Finalyse, the luxembourg-based specialist valuation, risk and performance solutions and regulatory compliance consultancy, and Fairmat, the Italian provider of derivatives pricing and structured product analysis, have partnered to provide a Key Information Documents (Kids) Packaged Retail and Insurance-Based Investment Products (Priips) implementation solution to the structured products market in Europe.
The agreement is aimed at combining Fairmat's 'technological added value' with Finalyse's culture of servicing to simplify the generation and monitoring of Kids for Priips with the firm's web-based SaaS solution. SRP spoke to Marc Louis Schmitz, partner at Finalyse, and Matteo Tesser, partner at Fairmat, about how the partnership came about, their expectations and the competitive landscape.
Finalyse was looking for a technology partner to complement its capabilities in the areas of products and services in risk management, valuation and regulatory compliance segments, according to Tesser. "The partnership makes sense because the two firms complement each other," he says. "From the very first meeting it was obvious that there were very strong synergies between the two firms and that we could benefit from a partnership."
In a nutshell, Fairmat's strength is its state-of-the-art technology platform while Finalyse has a significant reach in Europe and a comprehensive catalogue of products and services for the structured products segment, and beyond, according to Tesser. "There were also some areas such as pricing where both firms shared a comprehensive knowledge in different ways," he says.
Finalyse launched a pricing and valuation service in 2008, and bolstered its focus on the regulatory topic as its clients' needs in relation to regulation increased (Emir, Mifid, Priips...), according to Schmitz. "As we moved to build our technical capabilities and managed services we came across Fairmat," says Schmitz. "After the first meeting (...) it became clear that there was scope for the two firms to work together to provide a very strong Priips Kid managed service across Europe. They are strong on their technical capabilities and we can provide them access to key markets and clients in Europe by leveraging Finlayse's network and consultancy and project management capabilities."
According to Tesser, the union of the two firms in this joint-venture has resulted in more than the sum of the parts. "The timing of the partnership is also key in the context of our Priips Kid initiative," he says. "We have one of the best solutions in the market as suggested by the response we had from the market in Italy where even considering the regulation delay almost 50% of the life insurance market players went for ours Priips solution and several banks are talking with us. However, for a small firm such as Fairmat it can be difficult to engage with big clients and that's why we were looking for a partner to expand our reach in Europe."
Finalyse is a consultancy company specialised in the implementation of front- and middle-office solutions as well as risk management and regulatory compliance for financial institutions. "We have done extensive work in the implementation of regulatory requirements around Basel and other guidelines," says Schmitz. "We have a presence in key European markets and we have plans to expand to other markets such as the Nordics, Ireland, UK, France, Spain, Italy and Austria."
Finalyse provides a very comprehensive service to the market and already serves big clients, but they did not have a document generation facility such as Fairmat's and that gave the Italian firm an edge to close this deal, according to Tesser. "We believe Finalyse will help Fairmat's Priips Kid initiative to take off at a European level and make it a differentiating factor for us," says Tesser. "Our focus on pricing has changed mostly because it is a very competitive segment with a number of big providers such as Numerix or Thomson Reuters, and is a market somehow saturated. We offered pricing for specific issuer needs but it is a niche offering The Priips Kid initiative provided Fairmat with an opportunity to expand and offer a service that could be easily differentiated as this is a new market."
The Priips Kid solution offered by Finalyse and Fairmat is not just about the product but about how to implement the project and build the relevant communications between complex systems, according to Tesser. "The solution is web-based and has already been launched," says Tesser. "The solution has already been deployed by some clients. The feedback we get is that it is very easy to use and has been very well designed and intuitive. The aim of this service is to bring efficiency when generating Kids for investment products. Our focus for this initiative are the main European markets which is where the majority of investment products are manufactured."
"We have been developing our Priips Kid document generation facility over the last few months and we believe we have a very solid proposition for the market," says Tesser, adding that the strength of the partnership is the flexibility to provide services as either a software as a service (SasS) or embed the solutions on interfaces and systems for bigger players. "The Finalyse deal will allow us to offer our services on a full-outsourced basis," he says. "We cover all types of model integration.
The unique selling point (USP) of the new solution is that it covers all products and asset classes across Priips as opposed to just a few products and underlyings, according to Tesser. "Our modelling language also allows us to react very quickly to the needs of our clients and replicate any payoff structure and last but not least our platform can be used interactively or on-demand by other system via APIs," he says. "Our success in Italy has been remarkable and we want to replicate this in other European markets."
According to Schmitz, this is a very competitive segment and one that is growing at a fast pace. "We see a significant shift from banks and financial institutions towards outsourcing and managed services and functionalities," says Schmitz. "The reason why we partnered with Fairmat is actually because they are very strong at technology and we are very strong at consulting and servicing providing the market with eh best of the two worlds."
Both firms are 'very aggressive' in their approach to the market and have developed a 'very competitive' fee model as they believe they can bring cost-efficiency to structured products providers. "We think we have a very strong offering and the response we have from potential clients is very encouraging," says Tesser. "The competition in this segment is pretty fierce and we hope to leverage Finalyse's expertise and reach to expand our business."
By leveraging on the respective forces the two firms want to promote their offering over the next few months "because the delay in the implementation of Priips has resulted on a number of firms looking at the different market players around document generation".
The postponement has put a halt of some of the tools being developed until the final RTS is published but the market remains confident the overall framework will not change, according to Tesser. "We will continue working on developing new functionalities," he says. "We are also developing a portfolio management tool and we think this will also resonate in the structured products market in the context of open architecture and portfolio construction."
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