BNP Paribas Pursues 40 Act Acquisition, Readies Live Blockchain Implementation

Comprehensiveness is a moving target in the financial markets.

Five years ago, BNP Paribas Securities Services looked to expand its offering in the United States. Today, that portfolio includes US domestic custody, global custody booked in the US, collateral management, securities lending, middle-office outsourcing and hedge fund administration.

Where it’s still lagging the competition is in the 40 Act fund administration space, but Patrick Colle, chief executive officer of BNP Paribas Securities Services, tells WatersTechnology that that is about to change.

“What we are missing today to complete our product deployment is US 40 Act fund administration; it’s what we’re missing to finish up our global construct,” he says. “That is what we are extremely busy—as we speak—going after. We will look to acquire a platform—a big team; a franchise. We are in the process [of looking to make this acquisition]. That should be coming out pretty soon.”

40 Act funds come with their own set of challenges. Colle points out that they have to strike a daily net asset value (NAV), whereas most alternatives only need to produce weekly or monthly NAVs. They are also highly regulated and, as such, have their own reporting constraints.

“Definitely, we hope to have been able to sign and announce [an acquisition] before the end of the year,” he says.

On the Blockchain

Another area of focus for the firm has been digitization. An increasingly major piece of this move toward automation is experimenting with distributed-ledger technologies.

Earlier this year, BNP Paribas Securities Services announced it was partnering with fund manager AXA Global Investors to develop a digital fund distribution platform, named Fund Link. The solution uses blockchain technology to streamline the fund onboarding and subscription/redemption process, starting with know-your-customer (KYC) demands, Colle says. Fund buyers, he says, must go through multiple KYC steps. But if you put that on the blockchain, then you only have one KYC that is used by all the participants on that chain, from the buyer, to the fund manager, to the transfer agent, and so on.

The firms have launched a proof-of-concept for this chain, but it is not live yet.

Also this year, BNP launched fintech venture Liquidshare, which is a partnership between BNP Paribas, Euronext, Euroclear, CACEIS, Caisse des Dépôts and Societe Generale. Liquidshare is looking to develop a post-trade blockchain infrastructure for small-cap, unlisted stocks. Colle says that they hope to have a live blockchain offering for Liquidshare sometime next year, though there is no exact timeframe.

But perhaps most interestingly, Colle says that BNP Paribas is close to going fully live with an internal blockchain for corporate actions.

“We are working as we speak on creating a corporate-actions processing layer built on top of the blockchain—purely internal,” he says. “This will be live internally within weeks.”

He says that these projects point to the custodian’s overall framework for blockchain-related projects.

“The way we approach blockchain is three-fold. We have initiatives that are totally internal—internal processes that we put on blockchain. Then we have blockchain initiatives that are for the outside world. Fund Link is one example, another example is [Liquidshare]. Then the third component of our blockchain strategy is marketplace initiatives where we get together with peers in the market,” which includes projects like R3, which it is a member of. It is also involved in other industry projects that Colle says, “might get a life of their own, or not,” but it’s still too early to tell.

AI Investment

The firm is also growing its artificial intelligence (AI) and machine-learning portfolio.

Earlier this year, BNP Paribas Securities Services took a minority stake in fintech startup Fortia Financial Solutions—which has an AI-powered investment compliance platform called Innova—with an eye toward Innova becoming the core platform supporting its depository bank. It will be used to actively monitor whether the investment of funds, for which BNP Paribas Securities Services acts as a depository, comply with the fund’s prospectus.

Colle says that BNP administers around 10,000 funds worldwide, and each fund has a prospectus where, every day, there are 100 control points to perform, in order to ensure that rules and investment guidelines are being followed.

“The manual task of going through the prospectus and checking the maximum amount of investment and this and that and that is a humongous amount of work,” Colle says. “That [Fortia] platform, with the embedded algorithms, allows us to understand automatically what’s in the prospectus, apply it to all the control processes of the fund, and this happens in seconds instead of days or 10 days. It revolutionizes the process.”

Colle says that Innova has been partly integrated, but they hope to have it fully integrated “sometime next year.”

Finally, on October 9, the firm announced it was implementing trading matching tool Smart Chaser. Using AI it is aimed at middle-office trade processing where, according to Colle, 30 percent of transactions fail, creating “a lot of waste.” Smart Chaser is a predictive engine that goes through “humongous amounts of historical data and allows us to predict—based on a number of parameters—which trades are likely to not match. This way there’s still time before the deadline to act on it and work on it more. Then you can super optimize your settlement trades,” he says.

This platform was internally built but connects to various other third party middle-office and big-data tools.