The Financial Services Circus
Paul Taylor is director of global matching at Swift
An ex-Coca-Cola chief executive was once quoted talking to staff about the work-life balance – juggling careers, family, health, friends and spirit. In the financial services industry today, work life itself is quite a balancing act, writes Paul Taylor.
Just some of the ‘juggling balls’ that need to be kept in the air include cost/efficiency, risk, technology enhancement and yes – of course – the hot topic, regulation. Let’s take a look at some of these:
Cost/efficiency: The predominant trends since 2008 are well known – a significant reduction in profitability and return on equity, a shrinking of margin and an increase of trade volumes in some cases (more trades, less commission, an attempt to shore up profit). While one could debate whether the pre-crisis levels of profit were realistic – whether it was a bubble that needed to burst – there are some other elements of the cost/efficiency review that could be taken to task, including process re-engineering (not technology), liquidity management, cross department/business collateralisation and of course further outsourcing of headcount (still a trend, particularly outside the largest banks which are by and large already saturated in such processes), or to a securities services provider offering concentrated regulatory compliance and scalability.
Operational risk: Of course the best study of this was in 2008 with the Lehman collapse, and more recently that of MF Global. Underlying regulations, be that Dodd-Frank, EMIR or CSD-R, are typically seeking to harmonise, or create financial market transparency, improve accountability and promote financial stability. With many regulations also mandating central clearing and reporting one wonders if failed CCPs of the past have been forgotten. And what can regulators realistically do with the landslide of transactional data that will be knocking on their doors?
Technology: Realistically, most of the challenges can be solved by sound technical architecture. But with some banks even competing between departments for technology budget, it isn’t an easy path. Perhaps the cost conscious path will lead people to consider elements of technology reuse. Clearly this assumes some level of technical ability already, but reuse of existing technology within the institution is one approach. The other is the use of low-cost cloud-based solutions, where technical footprint is low, and maintenance is someone else’s headache. Technology will, I believe, truly allow for better cost management in the future, enable new business growth and remove issues of scalability. It can also help to mitigate operational risk.
The Coca-Cola executive’s parting shot in his 30-second speech was you must understand the balls you juggle, and strive to make sure you only drop the ball that can bounce. Defining the financial services juggling ball that can bounce is the question on most operations managers’ minds at the moment.
