The Middle East has become the new shining star for asset servicing as it ramps up efforts to diversify away from fossil fuels, invest more of its enormous wealth in Asia instead of just the United States and Europe, and upgrade its financial markets.
Initiatives by the governments of the Gulf Cooperation Council (GCC) to move away from oil, its principal export, has resulted in massive investments in physical and financial infrastructure, including building up its domestic asset management and broker-dealer industries, with a view to ensuring its future in the global financial markets when its oil reserves run out.
One net effect of these efforts is the current proliferation of financial markets in the region, including Dubai, Abu Dhabi, Doha, and Riyadh. A growing number of global asset service providers are setting up their operations in the region.
In 2022 Dubai led other financial centres in the GCC, ranking 17th in the Bloomberg Global Financial Centres Index 32, followed by Abu Dhabi (32nd in the BGFCI 32), Doha (57), and Riyadh (98th).
Also, in the wake of the emerging tripolar world order as reflected in the ongoing war in Ukraine, the GCC’s sovereign wealth funds are now seeking to diversify their holdings away from the developed markets and into the emerging markets, particularly Asia. While they have been doing this before, there is now a sense of urgency to their endeavour.
The Middle East has been benefiting from the current geopolitical turmoil as more funds flow into the region, pushed by rising oil prices and the search for safe-haven investments. This in turn has spurred a boom in initial public offerings that is still playing out.
All these developments require asset service providers who can support the massive requirements of the region’s financial markets, asset owners, asset managers, broker-dealers, and high-net-worth clients.
It used to be that asset servicing in the Middle East was dominated by HSBC. While the bank still dominates in most markets, its market share is slowly being eroded as global peers have discovered that the GCC is a lucrative market for asset servicing.
A case in point is Saudi Arabia, where HSBC used to have a 100% share of qualified foreign investor (QFI) assets until a few years ago. In 2022 that market share has dropped to 53% as more global asset service providers have entered the market, including BNY Mellon, State Street, J.P. Morgan, Northern Trust, and Standard Chartered.
“New channels for asset servicing are opening up in the GCC. The global custodians are seeing the opportunities. Suddenly, it’s no longer a boring marketing, although it requires them to be more creative in looking at opportunities,” says a senior banker.
It is in this context that we announce the winners of the Best Subcustodian, Best Domestic Custodian, and Best Fund Administrator awards for the Middle as part of The Asset Triple A Sustainable Investing Awards for Institutional Investors, ETFs, and Asset Servicing Providers 2023.
BEST SUBCUSTODIAN, DOMESTIC CUSTODIAN, FUND ADMINISTRATOR - RETAIL FUNDS, MIDDLE EAST
HSBC is Best Subcustodian in Bahrain as it remains the biggest and dominant player in this market with its extensive on-the-ground presence. It has also invested in its digital platform which illustrates its capabilities in further developing its business as well as the local capital markets.
HSBC is recognized as Best Subcustodian in Egypt. Its assets under custody (AUC) declined by only 20% when it should have declined by 50% due to the devaluation of the domestic currency. This indicates a growth of more than 50% in new business, compared with the previous years.
Standard Chartered is chosen as Best Subcustodian in Jordan. In 2022 its AUC increased by 4% year-on-year in view of specific client investment decisions even as foreign investors did not make new strategic investments in the country during the period. Standard Chartered announced plans to sell its Jordanian business to Arab Jordan Investment Bank in March 2023.
HSBC is Best Subcustodian in Kuwait, having notched up continuous growth in its subcustody franchise. The bank saw its AUC expand by 16% in 2022 from the previous year, after recording a 33% growth from 2020. Its transaction volumes also increased by 35% from 2021.
HSBC is recognized as Best Subcustodian in Oman. Its subcustody business in the sultanate grew 14% in volume in 2022 from the previous year. The bank provides in-house and customized solutions for its subcustody clients and plays an important role in the lucrative IPO market.
HSBC wins the award as Best Subcustodian in Qatar. Its business grew by 10% in AUC and by 17% in transaction volume. The bank also plays a leading role in innovation and the development of regulations to support the domestic stock exchange.
HSBC is also Best Domestic Custodian in Qatar. In an effort to further develop the domestic custody market, the bank is leading efforts to implement the first stock lending and borrowing transaction and playing a key role in the digitization and expansion of the product suite and sustainability agenda of the stock exchange.
HSBC also wins as Best Fund Administrator, Retail in Qatar. The bank is the only fund administrator in Qatar that provides an ESG dashboard report designed to provide meaningful ESG indicators for asset owners and asset managers.
HSBC is recognized as Best Subcustodian in Saudi Arabia. Despite growing competition, the bank continues to be the leading subcustodian in this market. In 2022 it grew its AUC by 15% and held a 53% share of foreign investor assets. HSBC has the most extensive suite of products and services among subcustodians in Saudi Arabia and plays a key role in the development of the capital markets.
HSBC is also Best Domestic Custodian in Saudi Arabia. It plays a key role in enhancing the custody business in Saudi Arabia through the implementation of an independent custody model. HSBC is the first asset service provider to offer, operate and settle in the independent custody model in this market.
HSBC is also cited as Best Fund Administrator, Retail in Saudi Arabia. The bank has streamlined its operations to reduce manual intervention, while driving the digital agenda with clients and making massive investments in its digital infrastructure.
Chosen as Best Subcustodian in UAE, HSBC continues to be the dominant player in the subcustody business in the Emirates, posting a 28% growth in AUC and a 38% rise in transaction volume for the year. HSBC also plays a leading role in the development of the local capital markets.
Standard Chartered is recognized as Best Subcustodian - Highly Commended in the UAE, where it is one of the leading subcustodians for broker-dealers with an average growth of more than 40% in AUC and 7% in AUM, outperforming the benchmark index.
Please click here for the full list of winners.