Technology in the Financial Process Ecosystem
Prior to the financial meltdown in 2008, many financial trade operations were managed manually. However in 2011, Dodd-Frank and other regulatory initiatives mandated increased transparency across all aspects of the financial services office – front, middle and back. Moreover, trade activities have continued to grow rapidly with the start of the economic recovery.
As a result of these and other market forces, asset management and financial services firms are looking for ways to become, leaner, meaner and more profitable. Though often viewed as an operating cost that detracts from income generation, information technology has a significant role to play in achieving enterprise goals.
Throughout the trade cycle, technology reduces manual labor requirements, improves accuracy and provides additional transparency. As a result, IT can significantly cut costs, improve profits and ensure competitive advantage in a world where the rules and speed of engagement are increasing rapidly.
The Front Office is responsible for trade origination. Whether trades are made by phone, in person or electronically, traders and portfolio managers are responsible for maximizing profit for their clients.
Often, front end improvements focus on client facing technologies: websites, trading and account management tools, mobile. For some organizations, these projects play a significant role in client acquisition and retention.
However, while not nearly as visible, significant data stores underlie the operation of these digital assets, particularly in the asset management market. Additionally, for managed portfolios, the issue is more critical.
Because pricing information, position data and performance history are often warehoused in different locations, traders and portfolio managers are frequently unable to utilize the most current investment position data, thus hurting their ability to make effective investment decisions. Finding conflicts, discrepancies and errors often is a manual, time consuming process.
Technology can streamline these processes, making asset managers more efficient, and therefore more profitable. By setting up infrastructures that allow different data repositories and applications to talk to each other in real time, updated modern front offices provide instant and consolidated information to provide real time support for investment decisions across asset classes and geographic locations.
While often under invested in, the middle office plays a critical operational role, particularly in risk management. The middle office is responsible, not only for pre-trade compliance in the areas of credit reviews, conflicts of interest and trade prohibitions, but also in clearing, reconciliation and settlement. Data management and analytics play a crucial role in limiting entity exposure and ensuring compliance.
However, for many players in the BFSI space, existing data management and analytics systems fail to live up to expectations. Frequently, these systems are unable to cross communicate, creating significant gaps in time necessary to extract critical data. Failure to perform at the speed of the internet – particularly with the blurring of intraday and end of day processes – places market participants who fail to invest in technology at a significant competitive disadvantage.
Technology improvements can enhance data capture, reconciliation and usability, and as a result, tend to improve operational efficiency, and with it, performance. More – and more accurate – information is available to the enterprise. As a result, the institute is better able to achieve regulatory, institutional and client-specific compliance, reducing legal risk exposure. Moreover, improved data capabilities often – when planned with sharing in mind – extend to improvements in front office operations, improving decision making in traditional profit center activities.
The back office is responsible for ensuring that the trades promised are the trades completed. It is in the back office that trades are confirmed, reconciliation and accounting completed and positions recorded. The entire financial services sector is dependent upon the accuracy of the activities that take place in the back office.
Yet, much of the work done in back offices is still handled manually, creating opportunities for inaccuracy, delays and extensive cost overruns. This issue is compounded by the numerous mergers and acquisitions in the industry that have left institutions with complicated, outdated technology that does not merge easily. Because of a traditional reliance on manual processes and legacy systems that don’t intercommunicate easily, instituting technology changes is often viewed as complicated, time consuming and costly.
However, the use of technology to automate many back office tasks and responsibilities presents a significant – if decidedly unsexy – opportunity to reduce staff, processing costs and error handling. In short, approaching the back office as a technology project presents the enterprise with a significant opportunity to cut costs and improve profit margins.
Using Global Talent
The use of technology not only allows for improvements within the financial services office. It also allows for the sourcing of global talent to further improve project speed and reduce labor costs. SRI Infotech specializes in projects across the entire financial services ecosystem, and uses the best, highly educated engineers to help you achieve your compliance, business and automation goals.
Contact us today to see how we can make your financial services office a contender in the 21st Century.