Resurgence of the network manager
June 2016

Clear evidence of the resurgence of the network manager proved to be one of the highlights of the 16th annual NeMa (Network Management) conference, held last week in Dubrovnik, Croatia, for the third time.

This is the view of Andrew Duffin, head of sales for emerging markets at Societe Generale Securities Services, speaking on the subject of selecting agent banks.

"There is no doubt in my mind that the network manager function is not only crucially important to banks but is increasingly seen to be crucially important," he says.

In the pre-financial crisis environment most network managers were simply required to verify their agent banks complied with the US Securities and Exchange Commission's (SEC) Rule 17f5, which stated foreign custodians must have at least US$200 million in balance sheet capital, he elaborates. In the immediacy following the crisis, network management at most banks came under cost pressures and headcount was reduced although this was a trend that generally impacted numerous business lines at banks.

"Due to increased regulation and the increase of focus on risk, the network manager function is clearly at the top of the agenda for all major financial institutions and those financial institutions are prepared to spend the money required to meet the necessary standards," he goes on.

The issue, though, entails more than the loosening of purse strings, however welcome that might be in cash straitened time. Other factors are of equal importance. The imposition of greater levels of risk on depositary banks, for instance, dictates that such banks be operationally robust as well as in good financial health.

"The selection process for a depositary bank is seeing higher levels of due diligence, on an ongoing basis," says Andrew Duffin.

"Network Management has been reorganised at numerous financial institutions. financial market utilities and market infrastructure providers including central securities depositories (CSDs), central counterparty clearing houses (CCPs), trustee services and payment utilities now increasingly fall within network managers' due diligence responsibilities."

Banks of course have always been concerned about risk in all its various forms but in the wake of the global financial crisis that awareness has been heightened and protective measures are continually being strengthened, adds Andrew Duffin. "Network management has experienced a radical overhaul since the financial crisis of 2008. Pre-crisis request for proposals (RFPs) were a fraction of the length and detail, as were service level agreements. While due diligence on agent banks has always been thorough for most panel participants, the level of professionalism has increased dramatically."

Elsewhere at the conference, the dawning realization that 1+1 = 3 is muddying the waters of the long-running tale that is T2S. As the multi-wave implementation of T2S proceeds at a pace that is perhaps best described as stately, the industry is waking up to the fact that one of the great cornerstones of T2S propaganda for almost a decade – lower settlement costs – might not be quite what it seems.

"There is a growing industry consensus on this matter as T2S has finally begun arriving on our doorstep," says Hugh Palmer, T2S Product Manager for Financial Institutions & Brokers at SGSS. "The new pricing guides being progressively unveiled by CSDs show that when you add T2S costs to CSD costs, the sum of the two is greater than before, and then you need to add on message costs and SWIFT transport costs and factor in the cost of liquidity on the sell-side."

At the very least, he suggests, the industry might need to downplay the merits of enhanced report and messaging, if only to minimize costs, and to encourage sell-side clients to shift liquidity management away from the traditional desk-by-desk basis and towards a modern enterprise-wide basis – indeed optimization of cash and collateral through pooling in central bank money figures strongly in the top three of the benefits expected from T2S.

The conference itself has come a long way since the first was held in Geneva in 2001, adds Andrew Duffin. In that time it has grown from a gathering of around 50 specialists to around 450-500. "This year was arguably the best ever for the custody and investment banking communities and other interested parties such as private banks and private wealth offices," he concludes.





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Clear evidence of the resurgence of the network manager proved to be one of the highlights of the 16th annual NeMa (Network Management) conference, held last week in Dubrovnik, Croatia, for the third time.

This is the view of Andrew Duffin, head of sales for emerging markets at Societe Generale Securities Services, speaking on the subject of selecting agent banks.

"There is no doubt in my mind that the network manager function is not only crucially important to banks but is increasingly seen to be crucially important," he says.

In the pre-financial crisis environment most network managers were simply required to verify their agent banks complied with the US Securities and Exchange Commission's (SEC) Rule 17f5, which stated foreign custodians must have at least US$200 million in balance sheet capital, he elaborates. In the immediacy following the crisis, network management at most banks came under cost pressures and headcount was reduced although this was a trend that generally impacted numerous business lines at banks.

"Due to increased regulation and the increase of focus on risk, the network manager function is clearly at the top of the agenda for all major financial institutions and those financial institutions are prepared to spend the money required to meet the necessary standards," he goes on.

The issue, though, entails more than the loosening of purse strings, however welcome that might be in cash straitened time. Other factors are of equal importance. The imposition of greater levels of risk on depositary banks, for instance, dictates that such banks be operationally robust as well as in good financial health.

"The selection process for a depositary bank is seeing higher levels of due diligence, on an ongoing basis," says Andrew Duffin.

"Network Management has been reorganised at numerous financial institutions. financial market utilities and market infrastructure providers including central securities depositories (CSDs), central counterparty clearing houses (CCPs), trustee services and payment utilities now increasingly fall within network managers' due diligence responsibilities."

Banks of course have always been concerned about risk in all its various forms but in the wake of the global financial crisis that awareness has been heightened and protective measures are continually being strengthened, adds Andrew Duffin. "Network management has experienced a radical overhaul since the financial crisis of 2008. Pre-crisis request for proposals (RFPs) were a fraction of the length and detail, as were service level agreements. While due diligence on agent banks has always been thorough for most panel participants, the level of professionalism has increased dramatically."

Elsewhere at the conference, the dawning realization that 1+1 = 3 is muddying the waters of the long-running tale that is T2S. As the multi-wave implementation of T2S proceeds at a pace that is perhaps best described as stately, the industry is waking up to the fact that one of the great cornerstones of T2S propaganda for almost a decade – lower settlement costs – might not be quite what it seems.

"There is a growing industry consensus on this matter as T2S has finally begun arriving on our doorstep," says Hugh Palmer, T2S Product Manager for Financial Institutions & Brokers at SGSS. "The new pricing guides being progressively unveiled by CSDs show that when you add T2S costs to CSD costs, the sum of the two is greater than before, and then you need to add on message costs and SWIFT transport costs and factor in the cost of liquidity on the sell-side."

At the very least, he suggests, the industry might need to downplay the merits of enhanced report and messaging, if only to minimize costs, and to encourage sell-side clients to shift liquidity management away from the traditional desk-by-desk basis and towards a modern enterprise-wide basis – indeed optimization of cash and collateral through pooling in central bank money figures strongly in the top three of the benefits expected from T2S.

The conference itself has come a long way since the first was held in Geneva in 2001, adds Andrew Duffin. In that time it has grown from a gathering of around 50 specialists to around 450-500. "This year was arguably the best ever for the custody and investment banking communities and other interested parties such as private banks and private wealth offices," he concludes.