SRP Europe 2024: Personality of the Year -Thomas Wulf

Thomas Wulf has been a driving force for the European structured products industry to engage in the regulatory with one voice. Having trained as a lawyer in Germany, his interest has always been driven by political and economic issues hiding behind regulation rather than the legal technicalities.

 it always is the capability to grasp the drivers behind a certain legal issue that tells you why things get stuck or move in a certain way - Thomas Wulf

“While mastering the latter is important it always is the capability to grasp the drivers behind a certain legal issue that tells you why things get stuck or move in a certain way,” says Wulf (pictured).

Before joining Eusipa in 2012, he worked at law firm Linklaters where he held several roles in Germany and Belgium for almost seven years after a two-year stint as an analyst EU policy at Commerzbank in Brussels.

“I had the pleasure to position one of the magic circle law firms in their business development efforts across Western Europe - something that works more easily when you understand how a law firm actually earns its money with a bit more detail,” he says.

In his role at the helm of Eusipa, he has taken on a “wide variety of hugely different tasks and responsibilities, many of which are linked to ensuring that all operations run well”.

However, on a day-to-day basis most of the emphasis has been coordinating the advocacy, PR and media work.

“This is only possible with the help of many colleagues across the industry engaging on a voluntary basis and of course our collaboration with excellent external service providers who helps us achieving the deliverables our members need while keeping costs down,” Wulf says. 

How did you become involved in structured products?

Thomas Wulf: Having worked in commercial and managerial roles for a couple of years I wanted to go back or closer to politics again as area that I always had a strong interest in, while not losing all the insights at the commercial end. Structured products issuers were back then looking to professionalise the association my predecessor helped set up and so in the end we found each other.   

What is the most important event you have witnessed in the SP space?

Thomas Wulf: Having seen the banking crisis from within a law firm where since 2006 I was the key account manager for major Belgian financial player Fortis Group [today mostly owned by BNPP], I was impressed to see that it was the structured products business that came up with a market solution for issuer solvability concerns. These were COSI (collateralised certificates) developed by the Swiss and German colleagues and based on ECB-eligible collateral assets safeguarding any investor against issuer default, in case their fear such, for a relatively moderate price.

It is the market’s answer to Lehman Brothers. It is luckily not widely known as not many investors seem to have such concerns but it this there and you can have it. Innovative structuring at its best.    

What would you highlight as the main achievements of the structured products industry over the last few years?

Thomas Wulf: Structured products have as many other asset classes seen a very tight and difficult market environment when central banks flooded the economies with cash, euphemistically called Quantitative Easing. The resulting negative and zero interest rate anomaly hopefully remains a black swan in my lifetime as it turned things upside down across the entire banking industry.

Capital protected products, being one of the main asset classes of the structured products industry could not be offered any more. The fact that we successfully managed to get out or this downward spiral still is a remarkable achievement in eyes that is evidence for the resilience of structured products based ultimately on the many different roles they can play in a portfolio.

What is your experience of the market now considering the challenging market conditions?

Thomas Wulf: The return of geopolitical risk brought back normal interest rate levels which deflated in 2023 an overheated stock market. With the lingering uncertainty though also, volatility is to stay which again, is as much as we dislike geopolitical risk, an ideal environment for structured products to show their strengths.

Buffer structures offer in sideways markets a yield certainty you simply do not find anywhere else in the product world. That is also why I am and hopefully have reason to stay optimistic when looking to the future.

Structured products have had bad press in the past. Do you think some of the innovations being introduced could open new pitfalls?

Thomas Wulf: No, I do not see any innovation in the market risk damaging the good reputation of our industry. Structured products have ultimately faced the same challenges as any other investment formats. Yield is always coupled with risk. The weaknesses we have shown in not sufficiently explaining some aspects of the investment risk though have all been remedied by well-known regulations such as MIFID 2 and PRIIPs kicking in after the banking crisis.

In terms of ESG, we stay as close as we can to the discussion on how ESG contributions through derivatives are being treated on the group level balance sheet in their OTC format, something that is still debated between member states and the EU Commission.

Other than that, we seek to apply the SFDR disclosure rules - which for unknown reason leave some asset classes including structured products out of their scope -as close as possible to our product universe in an analogous way strictly following the spirit of the rules.

How is regulation helping to consolidate the industry and make structured products mainstream?

Thomas Wulf: Good regulation can set the framework within which your entity can operate. In the EU this is always aimed at creating a level playing field across the single market to allow free flow of investments across country boundaries. One major problem starts if national governments start to goldplate EU rules without an actual reason.

How would you describe the industry landscape in Europe?

Thomas Wulf: Broadly speaking you can distinguish markets between those that have a strong listing and on-exchange trading dominance, such as Austria, Germany, Switzerland and Italy., and others that have traditionally an OTC structure not involving exchanges, such as Belgium or Spain. Some of these markets prefer structured products solutions, insofar as investment products are concerned in the format of tax-privileged wrappers. This relates to insurance products in France or the investment plan format in the UK.  

Leverage products on the other hand are broadly similar across all major European markets both in terms of their payoff structures (think of warrants and turbos) as well as their issuance and trading which always is MTF or stock exchange based.

What are the major regulatory changes or issues affecting your/the market now?

Thomas Wulf: We are seeing activity at all ends. There obviously is, quite prominently, the Retail Investment Strategy pushed forward to remedy assumed shortcomings or investment bottlenecks in the current PRIIPs, MIFID, UCITS, IDD and AIFMD rules. This is seen as a political profiling exercise that does not add much value to really increase retail investment in capital markets.

The feedback which the Commission has encountered both in parliament and the council is quite illustrative in that regard. An area where a lot of legislative activity is going on relates to the ESG area.

What in your opinion are the changes needed to make the structured products market more successful?

Thomas Wulf: I do not think that our prime issue is regulation when it comes to removing bottlenecks in the market. With a few national exceptions we are exposed to the same density and depth of regulation as the entire financial retail industry.

The ball is clearly in our camp when it comes to re-educating our work force on the benefits structured products can deliver in a portfolio and broader investment context, something that has not seen for the reasons discussed above the same amount of engagement. The tide is turning though given the already mentioned market constellation which in many ways is beneficial to our product offering.

Is there a need for an ESG regulatory framework to increase adoption, address greenwashing issues?

Thomas Wulf: We would indeed favour including structured products into the scope of any recast SFDR. However, doing so needs from our perspective a clear definition effort in terms of what constitutes a relevant ESG enhancing impact of a financial product including its components and/or investment context, and once we have that, how such a contribution or impact should be quantified. In our eyes there is no way around bringing SFDR criteria and MIFID target market quantification rules together on this.

Will the new Markets in Crypto-Assets (MiCA) regulation help bring clarity and use structured products to provide access to crypto currencies?

Thomas Wulf: MiCA puts up governance criteria for issuers and distributors of crypto assets in general, not only currencies. While this surely is a ruleset that brings clarity for offering such assets in the EU’s internal market, the main origins of crypto-assets lie outside the European Union. Structured products can profit from MiCA setting out provisions for consumer and investor protection, such as transparency requirements, which would apply also to structured products offering exposure to cryptocurrencies. This means investors would have better information about the risks and costs associated with these products, leading potentially to more informed investment decisions.

Neither MiCA nor the structured products investment format does however make obsolete the acceptance of the fundamental challenge inherent to every investment, namely that investors need to form their own opinion about an asset’s precise value proposition and potential pricing correlations and resulting fluctuation.