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Sell-side barometer: the outlook for financial institutions
Sell-side barometer: the outlook for financial institutions

Sell-side barometer: the outlook for financial institutions


Bruno Campenon

Bruno Campenon

Head of Financial Intermediaries and Corporates

BNP Paribas Securities Services

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BNP Paribas recently conducted a poll of sell-side operations heads and network managers to identify the key business risks facing financial institutions, along with the most promising opportunities for revenue growth and efficiency. This was the second year the poll was run, with responses evidencing interesting changes in the market[1].

Bruno Campenon, Head of Financial Intermediaries and Corporates, BNP Paribas Securities Services, provides his insights on the results.

Question 1: Which are the two most important risks for your organisation?

the two important risks for your organisation

While it is not quite business as usual, what is striking from this year’s poll is there is no significant shift in the main risks organisations face. Once again, political interference and regulation emerge as the greatest threat, followed by cybersecurity.

The major regulatory initiatives implemented post-financial crisis are now in place. Instead, the industry is now dealing with more incremental refinements: for example, removing barriers and promoting market growth through the Capital Markets Union; improving shareholder engagement through the updated Shareholders’ Rights Directive (SRD II); and enhancing market transparency with the Central Securities Depositories Regulation (CSDR). Given European Parliament elections are coming up in May and a new Commission has to be appointed, work on any new regulations is unlikely to start in 2019 either.

Politically, some new tensions are adding to the uncertainties that were apparent last year. The impacts of Brexit, and how it will affect the locus of Europe’s financial services, is still unclear. In addition, this year has seen rising trade tensions between the US and major trading partners such as China, Canada, Mexico and the European Union –and its mechanical effect on Europe.

Cybersecurity is once again seen as the second biggest risk. I am a little surprised it is not in first place, given the number of institutions that can be affected, and the severe consequences that can result.

Hacker groups’ capabilities are ever-growing, and they have become professionalised to an extent that is much more difficult to contain. The risk is further exacerbated by the rise of quantum technology, which would exponentially increase cybercriminals’ potential to hit an organisation were they to master those technologies.

All the major financial institutions are investing massively in cybersecurity. At BNP Paribas Securities Services, we continue to invest in protecting, detecting and recovering from cybersecurity attacks, efforts that have resulted in a high BitSight cybersecurity rating (

Nevertheless, new threats are constantly emerging. On top of internal programmes, therefore, industry participants need to collaborate with the key market infrastructures – such as SWIFT, the central banks and central securities depositories – to create back-up solutions to keep the most vital market functions operating in the event of a crisis, and more importantly to maintain trust in case of viral attack. 

Question 2: Which are the two most exciting technology developments for your organisation? 

the two most exciting technology developments for your organisation

Analytics and big data once again topped the poll, with institutions keen to take advantage of opportunities to enhance reporting, bundle information from multiple vendors and optimise their analytical capabilities. This is probably even more important to the buy side, where the emphasis is more on working with historical and not necessarily real time data to analyse events.

High intelligence tools and machine learning are also attracting more interest – as seen in the growing capacity for chat bots to replace humans in areas such as online help services.

The technology’s potential is exciting. For instance, we have a pilot chat bot project running with two clients in our corporate trust business, which is due to go live in Q2 2019. The bot will offer 24/7, multi-language support to help customers with their online applications, while allowing our customer service staff to focus on more value-added tasks. This is the first in a long series of rollouts of web-enabled applications, as we work on true artificial intelligence to make the chat bots more intelligent and expand the role they can play.

Distributed ledger technology (DLT) proof cases are also starting to emerge as the technology matures. DLT is evolving from a theoretically disruptive technology to something that can offer less disruptive but more real world added value, including real-time processing and automatic reconciliations. Many CSDs in particular are active in this space, and BNP Paribas is very supportive of such initiatives. For example, we are actively working with ASX and HKEX on their DLT-based settlement platforms. Others, such as the DTCC, are working on projects to prove the performance capacity of DLT, or on front to back solutions like SIX-SIS.

Question 3: Which are the two most promising revenue opportunities for your organisation?

the two most promising revenue opportunities for your organisation

Analytics again demonstrates its importance to industry participants, this time in its ability to help firms generate revenue through increased cross-selling.

The survey result suggests respondents don’t see the biggest revenue opportunities coming from new areas or disruption of existing business models. Instead, it is from optimising what they have in their books already through cross-selling and adding value.

Custodians can be a big facilitator of this drive. Many of our clients, particularly on the buy side, are coming to us to see how we can leverage the diverse datasets we have, or are able to consolidate, to provide added value to their end clients. So we are working closely with our clients to build new technology solutions that will enable them to better serve their end customers and tap into the potential revenue pool.

New asset classes have come to the fore in this year’s survey as another prospective source of revenue. Cryptocurrencies, like bitcoin, Ripple or Ethereum, have been a big news story over the past 12-18 months. However, the visibility and predictability of the cryptocurrencies – as evidenced by the dramatic price volatility experienced in the last year – is extremely weak. As a custodian, our purpose is to guarantee asset safety and enhance market visibility, so we remain cautious in participating into the unregulated cryptocurrency space.

Tokenised digital assets are a different proposition. They can be transferred through distributed ledger technology, and the technical security supporting regulated digital assets is fairly well proven, so BNP Paribas is open to helping clients explore appropriate market solutions.

Question 4: Which are the two most promising efficiency projects for your organisation

the two most promising efficiency projects for your organisation

Efficiency strategies remain a high priority for CEOs. Buy side margins are under pressure. In turn, investment managers are ramping up pressure on sell-side costs. Implementing IT systems has been the primary strategy for cutting operational costs. But beyond just further automating operations to drive efficiencies, IT system rationalisation has become an essential focus for industry players.

Having a large number of systems brings not only the system cost itself, but also the operating expense associated with supporting the typology of development languages, different operating systems, machine types and so on. At BNP Paribas Securities Services, for example, we target the decommissioning of up to 20% of our systems in the coming 3 years.

Robotics offer further efficiency gains. Robots are particularly good at automating low value, manually-intensive and repetitive tasks that require multiple actions – bringing both cost benefits and reduced operational risks by minimising the potential for manual errors. BNP Paribas Securities Services has again been active in this area, and is currently robotising approximately 65 processes.

Robotics have their shortcomings though. Firstly, automated processes require heavy maintenance. Plus there may be a loss of in-house expertise and business continuity potential. When a problem arises with a manual process, employees who understand the process can correct or redo it. But if a robot has problems, the firm may lack the capacity to take back the process manually and correct it. So while robotics offers significant potential, many companies are starting to adopt a more measured approach, to ensure they maintain some internal capabilities.

Outsourcing was less of a priority in this year’s survey, reflecting in part the potential offered by new technologies. However, we are seeing firms start to renew their interest, as well as expand the spectrum of functions they are willing to outsource as they seek ways to enhance efficiencies. On the sell side, this includes outsourcing everything from the front-office systems and infrastructure to the back office. Meanwhile, we are seeing growing numbers on the buy side using third parties for a full suite of services, ranging from the middle office to distribution, fund administration, custody and accounting.

[1] The 2018 survey had 78 respondents.

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