Any sell-side COO drawing up a Christmas wish list this year is probably doing so more in hope than expectation. Meanwhile, the list of problems currently challenging the operating models of banks and brokers is probably longer than all but the most optimistic of ‘Dear Santa’ letters.
But as we all take stock over the festive period, reviewing the events of the last 12 months and anticipating the challenges and opportunities of the new year, it is possible to identify reasons for good cheer. The solution to COOs’ many problems may not arrive in time to be unwrapped on Christmas morning, but it is definitely taking shape. Before considering what kind of present might be hiding at the bottom of Santa’s sack, let’s take a look at what the typical sell-side COO might be wishing for, based on recent trends and developments:
A reduction in political shocks – In the aftermath of the UK’s Brexit vote and the election of a non-politician in the US, political risk is firmly back on the agenda. On their own, uncertainty over the triggering of article 50 and the composition and direction of Donald Trump’s cabinet are enough to delay investment decisions. Moreover, as results continue to confound pollsters, the outcomes of French and German presidential elections in 2017 cannot be taken for granted. Firms must expect the unexpected.
An end to economic uncertainty – Entwined with political risk, macro-economic uncertainties predominated in 2016, as they have since the global financial crisis, and show no sign of relenting. There are always pockets of opportunity, but with most BRIC countries (minus India) facing varying deep-seated travails – whilst Europe, Japan and the US struggle to escape prolonged low growth the overall investment climate remains highly cautious. As such, any revenue growth by banks and brokers will be hard won, with budgets likely to remain tight.
Less regulatory change – Many in the finance sector may already feel that they’ve already experienced more regulatory change in the past five years than in the previous 20 or 30. But Basel III and OTC derivatives market reforms are far from complete, while the diverse requirements of MiFID II will demand further structural change from 2018 onward. With UBS’s CEO recently noting that the bank is touched by around 40,000 regulatory changes per year, the pace of reform impacting the sell-side is unlikely to slow for several years. Simultaneously, many banks and their clients are coming to terms with radical new tax reforms to achieve greater transparency. Change, as they say, is the only constant.
A slowdown in fintech competition – As banks face up to the uncertainties and changes listed above, they are also attempting to grasp the opportunities to improve customer service through technology innovation. At a time of limited budgets for discretionary projects, many COOs fear their operating models will not keep up with the pace of competition in an increasingly digital economy. From machine learning to cloud computing to blockchain, the opportunities for improved process efficiency and client value are significant, but banks are competing with one arm tied behind their backs.
Strong, profitable client relationships – Both banks and their clients have been looking closely at their relationships in recent years, prompted by harsh economic realities and the tightening screw of Basel III’s capital and leverage constraints. But in many cases, existing technology infrastructures – not to mention balkanised departmental reporting lines – thwart any accurate analysis of relationship profitability or client satisfaction. Any COO would look forward to 2017 more cheerfully if he or she could improve the bank’s ability to focus resources on profitable relationships and identify and resolve areas of process inefficiency.
Greater automation and transparency – In various ways – most strikingly in the new margin rules being introduced in the cleared and bilateral OTC derivatives markets – regulatory reforms and market infrastructure initiatives are putting the squeeze on sell-side back offices. Habitually ignored and under-resourced, back-office teams are now required to effect collateral movements, for example, or fix trade fails in much shorter settlement windows, as volumes and variety of transactions continue to rise. Neither carrying on at current levels of exceptions nor throwing more staff at the problem is acceptable in the longer term, but tight budgets restrict the scope for major process re-engineering.
This brief look at the prospects for timely Christmas presents might point to a bleak midwinter for many a COO. But prevailing conditions are also acting as a catalyst. In the face of so many sources of uncertainty, banks and brokers require a more flexible operating model that can pivot and respond as circumstances demand. Many forward-thinking COOs are already thinking outside the box, questioning the status quo. If it’s hard to identify the optimal location for your business, is it possible to make the business more mobile, spreading operations across jurisdictions but maintaining oversight? If legacy costs and systems are weighing on your bottom line, could a utility or even outsourcing model share the load? If digitisation looks a distant dream, how can internal resources work best with third-party developers? If your exceptions processing costs are out of control, can collaborative platforms provide back-office staff with the contacts, insights and resources to squeeze efficiencies from your processes without incurring the costs of a back-office infrastructure refit?
Some presents the COO is asking for are clearly too large to fit onto the sleigh. But there are some very appealing gifts that are easy for Santa to deliver – one of those is Taskize, which arrives December 5,
Taskize provides powerful Exceptions Management as a Service (XMaaS) in a first for the industry. It enables banks, brokers and buy-sides to reduce the costs of resolving back-office issues and queries. Moreover, the network implications of its wider use across the financial markets offer the prospect of transforming how business gets done in operations as best practice and benchmarking data is shared across multiple counterparties.
XMaaS might not be the only thing the COO wants for Xmas, but could prove a small but important step toward a collaborative and flexible operating model in a changing world.