower and abilities in coverage of client base. At the same time we constantly improve technologies and products, ensure maximum efficiency in taking decisions, simplify paper flow and develop electronic document circulation. We try to be client-oriented at all times. Our team, which has developed through years of hard work, shares common set of values. These values aim at perfection, respect to tradition, professionalism and esteem to our customers’ interests. n
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Investor Services Journal | European Custody Market Guide 2010

Company Profile

Erste Group

Erste Group was founded in 1819 as the first Austrian savings bank (“Erste oesterreichische Spar-Casse”). In 1997, Erste Group went public with a strategy to expand its retail business into Central and Eastern Europe. Erste Group’s customer base has grown through numerous acquisitions and organic growth from 600,000 to 17.2 million, of which 16.2 million clients are citizens of the European Union and benefit from the stable EU regulatory framework. Having always focused on retail and SME business, today Erste Group is one of the largest financial services providers in Central and Eastern Europe in terms of clients and total assets. Erste Group offers a full range of securities services to its large domestic and international institutional customer base. This includes custody services, corporate action, income and information services, stock exchange clearing services, tax reclaim, proxy voting, etc. Looking for a first class custody provider in Austria, Czech Republic, Slovakia, Hungary, Romania, Croatia or Serbia you should

contact: Alexander Schleifer, Head of Custody Services Email: [email protected] Tel. + 435010015146 Gertrud Hadrany, Relationship Management Email: [email protected] Profile – Alexander Schleifer Alexander Schleifer has been Head of Custody & Network Management since January 2003. He joined Erste Group in 1994 (which was at that time GiroCredit Bank AG) and started to work in the custody services unit. From 1998 on Alexander Schleifer held various management roles within securities back office operations, is member of various market working groups and now promoting the sale of the Austrian and CEE custody business of whole Erste Bank Group.

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Investor Services Journal | European Custody Market Guide 2010

Company Profile “The Trusted Provider of Global solutions in Custody, Corporate Actions and Wealth Management” Information Mosaic (IM) was established in 1997 and today leads the market for corporate actions and custody solutions to the investment services industry. IM was founded 11 years ago to address the needs of investment services organisations seeking to support their client’s global investment business from a single, consolidated platform. The company is headquartered in Dublin, Ireland and serves its European, Asian and North American customers from its offices in Luxembourg, London, Singapore, New York and Boston. IM brings to market new low cost of ownership technology solutions for global corporate actions and custody processing that scale. IM has built up a significant client base of the largest global and domestic custodians, sovereign wealth funds and large asset managers. Six of the top ten global custodians now use IM solutions globally. Products: Information Mosaic has invested consistently in product development since inception on modern scalable technologies. Among Information Mosaic’s product’s are: cama™ - is a global, end-to-end, corporate actions solution, is a three-time winner of B.I.S.S. Research’s best overall platform award and winner of the 2008 corporate action system. converg-e™ - is an investment accounting and custody system designed for today’s global investment services business. converg-e™’s inherent multi-currency design lets you operate your business and service your clients anywhere in the world from a single, web enabled platform. Our Services: Information Mosaic provides a range of services to clients on a global basis, including our SAS 70 compliant ASP services. By utilising our own hosting facilities and industry recognised

Information Mosaic

hosting partners, together with ISO17799 aligned security procedures and ITIL/ ISO20000 aligned service delivery processes, we have created a blended ASP offering for all out products, which can support all phases of the implementation lifecycle, to a full production operation. Offices: EMEA Director of sales Grace O’Donnell Information Mosaic Styne House,Upper Hatch Street, Dublin 2, Ireland T: +353 1 241 5200 F: +353 1 241 5201 E: [email protected] US: Kevin Cullen E: [email protected] T: +1 646 495 5350 UK: Elaine Mullan E: [email protected] T: +1 44 207 477 65 74 Singapore: Deirdre Jennings E: [email protected] T: +65 6829 7638 Luxembourg: Alain Leyder E: [email protected] T: +352 26 25 7770

Profile – John Byrne
John Byrne has over 20 years experience in the IT industry, co-founding one of Ireland’s first university campus companies in 1985 directly after graduating as an electronic engineer. He helped build-up this Company to be a European leader in its field in the power automation sector and successfully sold out of this business in 1995. He founded Information Mosaic in 1997 to develop Internet applications in the Capital Markets sector. 29

Investor Services Journal | European Custody Market Guide 2010

Company profile

Kinetic Partners

Kinetic Partners is a global professional services boutique focused exclusively on the asset management industry. We provide a full range of audit and assurance, tax, consulting, forensic, corporate recovery and corporate finance services. Operating as one seamless team and structuring our business around client needs, we are well positioned to provide innovative solutions to the entire asset management industry. We advise over 750 clients, including many of the world’s largest hedge funds and traditional asset managers. Established in 2005, Kinetic Partners now operates out of London, Dublin, Grand Cayman, New York and Geneva. Our unique focus makes us less susceptible to conflicts of interest and enables us to deploy highly experienced professionals in a targeted, efficient yet flexible manner. A global firm, we operate as a seamless team with a single point of contact for clients, reacting rapidly while avoiding duplication of effort. For our experienced project leaders, quality of service delivery is paramount, ensuring that only appropriate personnel are deployed and that communication is empha30

sized. This has been recognised through our award for ‘Best Consulting Firm in Ireland and Cayman’. Our multi-disciplinary team of senior professionals is drawn from regulators, financial institutions and major professional services firms around the world. It consists of experts in all aspects of fund operations and distressed situations, including: n Regulatory consulting and compliance n Stock Exchange Listing and corporate finance advice n Audit and accounting n Tax advice n Operational risk and governance n Forensic accounting and investigation n Litigation support and expert witness n Liquidation/restructuring For further information visit www.kinetic-partners.com Iveagh Court, Floor 5, Block D, Harcourt Road, Dublin 2, Ireland t: 353 1 475 0520 f: 353 1 475 0376 w: www.kinetic-partners.com e: [email protected]

Investor Services Journal | European Custody Market Guide 2010

Company Profile

Nordea

Nordea is the leading financial services group in the Nordic and Baltic region and operates through three business areas: Nordic Banking, Private Banking and Institutional & International Banking. Nordea is the leading custody services provider in the region. Nordea provides high quality, tailor-made custody services for local and foreign investors dealing with Nordic and Baltic securities. Due to the unique history of being formed from four established banks, Nordea is the only Nordic custody provider with strong local presence and expertise in all four markets. Nordea combines Nordic competence with local expertise, and has proven ability to deliver high quality services that meet both clients’ and each local market’s requirements. Nordea is the clear market leader in the region with more than EUR420 billion in assets under custody and almost 27 million cleared transactions in 2008. We have the largest market share in the Nordic region as well as the largest client base of all Nordic players, which provides clear evidence of capabilities to deliver high-quality services across the markets. Leading Nordic custodian: • • • • • • • Critical mass and resources available Deep local experience and active involvement in each Nordic market Complete operational capabilities and best-fit systems developed in each Nordic market Proven ability to deliver high-quality service in all Nordic markets Excellent connections with key players in all Nordic Markets Extensive product and service offering Your single point of entry to the whole Nordic region

Contact: Nina Groth Head of Sub-custody and Clearing Tel: +45 3333 6124 E-mail: [email protected]

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Investor Services Journal | European Custody Market Guide 2010

SEB
SEB is a leading provider of custody services in the Nordic region as well as Central and Eastern Europe. SEB is committed to custody and clearing processes for the wholesale market and holds securities worth over EUR 360 billion in more that 75 markets. We offer a full range of custody services, including clearing and settlement, corporate action and information services, securities lending and services to remote members of the Nordic and Baltic stock exchanges. Key Services SEB acts as sub-custodian in 10 markets - Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Norway, Sweden, Russia and Ukraine. SEB constantly reviews opportunities to expand its Northern and Eastern European service offering. The regional model covers all sub-custody markets with one contract, the use of one single country adopted IT system in the Nordic markets as well as the web based tool C&I Online providing real time access to securities and cash transactions and portfolio information. A Client Relationship Manager, with the support of local client service teams, is in control of every client relationship. The prime fields of service provision are: a) Post Trade Settlement and Clearing Services, including the Remote Membership Agent role, Tri-Party Remote Membership Services, GCM Services and OTC Settlements. b) Asset Servicing, including Corporate Actions, Voting, Income and Tax Services. c) Reporting: The use of one system across the region gives a consistency in the SWIFT reporting that is unsurpassed in the region. SEB also supports alternative communication to SWIFT and more than 1 million transactions per year are now handled via MQS communication. Use of various file
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Company Profile

solutions are also increasingly sought for and SEB supports as of now five different solutions in this field. The MIS report is distributed as one file for the four Nordic markets and the C&I Online tool is used by nearly 20 percent of our client base, providing an additional safeguard for reconciliations, alternative instruction processing and contingency use. d) A quickly growing role as International Paying Agent across the region in addition to a registrar role where applicable. SEB processes around 27,000,000 settlements yearly on behalf of its sub-custody client base and has Assets under Custody of SEK 1.7 trillion for this client segment. Other key contacts: Göran Fors, Global Head of Custody Services [email protected] +4687635304 Kenneth Draegert Nielsen, Global CRM [email protected] +4687635822 Johan Furugård, Global CRM [email protected] +4687635179 Eric Molander, Global CRM [email protected] +4687635448 Yvonne Siljelöf, Global CRM [email protected] +4687635477 Tamara Kokic, Global CRM - Compliance and Legal [email protected] +46-8-7635828 Group Address: [email protected] Key Locations: Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Norway, Sweden, Russia and Ukraine.

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“As well as the tools we provide for our clients, we have the structures to support their international development every step of the way. In fact, our organisation is our strength. Our centres of expertise are distributed throughout the world via international platforms. No matter which country my clients are based in, I can offer them a complete range of services that best meets their expectations.” Massimo Cotella, CEO, SGSS S.p.A. www.sg-securities-services.com

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