Societe Generale Securities Services to focus on digitisation, ESG

Societe Generale Securities Services to focus on digitisation, ESG

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Societe Generale Securities Services (SGSS) has identified further digitisation and the development of its environmental, social and governance (ESG) offering as key themes for 2022.

Speaking to Global Investor, David Abitbol, head of SGSS, says: "2021 was a very good year for Societe Generale as a whole and SGSS specifically. Markets were very active, so we benefited, amongst others, from the volumes and market valuations. While we are still in the pandemic, what I see when I discuss with our clients is really an acceleration in their expectation on digitisation and ESG."

At the end of the third quarter last year, SGSS reported a revenue increase of 6.9% to €155 million (£129 million) compared to the same period in 2020.

The bank's assets under custody in the third quarter stood at €4.475 trillion, compared to €4.328 trillion in the third quarter of 2020. SGSS's assets under administration increased by 2.9% in the third quarter compared to the third quarter of 2020 to €680 billion.

"We built our strategy roughly at the end of 2019 and we have not changed the views that we have on the market or on our objectives," adds Abitbol.

SGSS is also looking to serve the growing appetite for private markets in 2022, according to Abitbol. He states that, for private markets, the French banking giant is seeing a strong demand for ESG products. As such, SGSS is developing strategies that are ESG by design. "We are trying to make sure that our services and products, especially when it comes to data and analytics, can help these players make better decisions.

"One challenge with the private market is that if you want to have a complete set of ESG data, there are many data points that you need to gather. At SGSS, we are developing very concrete solutions for some of our clients and the aim is to continue to develop more data-driven solutions," says Abitbol.

SGSS enhanced its partnership with MFEX, the fund firm, in July of last year. Through this, the bank's clients have access to a single point of entry for managing real-time updates on transactions, transfers, cash flow and securities operations. The extension also offers SGSS's clients solutions for disseminating customised data and documents to distributors, and their digital compliance services.

These developments align themselves with SGSS's ambition to have ESG entrenched across all its products and services. Abitbol says this comes from a stronger emphasis on the ESG requirements across all assets because of investor appetite and regulations that are becoming more and more demanding.

The European Union's Sustainable Finance Disclosure Regulation (SFDR) is a regulatory example that impacts asset managers and seeks to increase transparency to help investors better analyse the sustainability of products. SFDR came into force in March 2021 and requires asset managers to provide more sustainability related information to prevent greenwashing.

For example, funds must be labelled as Article 6, 8 or 9 products. An Article 6 product does not integrate sustainability at all within the investment process; Article 8 products promote environmental or social characteristics; and Article 9 products have sustainability as their investment objective.

In April 2021, Societe Generale joined the UNEP-FI Net Zero Banking Alliance as a founding member. This means that it will aim to align its portfolios to be carbon neutral by 2050 and also with the ambition of limiting global warming to 1.5 degrees Celsius.

Abitbol says there is also a clear demand from retail investors for investments in private equity markets. "When it comes to retail, we cannot use the same processes that we have for institutional investors, so we are developing retail processes that can help our clients to manage these kinds of investments that are very different from the ones that we have been servicing," adds Abitbol.

Two and-a-half years ago, SGSS made the decision to focus most of its investments on the asset management and asset owner segment. "While we are a global player, we have strong roots in Europe and so, in order to really develop our pan-European reach, we decided to focus on this segment under transformation and further consolidate because of the constraints that they have in terms of digitisation, price, and regulation," says Abitbol.

Another point in its strategy is about helping asset management clients manage their own constraints in terms of profitability, which will lead them to outsource more processes.

In the United States, asset managers have been outsourcing far more processes than European managers, according to Abitbol. Subsequently, SGSS sees room for them to develop an offering to support clients and to move its core services to additional services to diversify its sources of revenue.

Societe Generale announced in April 2021 that its Board of Directors had approved the entry into exclusive negotiation with Amundi to dispose the asset management activities operated by Lyxor Asset Management, a wholly owned subsidiary of Societe Generale. The French bank said that the sale is in line with its strategy with regards to savings.

This entails operating in an open architecture and to propose investment and asset management solutions to its clients through partnerships with external asset managers. Founded in 1998, Lyxor is a key player within the exchange-traded fund (ETF) market in Europe. As of September end, Lyxor's net banking income stood at €64 million, a 21% increase compared to the same quarter the previous year.

In the third quarter, asset under management were reported at €169 million, a 28% rise year-on-year. In December 2021, the two French firms announced the completion of the Amundi acquisition of Lyxor from Societe Generale. Societe Generale said that the transaction, valued at €825 million, had been completed two months sooner than previously scheduled.

SGSS has been investing a great deal in technology and the bank's securities services arm is transforming its platform to be open architecture and more cloud-based with application programming interfaces (APIs). "This will help us to achieve our objectives. The first is to improve the client experience and provide additional services around data.

"The second is pricing because the new platform will help us remain competitive in terms of price and quality of service. Lastly, if we have a platform that is very open, it gives us the opportunity to partner with some players in the market that can complement our range of services and solutions," says Abitbol.

There is also rising interest in cryptocurrency assets. In order to meet this increase demand from clients, Abitbol says that SGSS has been offering its cryptocurrency solution through Forge, a subsidiary of Societe Generale, for the last three years.

SGSS is also experiencing a rising demand for cryptocurrency custody from investors with their own cryptocurrency custodian but who are looking for a third-party to do their record keeping. The securities services business is also noticing that there are clients who are not only asking for record keeping, but also cryptocurrency custody. Abitbol outlines that SGSS's priority is to develop both offerings.

"The first one, which is aligned with our traditional business, is to offer the record keeping for any asset class, but we are also considering the opportunity to develop with the Group, a solution in terms of crypto custody. I personally believe that the crypto custody space will develop quickly, and our view is to see how we can accommodate the demand while strengthening our offering for the coming years. That is why crypto custody is an area that we are considering," comments Abitbol.

Abitbol concludes: "Our North Star is the client experience; everything that we do in SGSS in terms of organisation, governance, product design, service design, process design, IT development and efficiency, and digitalisation, we do it with one driver, which is to deliver the best possible client experience."

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