This summer, to further enhance the strength of its global network, BNP Paribas Securities Services) (BNP Paribas) chose to integrate EY's Global Fund Distribution (GFD) product into its wider Fund Distribution Services (FDS) offering. This gives clients access to a comprehensive range of information to help them determine which product to distribute, which jurisdiction(s) to choose, which investors to target and the most appropriate distribution channels.
As Jean Devambez, head of asset and fund solutions at BNP Paribas Securities Services said at the time, the partnership with EY gives clients "access to a wealth of information at the click of a button".
For managers looking for guidance on how best to develop their cross-border fund distribution strategy, the GFD product is an invaluable resource given the depth and breadth of regulatory change in Europe. The GFD tool was made available to BNP Paribas' clients on 1st July 2015.
Frederic Perard (pictured), Managing Director BNP Paribas Securities Services, Luxembourg, points out that the agreement with EY is just one part of the overall offering.
"The agreement we've put in place with EY gives clients access to a database describing the specifics of each European market in terms of registration and distribution; everything you need to know to establishing a foothold in Europe.
"We use the database globally and I like to refer to it like the Intel Inside concept; we are the computer, EY is the processor", says Perard.
A second feature of the Global Fund Distribution solution is to support managers looking to register funds. The BNP Paribas team helps with everything from putting together the fund prospectus, filing the application with the Commission de Surveillance du Secteur Financier (CSSF) and so on. BNP Paribas refers to this as Legal Fund Engineering.
Many of today's asset managers have different funds domiciled in various locations. To help with this, the third aspect of the GFD product is to offer regional tier services, which can support clients in two ways. The first is by providing the ability to centralise orders for an asset manager in a given region. BNP Paribas has centres in Singapore and Hong Kong to collect fund information during market hours in Asia, which then gets processed and sent to Luxembourg using a "follow the sun" approach.
"The second aspect is that for those managers who wish to sell their full range of funds to institutional investors, private banks etc., we centralise the orders for all their funds, even if we are not the primary administrator and custodian to all of those funds. This product is called Regional Transfer Agency – we are, in effect, a super TA, where we centralise all the subscription/redemption orders for all the funds of a given asset manager, regardless of where the funds are domiciled," explains Perard.
The fourth aspect of the product is to provide global reporting on fund data. This is called Data Navigation Analysis (DNA) and supports managers with respect to FATCA, AML/KYC, Annex IV reporting; all of which falls under the umbrella of "management reporting".
"Globally, we look to support management companies for any kind of reporting they have to do. The final feature is to handle the fee attribution to a manager's fund distribution network to make sure the fees are properly distributed based on the level of assets they have in the fund. It is a full end-to-end solution for global fund distribution," says Perard.
Since BNP Paribas first established Fund Distribution Services in 2000, constant adaptations have been made based on client feedback and the evolution of the distribution and regulatory landscape. Further adaptations to the solution will be made if, for example, funds move to T2S (Target2-Securities) in 2017, which could result in changes to operating models. "Mifid II will require us to adapt as well," adds Perard.
Within Luxembourg, a clear convergence is taking place between the alternative funds universe and the UCITS universe with respect to global fund distribution. Under AIFMD and UCITS regulation, European funds must appoint an independent depositary to provide the necessary oversight, safekeeping and cash monitoring functions. Given that BNP Paribas is the depositary bank of choice in Europe, and has a global network that few other European banks can match, Luxembourg is proving to be very beneficial.
Perard notes that with respect to UCITS V, the main change to current UCITS IV regulation relates to the restitution and safekeeping of assets: "That creates a bit of work for us but what matters is the strength of the network and this is where we can make a difference going forward. Approximately 90 per cent of our clients' assets, on average, are held in our own network."
One of the key aspects of UCITS V – which will share many attributes of the AIFM Directive – is that the depositary bank will be required to fully replicate a client's fund portfolio on a daily basis; previously, this was an annual process. That presents a potentially significant challenge for funds that are using OTC derivatives.
"The depositary bank will need the capacity to justify, at any moment, all of the assets contained with a client's fund including OTC derivatives, and collateral and securities lending. This has created a significant debate because in the context of EMIR, collateral and securities lending activity are still in their infancy for OTC derivatives. Depending on the outcome, this could have a major impact on depositary banks because for these assets they have historically used data coming from the fund administrators. Depending on the regulator's view – ESMA Level II guidelines should be published in February 2016 – this could change what is currently being done and what will need to be done going forward," outlines Perard.
Given that auditors will also be part of the process, banks will be under even more pressure to ensure that their operating model is sticking fully to the rules and in line with regulation. But as Perard mentions: "Being headquartered in France, UCITS V for us will be very much business as usual."
What makes Europe particularly complex is that it is such a fragmented market. Perard believes that fund managers looking to centralise their cross-border fund distribution activities in Europe will need to put in place a global contract with their service providers.
"What I mean here is that they will need a global contract that is valid for all countries in Europe under AIFMD. As an industry, we need to respond to convergence with a standard agreement on who would take control of the NAV calculation. The UK, German, Italian and French models are all different. The only thing they tend to have in common is that they have both local funds and Luxembourgish funds.
"If ESMA releases the Level II guidelines we might, come March, see a timeline for adaptation – maybe 6 to 12 months. But we will have to wait and see," comments Perard.
This is precisely where the benefit of a strong network comes into play. BNP Paribas has a presence across Europe and operates in 34 major markets.
For managers looking to set up sub-funds to begin their European distribution activities, they can rent a compartment on one of two umbrella platforms operated by BNP Paribas: one for UCITS, and one for alternative funds.
"We work with a few different management companies in Luxembourg to provide the ManCo service. This enables managers to start small, focus on perhaps one or two countries for distribution in Europe and steadily establish their brand. This is important for fund managers from for example Latin America and China who ultimately want to sell their domestic class of assets and attract global investors".
"They are using Luxembourg as a hub from which to expand their distribution network," concludes Perard