Custodians of all varieties, whether global, regional or single country sub custodians, spend a huge amount of effort on RFP’s, and then if successful, on legal documentation. This work is costly, using up scarce skilled resources and often requiring external advice. But is it really value added?
It sometimes feels as if there is an army of specialists seeking to find a new way to ask or answer an old question as we look through different RFP’s. The reality is simple. If one looked at the different pieces of information required in an average RFP, at least 90% is common and perhaps 10% tailored to a specific market or by the originator themselves.
The 90% of common questions are usually either specific to the supplier (for instance their capital structure), or to the market (for instance the method of lodging securities at a CSD) or in respect of a service proposition (for instance the segregation of assets). Answers are obviously bespoke dependent on the respondent and the market in which the assets are held.
Could we handle that 90% of the RFP better? The answer has to be affirmative. If there were industry standards (or best practice RFP’s) available, then many would use them. Obviously the standard could not be limitative; bespoke questions could be added. But, if the reality is that 90% of the questions are standard, the supplier can use standard responses for them for all their clients in each specific market or for each specific service as well as for supplier specific questions. They could then concentrate their effort on the bespoke responses, improve their response times, maintain their own database against the standard RFP and, as the RFP response is likely to be clearer and more polished (benefitting from requests for clarification from previous recipients on standard questions), there is further benefit to the originator as well.
A similar issue arises with client documentation. Many years ago ISSA, the International Securities Services Association, sought to create a sub custodian agreement template. It sought to make life too simple, was too kind to the then core membership base of ISSA (the sub custodian constituency) and was not successful. However, there is room for agreement on many of the clauses that should be in any sub custodian agreement, on the definitions of standard terms, on standard default clauses and many others. It would be better if bilateral buyer to supplier discussion and negotiation were focused on idiosyncrasies of each market (best handled in a market side letter) or in respect of special requirements of the client. Such requirements could be service requirement related or originator unique (or semi unique more likely) clauses.
A cynic may say that such standardisation will never happen as it would decimate the fee capacity of both lawyers and consultants. But, in both cases, their value added is less in their contribution to the blindingly obvious (standard RFP questions or basic clauses in legal agreements) than in assisting the client in judgment calls, special features or issues such as legal enforceability cross jurisdictions.
Paradoxically, some consultants are in favor of a standard RFP – admittedly often as long as it is their template rather than drawn from a competitor. In many markets, especially in the field of international capital, legal agreements are based on standard industry documentation. It is therefore not a matter of vested interest. It may be that there is no custodian global body covering all aspects of the value chain across all markets who can become the trusted guardian of such documentation.
But, at a rough estimate, standardisation could take out the odd few million dollars of cost, free up the odd tens of thousands of hours of time across the market and, as importantly, reduce the quantum of risk and improve the quality of the work flow between buyer and supplier.
John Gubert
Chairman Global Securities Services Executive Committee UniCredit