BNP Paribas Securities Services positive on China opportunity
07 November 2012
News, Asia, China
By Hui Chinghoo
BNP Paribas Securities Services thinks the newly-released amendments from the China Securities Regulatory Commission (CSRC) regarding the opening up of the domestic fund custody market to foreign banks is a clear move toward the country’s integration into the global financial system, though the firm doubts the measure will boost the market shares of foreign banks there in the short run.
The regulatory watchdog states that the asset size of eligible applicants should not be less than 2 billion yuan (US320 million), their capital adequacy ratios should meet regulatory requirements, and they should have a minimum of eight people on the ground, of which half must have required qualifications and a minimum of two years of custody business experience.
Lawrence Au, head of Asia Pacific at BNP Paribas, tells Asia Asset Management that the proposed application threshold is reasonable: “As the documents explain, the key change is from the focus on administering the qualifications of the custodians to administering the custody business itself.”
For the short term, he adds, it will only help foreign banks compete for QFII business from foreign investors who are far more familiar and comfortable with the operating and servicing models of foreign banks.
“Currently, a handful of foreign banks have the lion’s share of this market. Meanwhile, domestic custodians are growing their market share. This means competition will intensify.”
“The move might not necessarily help foreign banks much in gaining QDII business as fund managers will continue to select custodians primarily based on fund distribution capacity in the Chinese market, and this is dominated by Chinese banks that have extensive branch networks. Over time, it depends on the growth of alternative distribution channels, and whether there will be further changes in regulations, such as allowing middle and back office outsourcing for which foreign banks would have much greater expertise to offer.”
In terms of the company’s strategy, Mr. Au notes, “We have been positioning ourselves for the China market across all business lines, establishing the Shanghai-headquartered BNP Paribas China Ltd in 2008. Based on the requirements listed in the consultation paper, it appears that we are qualified to apply for the custody business license. We'll be forming a dedicated work group to respond to the consultation paper and to analyse the business base.”
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