BNP backs role of sub-custodians

The sub custodian role remains key in the custody service chain according to the head of relationship management at BNP Paribas.

Speaking to Global Custodian, Alan Cameron emphasised the importance of the sub-custodian role given a global custodian’s lack of willingness to develop local skills.

Regulatory pressures and competition have driven talk of sub-custodians exiting various markets, which in turn has lead to a wider debate about the viability of the role.

“The sub-custodian acts as the global custodian’s eyes and ears in the local market, keeping them up-to-date with market and regulatory changes,” said Cameron.

“Few global custodians want to build up local capabilities as they do not see where they can differentiate their services and it would be a herculean undertaking to do this on a global basis.”

“They (global custodians) see real value in the services provided by sub-custodians and are more interested in gaining extra value from these key partners than replacing them.”

Cameron’s comments echo those of Commerzbank’s head of market services Rob Scott who last month suggested that there was a future for sub-custodians if they collaborate between themselves in order to grow volumes, spur cost efficiencies and avoid industry obstacles.

A sub-custodian exit would likely create a problem for a global custodian with regards to finding an alternative provider at short notice as well as concerns over the required documentation and regulatory compliance.

Various industry commentators have suggested that sub-custodian exits seem more likely given the increasing pressure they face.

Speaking at the NeMa event in June, Andrew Osborne, senior VP, head of worldwide network management at Northern Trust called for alternative models to be introduced including disintermediating the sub-custodians out of the service chain due to the increased level of risk.

Brown Brothers Harrimam’s head of sub-custodian relationship management Mike Drake also suggested that custodian banks are looking at various exit strategies in markets that are considered unsubstantiated.