How Are Custodian Banks Navigating Risk on a Global Stage?

We speak with Dennis Bon, Head of Securities Services for the Americas at BNP Paribas, about the two ways the custodian is navigating risk in the current environment, as well as one of the biggest issues facing institutional investors. Bon also talks about how the investing landscape is evolving in response to the pandemic.

As a custodian, how do you navigate risk on a global stage, particularly in the current environment?

Navigating risk in the current environment requires several capabilities. First and foremost is a focus on informed decision-making that relies on BNP Paribas’ extensive on-the-ground presence across the world. Our proprietary custody network in 27 markets gives us direct market and regulatory intelligence, allowing us to react promptly to changes in geopolitical situations.

The second requirement is a strong focus on operational resilience and cybersecurity. Our model includes ongoing assessment of operating locations and a historically strong focus on digital security, through BNP Paribas’ continued investments. Ultimately, in the current environment, our priority remains protecting the safety and security of our clients and their assets.

What questions and/or concerns are you hearing right now from institutional investors?

Cybersecurity is one of the biggest issues facing institutional investors. They are concerned about the security of their data from malicious actors and about the business continuity plans that they and their service providers have in place to ensure business is not interrupted should a cyberattack occur.

Given the surge of sustainable finance and ESG globally, how are institutional investors adapting to the need for ESG data reporting and analytics? 

Institutional investors understand the positive impact investment strategies with embedded ESG principles can have on business performance and investment returns. However, data management challenges caused by data gaps, the lack of standardization and inconsistent disclosure requirements across jurisdictions remain a primary concern.

Asset owners are addressing these challenges by leveraging multiple third-party data providers, supplemented by internal research and advanced data quality controls. Increases in technology investment are improving data aggregation, analysis and reporting capabilities. Given their influential role, institutional investors are beginning to actively shape the future of ESG data standards and regulation.

How do you see DLT (Distributed Ledger Technology) and digital assets reshaping the fund distribution value chain?

Traditional distribution networks can be expensive and complex. DLT and digital assets represent an opportunity for fund sponsors to streamline their distribution networks by going directly to investors. Investors then will have the ability to subscribe to a digital or tokenized asset via DLT and hold fund tokens in electronic wallets, moving the industry closer to a self-service model.

This offers the benefit of improved operational efficiency, lower transaction costs and increased transparency. For the fund sponsor, a shorter settlement cycle on the blockchain means increased liquidity and the elimination of the cash reconciliation processes. A direct relationship with the end investor also enables the fund sponsor to expand the range of digital services it offers its customers.

Which market and/or part of the market are you focusing on right now?

As the head of our Americas business, I am primarily focused on our activities in the region. Historically, our business here has been very focused on serving the global needs of large U.S. banks and broker dealers. However, since 2012, we have made a major investment to better serve the local needs of both U.S. and global investment managers doing business in the Americas region.

We began this journey with the build out of our U.S. custody capabilities and have since added meaningful local custody and fund servicing capabilities across the U.S., Brazil, and Hispanic Latam. On the eve of the 10th Anniversary of our regional build out, we are now very well positioned to support the securities services needs of our clients across the entire region.

As the world continues to grapple with the pandemic, how do you see the investing landscape changing or evolving in response to the pandemic times? 

COVID-19 has fundamentally re-shaped the global landscape—changing how we live, work and interact. The importance of a workforce and operating model that can deliver services and support in a digital environment has increased exponentially during the pandemic. Investment management firms will continue their digital transformation efforts to support changing investor behaviors and enhance the customer experience. Demand for private and digital assets is high among all types of investors. Traditional asset managers are looking for ways to enter this market, including through acquisitions. Digital technology plays a key role in facilitating the “democratization” of private assets by enhancing secondary market liquidity and providing easier access.

What are some of the major news headlines you are following?

The war in the Ukraine has been the story that I have been following most closely. Given BNP Paribas’ leadership position in Europe and the global nature of our business, we have worked to ensure that those affected have access to the banking services needed. The aggression against Ukraine calls for solidarity among everyone within the international community.  

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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