How has Covid-19 challenged Middle Office and Operations functions?

      April 28, 2020

      DOMINIC AMURA, Head of Transaction Lifecycle Management

      In this series of blog posts, JDX explores some of the key themes emerging from the Covid-19 crisis, sharing some of our customer insights, lessons from our delivery teams, and perspectives from our senior business leaders, adapting to the new ways of working, the new normal.

      As banks and financial institutions adapt to a new mode of “business as usual”, the traditional Banking Middle Office and Operations functions are evidently feeling the impact of the CoviD-19 pandemic.

      Whilst stock markets levels have broadly returned to pre-crisis levels, the volatility over this period alongside the broader increase in trading volumes across all asset classes (e.g. it is reported that CDS volumes have increased in excess of 300%) will continue to impact the capacity of these key processing support and control functions. This will not only affect those support teams directly supporting the transactional volume (Trade Capture, Confirmations, Settlements etc.) but also those “cross product” operations services such as Collateral Management and Asset Servicing who are equally facing significant capacity challenges.

      What is key internally, but also critical to a banks’ respective regulators, is how banks are evidencing effective control and supervision over the business. Whilst most people are able to ‘login’ as per normal and use all the same systems and processes, a key element to effective Operational management as a primary control function is communication…and banks are now having to adjust to a new ‘unusual’ business as usual.

      Whilst the global regulators continue to move quickly and decisively to provide regulatory relief to ensure that firms can devote capacity to ensure business continuity, they will also be keeping an close eye on how usual this new ‘BAU’ world is !

      What could be the impact on a banks Operating model and location strategy?

      Historically most Investment banks have adopted a strategy to outsource or offshore a very significant proportion of their Operational functions to low cost locations whilst also maintaining those critical expertise-based or client facing roles in the primary locations.

      It is clear that many institutions are beginning to question their own location strategies. Business resilience, BCP plans and capabilities in low cost locations are being tested with many organisations exploring a “return to host” model or more dramatically exploring whether their original location strategies (whilst achieving the desired cost benefits), may have ‘pushed’ too much.

      However, with most people now working from home effectively, it subsequently raises the question as to how critical it is for those remaining ‘onshore’ functions to be protected from offshoring plans. Traditionally the argument may have been the requirement to have proximity to either key clients in region or to the front office sales and trading staff. However, the pace in which people are effectively working in a BAU state without being ‘close’ to the client or front office staff may challenge this entrenched “exemption card” for such functions.

      Any effective location strategy plan must balance the challenges of cost savings vs control, client service and business support…it is not a surprise that with all the best planning in the world, banks would not have considered the current scenario as a possibility. Therefore, the opportunity to challenge past strategies may come into focus sooner rather than later, especially if the lockdown and the working from home for all BAU functions continues for the foreseeable future.

      For more information, please contact Dominic Amura at dominic.amura@jdxconsulting.com, or Guy Whitley at Guy.Whitley@jdxconsulting.com.

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