Private banks warm to outsourcing: Crédit Agricole
Private banks are becoming more inclined to outsource operational functions due to rising regulatory requirements and higher costs, says Crédit Agricole Private Banking Services (CA-PBS).
Such issues are starting to outweigh concerns wealth managers have had in the past about confidentiality of client data, says Jean-Claude Favre, Geneva-based head of CA-PBS.
“Back in 1995 it was strange for banks to rely on a third party for their back-office functions," he notes. “Private banking is about preserving confidentiality of information, hence it was hard to convince the first customer to rely on outsourcing. Today privacy is less of an obstacle to outsourcing.”
Still, private banks are likely to be selective about which functions they pass to external providers. Swiss firm Union Bancaire Privée’s Singapore branch has outsourced its back-office functions, such as systems related to cash and securities operations. But it has kept middle-office functions, such as reconciliation and valuation monitoring, in house.
“All controls and confidential information related to our clients are outside the outsourcing arrangement, and are performed and kept exclusively within UBP premises, on our local servers,” says Stephan Repkow, Asia CEO of private banking at UBP.
Both client and service provider must abide by the “guidelines on outsourcing” issued by the Monetary Authority of Singapore, he adds, so the efficiency and full confidentiality of the outsourced services is fully regulated.
Having set up in 1995, CA-PBS services 15 external clients globally and took on its first in Asia last year, UBP's Singapore branch. UBP last week obtained a banking licence in the Lion City, allowing it to offer products and trade on behalf of clients there.
CA-PBS also services several private banking units of parent Credit Agricole Group, including two in Singapore and one in Hong Kong.
The business offers private banking middle- and back-office solutions based on its proprietary system, S2i, which offers functions such as securities and cash processing, cash reconciliation, accounting system and managing information system.
By farming out back-office functions to service providers, Favre says private banks can relieve onerous compliance requirements, such as the know-your-customer process. For example, when a private banker enters an order into the system, S2i will raise an alert if the order for a particular structured product does not fit with the customer’s risk tolerance profile. Such functions are configured to local reporting requirements, he adds.
Favre says the argument for small to medium-sized private banks to outsource mid- and back-office operations is stronger than for bigger firms.
Last year his team did an analysis to compare the potential cost savings over a 10-year period for private banks outsourcing to CA-PBS. They found that private banks with €4.2 billion or less in assets under management could benefit from cost savings through outsourcing. Banks that manage assets above that threshold would derive lower cost benefit.
Such annual cost savings could be in the range of 15-20%, after the initial set-up costs of outsourcing, adds Favre.
CA-PBS’s main competitor in providing private banking outsourcing services is Swiss company B-Source.