Credit Suisse has outsourced parts of its European structured products business to UK-based managed services provider and international business and technology consulting firm, Delta Capita.
The move responds to issuers of structured products reacting to increasing regulatory pressure around product governance under the Markets in Financial Instruments Directive (Mifid 2), and the Packaged Retail and Insurance-based Investment Products regulation (Priips), which will introduce a requirement to provide end investors a Key Information Document (Kid) for each product issued.
Larry Fletcher, head of Credit Suisse' Solutions business in Europe, Middle East & Africa (Emea) said in a statement that the structured products industry has a real commitment to improve product governance standards and the quality of products for end clients. "New regulation will standardise the way in which products are packaged and delivered which provides an opportunity for the industry to work together to improve standards whilst lowering costs for end customers," said Fletcher.
Under the agreement, Delta Capita will handle a number of back- and middle-office functions such as the production of documentation, and the ongoing oversight of the product's suitability for end investors. The consultancy firm will also transfer over a number of the existing Credit Suisse team as part of the agreement, increasing capabilities and accelerating the growth of its structured product issuance and governance managed service offering. The structuring, modelling and pricing functions remain at the bank.
Joe Channer (pictured), chief executive of Delta Capita, said the firm would help ensure Credit Suisse's products are issued on time, with public offers and exchange listings to be coordinated across major European markets.
"By working closely with our clients to support their specific needs, not only is there a clear path to achieving best practice in product governance, but an opportunity to deliver a utility for structured product production," said Channer. "We expect this to result in more consistent standards, lowering of costs and improving efficiency."
According to Channer, "the upshot" of the agreement is that Credit Suisse and other potential banks taking up this service "will be allowed to focus their efforts on product development for their clients, safe in the knowledge that they have a scalable and high quality service, coupled with a platform capable of supporting their business".
SRP understands the consultancy is in talks with other investment banks after being appointed by Credit Suisse. Following the FCA Thematic review in 2015 a number of issuing banks were forced to look at the governance process of their structured products issuance within the context of best practice. Other manufacturing banks are looking to offload and outsource non-core activities that are not competitive to reduce and mutualise costs. This has opened new opportunities for specialist firms such as Delta Capita and Fortem Capital.
According to Ryan Rogowski, former head of cross asset distribution sales, UK & Ireland at Societe Generale who joined specialist derivatives firm Fortem Capital Limited as a partner, over the last couple of years a number of banks have offloaded and restructured their derivatives businesses with many former bank executives setting new firms to fill the service level gap and provide solutions to clients no longer on the priority coverage list of banks.
“The efficiency of this model is that those executives are aware of the needs of the clients, have the contacts in and outside the banks, and can bring efficiency to some of those processes,” said Rogowski. “We think that is where the industry is going and we are confident we can capitalise on that evolution, helping banks streamline processes and provide some of the innovation this market needs.”
According to a senior market source, this is a reflection of the market moving towards a streamlined approach where pre- and post-transaction functions such as transaction management, document generation and marketing materials related to the issuance of products are being outsourced. “Commercially speaking this is about creating a shared 'pay for use' utility issuance platform for the market, and a significant departure from the old set up where banks managed the full cycle,” said the source. “This is about helping manufacturers meet regulatory requirements in a cost effective way and that best practice standards are created in the industry. This is a priority for issuing banks after the thematic review.”
The announcement follows Delta Capita's appointment as managed service provider to the Plato partnership in September 2016 and the appointment earlier this year to a consortium of the biggest structured products manufacturers in Europe seeking a common solution to comply with the regulation on Kid for Priips.
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