Interview with Valérie Gilles, Global Head of Network Management
How did the industry changes influence Network Management?
The shape of Network Management has considerably changed during the past years. The challenges of Network Management have shifted to more complexity and to a wider and deeper spectrum of supervision and monitoring. The environment is much more bundled to regulatory changes and is no longer about sub-custodians and cash correspondents only but has extended to the notion of “Third Party Holders” such as Collateral Managers, Clearing Brokers, Prime Brokers, TAs, CCPs - any party where the depositary bank of the fund or the custodian of the assets could be involved directly or indirectly.
Our role is to make investment opportunities available to our clients through the best worldwide coverage and market access under a secure supervision and monitoring umbrella.At CACEIS, we are an internal hub where sales, operations, compliance, legal and risk are brought together and contribute to that objective.
Our growing responsibility with regards to the funds for which CACEIS provides depositary functions has increased the importance of compliance, audit, risk and legal features of Network Management and the way it is used to report internally to the authorities and to our clients.
We are here to provide safe custody in a highly regulated and very competitive business environment.
How can we provide the best service at the best price when every link of the chain is seeking sustainability? Selecting our sub-custodians from among the top 3 in the market gives us both access to high quality services and recognised expertise, as well as access to players who are large enough to allow us to benefit from the most competitive market prices. Handling fees is one of the key challenges of Network Management, and allows CACEIS to offer clients and prospects competitive prices: it is an ongoing objective that puts heavy pressure on the teams.
One of our strengths is undoubtedly our talented, committed and experienced teams that are coordinated at group level and based in different locations to manage the relationship with our clients, providers, and regulators. This ensures efficiency, responsiveness, in-depth understanding and knowledge of local market practices.
What are your views on Network Management within CACEIS?
Network Management is about connecting investors to the market, managing, supervising, monitoring the various stakeholders, and keeping track of interactions through a high quality, secure and competitive process.
A tighter regulatory framework together with stricter compliance obligations although not universally welcomed, do provide another layer of professionalism, push the best players to become even better and force the weakest to exit the market.
Network Management is one of the cornerstones of CACEIS’s business model and continuously proves its ability to meet our clients’ and prospects’ high standards and requirements. Complex systems may bring value whereas complicated solutions never do: CACEIS’s Network Management plays a role in delivering our clients the best-in-class asset servicing, which has always been CACEIS’s main objective.
In addition to overall performance and high operational efficiency, CACEIS puts a high value on developing and enhancing a close, long-term business relationship with our correspondents. Commitment is required from both sides. This is also probably one of the major challenges and features in the way business is now done and handled. The growing role digital technology and data management plays in our interactions, certainly needs to be balanced by process transparency and developing authentic inter-personal relationships, which is another means of generating value. Such action helps promote a long term vision when the environment favours the short term and immediacy.
How can we expand in an increasingly regulated framework? The question is obviously not only a Network Management challenge but an industry-wide trend we have had to deal with for a few years now.
Risk aversion might be tough to handle, for example when you are willing to open a new market and enter a new relationship: you have to go through so many steps and tick so many boxes that you may sometimes feel that there is no room to expand. Beyond this aspect, it forces us to perform an accurate, complete analysis of what we’re doing and why our client is doing it, which in itself is an added-value process that generates in-depth knowledge. Banks understand these risk and compliance obligations. Thinking back to the first stages of KYC implementation; initially, there was a lot of dissatisfaction at having to provide all the documentation. But it soon became common practice and now not doing it would be unthinkable.
How do new technologies challenge Network Management?
We already benefit from high levels of STP in process flows with our correspondents. However, the time-consuming part for the teams, Network and Operations, is to deal with the exceptions and/or complex items such as Corporate Actions, Tax issues, etc.. We are keeping an eye on Blockchain technology which may help improve these tasks and in a few years, we hope to be in a position to think the same way about Blockchain being a normal part of our industry as we now do about KYC. New technologies are seen just as much as a threat as an opportunity but are considered an essential feature of a developing industry. They cannot be ignored and will have a large scope of application (KYC, reconciliation, monitoring, registration, etc.). Any event, symposium or conference has its Distributed Ledger Technology feature and related round table discussion. Banks’ innovation labs are already dealing with DLT and CACEIS is part of the working group within Crédit Agricole’s DLT initiative and is also involved in the French market place initiative, Labchain. It is the technology that will influence and change our industry most in the coming years. In addition, ESMA has launched discussion papers regarding DLT: Regulators will definitely have to take it into consideration and propose how to deal with it. Still, the recent turmoil surrounding Bitcoin due to the cyber-attacks on the Hong-Kong platform show that cyber security remains a concern and needsto be strengthened for these types of technology to expand and be trusted by the vast majority of economic players.
How does T2S challenge Network Management?
T2S offers operational and liquidity management facilities as well as commercial opportunities for our clients to access all the T2S markets from a single entry point within CACEIS.
From that perspective and for the time being, the impact on Network Management is indirect. The more we move forward with the implementation of T2S, the more we agree that the most immediate and significant impact will be on liquidity management rather than on settlement facilities. In any case, the true measure of settlement performance and efficiency will be when all markets (and the most significant ones) have been on-boarded, when all the expected settlement features are made available by all the participants and when the costs of the project have been absorbed. That is to say that we may have a few years in front of us before we fully benefit from the enhancements offered by such a huge initiative. At CACEIS and from a Network Management and operational perspective, we chose to have a combined approach: be DCP on markets where we already have direct access to the CSD, and remain with our sub-custodian Network for the others. Depending on the above elements, we are open to reshaping our set-up should we need to adapt: use T2S to broaden the number of CSDs we access directly while continuing to rely on local custodians for the other markets or any other model that might show evidence of operational, financial and risk efficiencies.