Posted In: Institutional Capital Markets
Nick Clarke, Head of Capital Markets Product Management, shares his views on how coronavirus will impact the future of risk management for institutional banks and brokers. This interview originally appeared in the Grey Cost Per Trade whitepaper from The Value Exchange, looking at how sell-side firms track costs per trade and how this drives their customer pricing, technology prioritisation and innovation.
The first few months of 2020 have recast the total costs per trade equation dramatically: changing business cases overnight and reshaping our investment priorities for the future. In 2019, business evaluations were based on costs and the risk of something going wrong. Today, those risks have been supplanted by the risk of no one being able to do the task at all.
Although it is far too early to draw conclusions on the new operating model that the post-Covid world will adopt, the industry has begun acting quickly in Q2 2020 to accelerate change in key areas – and to drive meaningful risk reductions that future-proof our industry.
Almost certainly. 2020 has exposed the large difference between offshoring and automation. Our industry has realised significant cost savings in the last decade by moving processes to shared service centres in India, Malaysia, Poland and elsewhere. But challenges accessing these centres during Covid has been a key reminder that offshoring can only yield so much. In light of having to re-onshore key processes during the crisis, many organisations are now aware that true scalability comes from automating processes as fully as possible – using APIs and intelligent workflow for standardised processes; and then machine-learning to manage a large volume of exceptions.
Slowly but surely. But automation can only take us so far. Many markets (in Asia and Africa); and many organisations (such as retail fund managers and brokers) continue to face highly manual, paper-based processes – which lie outside of their direct control. Cheque signatures, corporate actions and desktop-based market interfaces were enough to keep one broker in Hong Kong from releasing any more than 30% of their staff to work from home during the crisis, for example. Yet reaching higher levels of automation (and staff flexibility) would need: customers to change their behaviours (ie no more cheques); CSDs to revise their connectivity in many markets; and corporate issuers to adopt industry standards (e.g. in corporate action messaging) much more aggressively than ever before.
This is no quick win – but that is not to say that progress is impossible. Whilst some authorities have won support for temporarily waiving the need for burdensome tax documentation (ie for physical passport copies and certificates) during the crisis, they will soon need to decide how they manage the backlog of pending requests at a time when markets in the Middle East has proven how quickly and easily these entire areas can be digitised. Will we see market authorities digitise as fast as we want and need them to?
Far from it. Technologies that were once on the fringe have been thrust into consideration and are now part of conventional wisdom in no small part due to Covid. Cloud computing not only ensures employees are productive whilst working from home but can also dramatically lower core banking system costs. The business case for generational upgrades to core infrastructure has never been stronger and systems that deliver scale, whilst protecting from pandemic-sized jolts to the system and reducing costs are in contention.
Many lessons, both human and economic will be learnt from this pandemic and those firms that capitalise on those learnings will succeed in the long run.