Germany remains an attractive market
20 Mar 2019
Christian Wutz of Société Générale highlights Germany’s asset servicing strengths and the trends gaining momentum
Image: Shutterstock
How well placed are asset services in Germany, compared to its neighbours (and competitors) in central and Eastern Europe?
As one of the largest asset servicing markets in Europe, it is also one of the most competitive, with well-informed and experienced customers setting high expectations.
Germany furthermore disposes over a historically high asset safety standard (even prior to EU regulations) and hence will remain an attractive market, last but not least due to its strong economy being of critical importance with a large interlinked number of players.
What trends are you currently seeing in Germany’s asset servicing market?
There are a number of trends we see that are gaining momentum, especially the inclusion of environmental, social and governance (ESG)—criteria in the investment, controlling and reporting process, the outsourcing of front and middle-office services and an increased standardisation and harmonisation along the value chain.
With regard to the service providers, specifically, the fee pressure in a highly competitive landscape might ultimately lead to a further specialisation for small players and inorganic growth for large players/incumbents.
Is automation, machine learning and/or artificial intelligence causing challenges or providing opportunities within the industry? What can firms do to overcome such challenges or utilise these opportunities?
New technologies have a disruptive effect on our industry while offering opportunities at the same time. Choosing the right strategy when taking new technologies on board will be essential—which is incidentally a result of our survey on the main trends shaping the buy-side landscape by 2025 from last year. Firms can leverage new techs by taking a partnership approach and working with fintechs to provide their clients with services that add value and differentiate themselves from competitors, mitigating risks at the same time.
Société Générale Securities Services, for example, has partnered with a fintech for automated and instant drafting of performance commentaries for financial investment portfolios based on artificial intelligence. We believe that using a practical approach and incrementally introducing innovations will allow firms to become future-ready.
What trends are you currently seeing in clearing and settlement within Germany?
We see middle office services brought up in outsourcing conversations due to it being cost-intensive, with the ongoing fee competition constituting one of the drivers. This trend could eventually lead to a provider specialisation by volume.
Is Frankfurt looking to capitalise on Brexit?
Frankfurt is aiming to strengthen its position as a financial centre both in Europe and globally. However, it is likely, it will be more steady growth over time rather than immediate gains.
There are concerns in the industry that Brexit poses a threat to the harmonisation effect of the CMU. How is your firm prepared for this eventuality?
These concerns are valid and first and foremost our intention is to continue to fully support our clients’ business under all possible scenarios regardless of the outcome of the negotiations between the UK and the EU.
One of the main strengths of the EU is the harmonisation of standards and common positions, in particular from a legal and regulatory point of view. Many rules and procedures may change when the UK is no longer in the EU. However, from a practical point of view, one might want to distinguish the current status from the future. Due to its longstanding membership, UK rules are at present on a harmonised level with EU laws and this is not going to change immediately. Due to the situation that Société Générale has offices both in the UK and in the EU, the bank will be able to handle and adapt to the different requirements.
What are your predictions for asset servicing in Germany over the next five years?
A further, incremental increase of regulatory requirements will make the market environment even more challenging for all the players. Only those who have set themselves ambitious targets in increasing productivity and efficiency are successfully implementing new technologies that are the most conducive to their business (or collaborate with fintechs), and simply “do the right thing” in regard to outsourcing versus in-house, will survive.
Smaller market players especially are vulnerable to absorption, if they have not found a niche to specialise in.
Finally, we see a slowing down of the fee competition, as pricing levels are relatively low already, and a race to the bottom can only produce the poor quality that is, we hope, not going to find acceptance in our market.
As one of the largest asset servicing markets in Europe, it is also one of the most competitive, with well-informed and experienced customers setting high expectations.
Germany furthermore disposes over a historically high asset safety standard (even prior to EU regulations) and hence will remain an attractive market, last but not least due to its strong economy being of critical importance with a large interlinked number of players.
What trends are you currently seeing in Germany’s asset servicing market?
There are a number of trends we see that are gaining momentum, especially the inclusion of environmental, social and governance (ESG)—criteria in the investment, controlling and reporting process, the outsourcing of front and middle-office services and an increased standardisation and harmonisation along the value chain.
With regard to the service providers, specifically, the fee pressure in a highly competitive landscape might ultimately lead to a further specialisation for small players and inorganic growth for large players/incumbents.
Is automation, machine learning and/or artificial intelligence causing challenges or providing opportunities within the industry? What can firms do to overcome such challenges or utilise these opportunities?
New technologies have a disruptive effect on our industry while offering opportunities at the same time. Choosing the right strategy when taking new technologies on board will be essential—which is incidentally a result of our survey on the main trends shaping the buy-side landscape by 2025 from last year. Firms can leverage new techs by taking a partnership approach and working with fintechs to provide their clients with services that add value and differentiate themselves from competitors, mitigating risks at the same time.
Société Générale Securities Services, for example, has partnered with a fintech for automated and instant drafting of performance commentaries for financial investment portfolios based on artificial intelligence. We believe that using a practical approach and incrementally introducing innovations will allow firms to become future-ready.
What trends are you currently seeing in clearing and settlement within Germany?
We see middle office services brought up in outsourcing conversations due to it being cost-intensive, with the ongoing fee competition constituting one of the drivers. This trend could eventually lead to a provider specialisation by volume.
Is Frankfurt looking to capitalise on Brexit?
Frankfurt is aiming to strengthen its position as a financial centre both in Europe and globally. However, it is likely, it will be more steady growth over time rather than immediate gains.
There are concerns in the industry that Brexit poses a threat to the harmonisation effect of the CMU. How is your firm prepared for this eventuality?
These concerns are valid and first and foremost our intention is to continue to fully support our clients’ business under all possible scenarios regardless of the outcome of the negotiations between the UK and the EU.
One of the main strengths of the EU is the harmonisation of standards and common positions, in particular from a legal and regulatory point of view. Many rules and procedures may change when the UK is no longer in the EU. However, from a practical point of view, one might want to distinguish the current status from the future. Due to its longstanding membership, UK rules are at present on a harmonised level with EU laws and this is not going to change immediately. Due to the situation that Société Générale has offices both in the UK and in the EU, the bank will be able to handle and adapt to the different requirements.
What are your predictions for asset servicing in Germany over the next five years?
A further, incremental increase of regulatory requirements will make the market environment even more challenging for all the players. Only those who have set themselves ambitious targets in increasing productivity and efficiency are successfully implementing new technologies that are the most conducive to their business (or collaborate with fintechs), and simply “do the right thing” in regard to outsourcing versus in-house, will survive.
Smaller market players especially are vulnerable to absorption, if they have not found a niche to specialise in.
Finally, we see a slowing down of the fee competition, as pricing levels are relatively low already, and a race to the bottom can only produce the poor quality that is, we hope, not going to find acceptance in our market.
NO FEE, NO RISK
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