Collateral Management: Is Cloud Computing the Solution?

Financial institutions are increasingly turning to cloud computing to solve market, regulatory and infrastructure challenges. Karl Wyborn, managing director and global head of sales here at CloudMargin discusses how firms are harnessing this technology and what benefits it can offer in the field of collateral management. Watch the video interview below, or continue to read your complimentary article.


Financial institutions (FIs) of all types are under enormous pressure to become more efficient and more competitive while also meeting various new market and regulatory challenges. Cloud computing—where the technology or platform a firm uses is hosted on third-party servers—enables firms to reduce infrastructure costs and respond to new needs more quickly by scaling up in an agile way. Typically, cloud services are bought on a subscription basis rather than licensing and maintenance fees, which used to be the conventional pricing model.

Firms can take advantage of a lattice of best-of-breed cloud-based solutions from different companies, which interoperate to form a whole that is greater than the sum of its parts. For some users of older technology, who still believe that the benefits cloud computing can provide are ‘too good to be true’, that might seem like a fantasy from a far-flung future. But with the emergence of Financial Technology it is already a reality. Despite some early misconceptions, an increasing number of FIs are migrating their activity to the Cloud, either in whole or in part. Doing so enables them to increase automation and technological support while reducing costs.

Cost and Regulation Driving Cloud Adoption

FIs face a wave of post-financial regulations that are impacting their business. At the same time shrinking profit margins have put pressure on spending. Firms are therefore looking to address these new regulations in a cost-effective way. This has given rise to new disruptive technology—often called FinTech—providing greater technological support for financial market activities. Cloud computing is the natural next step in the 20-year evolution of technology from mainframes to PCs and then to the Cloud.

Cloud solutions are especially useful for buy-side firms, which have been impacted significantly by new regulations—in particular by the new collateral requirements. Asset managers may not have a collateral management platform in place, or if they do, it may not be scalable in the context of the new requirements. For these firms, a cloud-based solution that enables them to launch quickly, requires no infrastructure build, and enables them to scale up according to their needs, is an ideal solution.

Cloud and Collateral Management

Collateral management is a major feature of new regulation. Firms need to deploy complex new functionality that can meet the new regulatory requirements, and can be modified to meet future requirements. And because regulations will be implemented in quick succession over the coming months and years, firms need a system that can be rapidly deployed—they cannot afford to wait months or years for a new platform. Cloud solutions enable firms to deploy new functionality quickly, increase automation of complex tasks, and to scale up according to their needs. And especially important, in the context of the cost pressures everyone faces, a cloud solution means the cost of the platform is shared equally amongst all of its users.

Another benefit of cloud computing is that new functionality can be launched quickly and made available to all users of a platform on the same day, without the requirement for an upgrade.  For example, firms—especially sophisticated players—want to optimize the collateral assets they have, and to improve their collateral management processes to save on costs. CloudMargin’s recently enhanced collateral management platform offers optimization functionality fit for users of all sizes on both the buy and the sell side. CloudMargin will be launching a series of new functionalities over the course of the next few months, with no incremental costs or fees to users.

Firms Seek Increased System Interoperability

During the coming year, we will see a continuation of three key trends. Institutions will increasingly attempt to address their collateral challenges across the whole of their collateral program. Enterprise-wide collateral management was a key aspiration of firms for many years. Now there is a real intent to achieve those aims supported by the technology that has become available.

Many firms use multiple Cloud services across the collateral continuum, and are increasingly asking Cloud vendors to interoperate with one another and the other platforms they use. In the past, firms tended to buy a series of platforms from a single provider to meet the needs of their institution. Today, they are looking for best-of-breed solutions, but they can no longer operate in a silo. There is real demand for interoperability, and CloudMargin has a number of integration partners that together make a whole that is greater than the sum of its parts.

Finally, there is a growing demand among buy-side firms for direct access to clearing houses, which cloud-based solutions can enable. For example, CloudMargin recently announced a partnership with CME Group, whereby CME Group will distribute margin calls to all their buy side users globally through CloudMargin’s cloud-based collateral management platform.

Cloud technology capabilities will continue to evolve over the next year or two and provide new ways for financial institutions to meet their growing business challenges.

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