European capital markets are undergoing profound transformation, and the pace of change continues to increase. Participants have long had to wrestle with a fragmented ecosystem of disparate laws, tax frameworks, market protocols, currencies and post-trade venues. The challenges will become even more pronounced in a compressed T+1 settlement environment. The fast-growing digital asset arena may further complexify the picture.
To access opportunities and strip out inefficiencies, financial intermediaries need to remove post-trade (particularly cross-border) complexity wherever possible. As a new report from the ValueExchange highlights, they have three options: partner with an agent bank, and/or leverage the services of an Investor CSD or International CSD (ICSD).
We sat down with Camille Papillard, Deputy Head of Financial Intermediaries & Corporates Client Line, and Sonal Meghani, Financial Intermediaries Segment and Regional Strategist, from the Securities Services business of BNP Paribas, to discuss how industry participants can best meet their needs.
How is Europe’s shifting landscape affecting the capabilities intermediaries need from their service provider?
Camille Papillard –Savings and Investments Union (SIU) and the Market Integration and Supervision Package (MISP)
The Savings and Investments Union (SIU) and its component Market Integration and Supervision Package aim to create a more integrated, efficient and competitive financial system in Europe to catalyse growth. The change agenda is positive. Yet diverse laws and practices mean market complexity is intense and growing, which participants need to navigate if they are to benefit.
Regulatory changes exacerbate the pressures. For example, new rules under the FASTER Directive will introduce a rolling reporting obligation after payment of a dividend, in contrast to other European regulations that require reporting at a fixed time, such as month- or year-end.
Settlement fragmentation is an additional complication. A fund may have one broker asking for shares of a security to be delivered or received in a certain CSD, and another broker requesting a different depository. Having the same agent bank that can offer a seamless experience across markets – and the flexibility to manage changes – alleviates the burden and cost of such operating demands.
And looking forward, digital assets will introduce further demands. It is too early to know which blockchain will be the infrastructure of tomorrow, but it’s clear there won’t be just one. The capacity to connect to any public and private chains clients want, and deliver a centralised experience, will be vital.
Sonal Meghani – Evolving service demands
The client base in the wealth sector is shifting towards younger, highly sophisticated professional investors who expect instantaneous digital communications and have zero tolerance for operational latency. Intermediaries’ operating models must ensure they can service this new generation of clients.
Meanwhile, the rise of neo-brokers – high-volume, digital-first retail investment platforms that are exceptionally sensitive to cross-border settlement fees – puts an emphasis on efficient post-trade infrastructures that can help preserve operating margins.
As the report from the ValueExchange observes, whatever their market positioning and focus, clients need proven, strategic service partners that can shield them from this operational complexity and support their ambitions.
How is the agent bank model positioned to provide that shield?
Camille Papillard – Choosing the optimal service model
The optimal service model depends on the risk profile, activity and asset focus of each business. High-volume trading firms may place more emphasis on costs and seek a standardised model that can handle settlement in a low-friction manner. The Investor CSD model might appear attractive here because they are not charged settlement fees by the issuer’s CSD where the settlement is happening.
Yet as the ValueExchange report underscores, the cheapest baseline processing is not always the best match in practice. Its interviews instead revealed that, for equities in particular, high-volume trading firms still rely heavily on agent bank models, drawn by their funding facilities, settlement intervention and ability to net or book transfer flows efficiently. Wealth managers and global custodians were likewise found to favour agent banks due to the local tax agent expertise, asset safety guarantees and flexible servicing capabilities they can offer.
Sonal Meghani – Future-proofing
Without seamless interoperability, fragmentation among emerging ‘digital islands’ threatens to duplicate operational costs and fracture liquidity pools across traditional and digital assets. Agent banks are well-positioned to bridge that traditional and digital asset divide – bringing them together in a consolidated custody environment that can provide investors with a single reporting framework and robust asset safety standards, while facilitating the fiat cash legs required for frictionless digital settlement.
We continuously invest in technology to propose state-of-the art digital solutions. We ensure they evolve in step with market-structure changes, regulatory update and the accelerating pace of innovation. A recent example is the release of NeoLink 26, the latest upgrade of our all-in-one platform. The portal notably now embeds Proxymity’s proxy voting solution to offer seamless access to information throughout the general meeting lifecycle and an improved reporting experience.
The agent bank model: meeting financial intermediaries’ needs
| Brokers and neo-brokers |  Intraday liquidity provision to scale volumes.Supports settlement in both central bank and commercial bank money through one unified credit line.Centralised cash monitoring and natural cash netting remove the operational burden and costs of cross-market cash sweeps.Settlement internalisation can help streamline post-trade processes.Value-add ancillary services (e.g. fails coverage, securities lending, FX) create a one-stop shop.Centralised cash equity clearing hubs offer harmonised margin calls and offsets across jurisdictions. |
| Global custodians | Intraday liquidity provision to scale volumes.Supports settlement in both central bank and commercial bank money through one unified credit line.Centralised cash account spanning multiple markets removes the operational burden and costs of cross-market cash sweeps.Local asset servicing expertise to handle complex corporate actions, proxy voting and localised taxation.Strict segregation and investor protection deliver strong asset safety.Flexible account structures aligned with global custodians’ regulatory obligations. |
| Wealth managers | Centralised cash monitoring and natural cash netting remove the operational burden and costs of cross-market cash sweeps.Local asset servicing expertise to handle complex corporate actions, proxy voting and localised taxation. |
Why is BNP Paribas well-placed to serve as intermediaries’ strategic partner?
Sonal Meghani – Scale, reach and integrated solutions
The scale and reach of our local custody presence and strength as a global integrated bank enable us to deliver value-added services such as our Execution to Custody solution.
We maintain an on-the-ground presence across Europe’s markets, allowing us to provide local expertise in asset servicing, client advocacy and change management. The result is a seamless, transparent experience for financial intermediaries’ end-clients. Using multiple providers risks inefficiencies and fragmented data flows. With Securities Services at BNP Paribas, end-clients are unaware an agent bank is behind their global custodian or wealth manager because our service support is frictionless.
We are a visible force in the local markets. Our local teams engage closely with industry bodies, local authorities, infrastructures and other market participants. We actively advocate on clients’ behalf to represent their interests and ensure their priorities are consistently reflected in industry discussions and evolving practices. Teams digest and relay information through our market news flashes and thought leadership updates, sharing details on the local impact of market developments and how we are working to shield clients from complexity.
Our centralised booking model then simplifies clients’ market access from a contractual and set-up perspective. It provides a direct, local gateway to multiple European markets (France, Belgium, Netherlands, Italy, Hungary and Portugal) through a unique clearing, settlement and local custody infrastructure, giving closer proximity to tight market deadlines without adding a layer to the custody chain.
Beyond our comprehensive agent bank capabilities, clients can tap into the power of BNP Paribas’ broad integrated bank offering spanning Global Banking and Global Markets. That allows us to add on solutions such as principal lending and FX, bringing seamless cost and operational efficiencies that will be especially valuable to clients as they navigate the shift to T+1 settlement in Europe from next year.
What differentiates BNP Paribas’ services?
Camille Papillard – Cost efficiency and cash solutions
Cost and other financial considerations are clearly important factors for clients. By opening accounts at the CSDs under an omnibus structure, we have the capacity to internalise settlements in the many markets where we have a sizable presence.
Our integrated bank model also means clients can take advantage of our cash solutions. Market participants that typically maintain long balances, such as private banks with more of a buy-and-hold profile, can benefit from the attractive interest rates we pay on those cash balances.
Settlement in both Central Bank Money (CeBM) and Commercial Bank Money (CoBM) is another capability. TheValueExchange report notes that Investor CSDs only provide CeBM settlement and are unable to offer credit line/intraday credit facilities. ICSDs currently only offer CoBM settlement, while credit lines must be fully collateralised with expensive high quality liquid assets. BNP Paribas’ Securities Services can support clients that want to centralise all their cash in one central bank account. And where required, we have the capacity to provide intraday liquidity and overnight funding facilities tailored to each client’s specific needs.
Clients using intraday liquidity in our books usually had to mobilise collateral on their balance sheet in case we cut the line. To help, we are enriching our intraday liquidity reporting to enable clients to see the value of the securities we have in our books and on which we have a line against their liquidity usage. Clients can then prove to their regulator this is secured funding and so reduce the collateral they need to mobilise in their books, saving valuable resources.
Another new initiative being developed centres on automated cross-market realignments. The service for sell-side clients will offer automated realignment from one market to another so users can hold securities where they want. The capability will help combat settlement fails and the associated penalties under the Central Securities Depositories Regulation (CSDR) Settlement Discipline Regime and will be especially vital in supporting effective inventory management in a T+1 environment.
The scale of the BNP Paribas Group and capacity to invest will also be crucial as the digital asset arena expands and industrialises. We are developing wallet management and connectivity to distinct blockchains via an internally-built abstraction layer, amongst other things. That commitment to remaining at the forefront of innovation will continue as we seek to support our clients on the different chains where they need to be present and provide them with a smooth, centralised experience.
Our commitment to excellence and innovation is long proven in the market. We have just been named Global Custodian Agent Bank of the Year, which is a testament to the strength of our solutions and depth of our client servicing capabilities.
If you would like to explore further BNP Paribas’ agent bank capabilities, please contact your Securities Services’ representative.