The growth of Clearstream’s fund services operations required the company to make significant changes to its corporate structure. These changes enable the firm to better serve clients by ensuring business activity fits a complex, evolving regulatory and market environment. Philippe Seyll, CEO at Clearstream Fund Centre S.A., explained.

Clearstream has two substantial business lines in Luxembourg. The International Central Securities Depository (ICSD) has been a significant global provider of post-trade services since it was established in 1970. This evolved into a fund services operation founded less than 20 years ago and headed by Philippe Seyll.

Substantial funds activity

After significant organic growth and substantial acquisition activity, the funds operation is now a major player in its own right, providing custody, execution, distribution and data management services for more than 230,000 funds in over 50 markets. It now generates about a tenth of the revenue and profits of its Frankfurt-based parent company Deutsche Börse AG, while the original Clearstream securities services operation delivers around a third of the total.

“Continued growth made it clear to us in Luxembourg and at the head office that a change in our structure was required, with these business lines needing to be run through separate companies,” said Philippe Seyll. “The fund businesses had become a large operation with different regulatory and business framework to the securities operation,” he added.

Regulatory divergence

Since 2022, the ICSD’s work is governed by the EU’s Central Securities Depositories Regulation (CSDR), while fund services activity falls under MiFID rules. There are also a range of additional regulatory and capital management implications for Deutsche Börse Group, particularly as this organisation also continues to seek growth through acquisition.

“Securities services is a largely mature, value business experiencing strong, and steady growth. This contrasts to fund services which are growing at a faster rate and therefore require particularly high levels of investment,” said Philippe Seyll. He pointed to the acquisition of six fund services businesses in the last nine years as an example. Recent takeovers include the fund data hub Kneip purchased last year, and the full acquisition this year of blockchain firm FundsDLT.

Demerger advantages

Hence the decision to separate these business lines, with Clearstream Fund Centre S.A. operating under a CSSF banking license since the start of this year. Although the capital structures, governance and management are now separate, Fund Centre maintains a close business relationship with Clearstream’s ICSD operations where relevant.

Philippe Seyll points out that acquisition transactions are simplified under this new corporate structure. “Non-cash transactions featuring an exchange of equity were more complex when the fund services business was a section of the ICSD,” he noted. The separation now enables Fund Centre to be more agile when eying future purchases and making other business decisions, including managing Clearstream’s fund operations in Ireland, Switzerland and Australia.

The reorganisation

Philippe Seyll is the CEO of Clearstream Fund Centre S.A. The bank’s supervisory board is headed by Stephan Leithner, a member of the Deutsche Börse AG Executive Board. The Fund Centre board also features two non-executive directors, regulation expert Biba Homsy and IT specialist Yves Baguet. Biba Homsy has extensive banking experience and has worked with the Swiss regulator FINMA, and Yves Baguet was previously a senior executive with Clearstream and latterly oversaw a full IT system upgrade at BIL. “For operational and regulatory reasons, it is important to have these experienced people on our board to ensure that regulatory and IT matters are handled effectively while the split beds in,” said Phillippe Seyll.

The reorganisation has required about 80 new hires by Fund Centre, particularly in areas such as audit, compliance and risk. “We are keen to ensure there is a good gender balance in these teams,” said Philippe Seyll.

Prior to the de-merger, Philippe Seyll took the INSEAD/ILA International Directors Programme course. “There was not much new to me on the technical side, but the course was very valuable in helping to structure my understanding of overall governance themes,” he underlined. In a sophisticated corporate structure like those at Deutsche Börse and Clearstream, all such insight is a valuable contribution.

Philippe Seyl
CEO at Clearstream Fund Centre S.A.