Forbes.com – BNP Paribas Securities Services has become a local custodian in Colombia where it has obtained a license from the Superintendencia Financiera de Colombia (SFC), the Latin American nation’s financial supervisor.
It believes that a recently introduced law in Colombia requiring all local investors to appoint a local custodian will provide growing business. With the addition of Colombia, BNP will have a sub-custody presence in 26 countries around the world.
“We are one of the few custodians actually having a large in-house proprietary sub-custody service,” said Charles Cock, head of client development at BNP Paribas Securities. Other major custodians such as State Street STT +1.02%, Brown Brothers Harriman and JPMorgan use third party providers for local sub-custody, he said. Brokers, asset managers and other custodians would be natural clients for the Colombia business, he added.
“We would target investment banks. Merrill is probably a member of the top 25 to 30 exchanges in the world and a primary dealer. We would offer to do their sub-custody work in Italy and other countries where they operate.” BNP Securities Services also works with asset managers who are invested outside their home countries. So a JPMorgan or a Northern Trust NTRS +0.9% could be clients in sub-custody and competitors in custody.
For investors, BNP can provide cash management, foreign exchange and securities lending, an area that proved riskier during the financial crisis than many people had understood.
“In securities lending, we follow very concise rules from the lender, deal only with counterparties of AA or better and only with collateral of the same quality. A maximum of 20 percent of the portfolio can be lend at any one time,” Cock explained.
To serve the local market, BNP will establish an office and data center in Colombia. Cock expects that BNP can take business away from Citi, which he said runs its Latin America custody business out of Tampa, FL.
“If State Street needs a custodian in Columbia, they might use Citi today and tomorrow they might turn to us. There are only two players — Citi and BNP.” He figures that large American custodians like State State, Northern Trust and BBH have no reason to give more business to Citi which is a major competitor.
Being in Colombia also positions BNP for the potential merger, still just in talking stages, of the Colombia, Mexican, Peruvian and Chilean stock exchanges, which would rival Brazil if it happens.
“Going into Colombia we are setting a foot on the ground in one of those four markets. We have been through a similar exercise in Europe where Euronext was created from Paris, Brussels, Amsterdam and Lisbon exchanges. We have demonstrated that we have mastered the game; in just months we were processing over 40 percent of the Amsterdam Stock Exchange.”
Cock said that BNP has developed most of its technology systems in-house with adjustments for local requirements.
“What we do in Colombia is no different from what we do in France, Germany, Australia, New Zealand or India,” he added.
The sub-custody factory is based in Bogota with a local backup facility and another backup data center in Portugal which is used by the securities firm globally. The custodian has $7 trillion USD under custody — BNY Mellon is three times as big, he added.
“Colombia is a mid-size market and growing, and it is attractive because our own investment bank was expanding in Colombia and was looking for a service provider.” It is good to start business with an internal client, he added.