CloudMargin’s Industry Insight Series has been specifically created to shine a light on critical areas and themes within the financial services industry. Once a month, we will showcase expertise and viewpoints from industry figures who will highlight and discuss important areas in the market. The series has been designed to educate, inform and help you better understand complex issues within an ever-changing financial landscape.
Tam Nguyen, Smart Communications
Tam is the SmartDX Client Solutions manager with over twelve years’ experience in the Banking and Financial Services industry. In his current role, he has responsibility for supporting SmartDX Sales globally as well as developing client solutions for go-to-market execution. He has extensive experience in the securities and derivatives market and FinTech sector from previous roles at Barclays, ICAP and Accenture. Tam’s industry experience combined with his knowledge of cloud based technologies provides the context for advising and evangelising the SmartDX solution to deliver value propositions to the Capital Markets industry.
The banking industry has barely left basecamp in the trek to the summit of its own paper trail mountain. But we’ve already experienced many setbacks during the ascent, including, most recently, the huge industry effort to repaper CSAs to comply with the uncleared margin rules.
Manual re-papering is notoriously slow. Which is hardly a surprise considering the long periods of manual collaboration over Word and email. Not to mention zero transparency and control of the entire negotiation process. It also takes the additional manual effort to re-key the data residing in the Word agreements and then put it into systems connected to business processes such as Collateral Management. This inefficient process presents both risks and scaling issues for large-scale re-papering.
The low levels of automation for paper workflow isn’t a new problem. Yet, large institutions still use their old-school climbing boots to scale the mountain when modern high-tech boots are available right now.
The Climb Becomes Steeper
Today, the weight of regulatory pressure pushes organisations to re-think their documentation and data management processes. Margin Requirements for Un-Cleared Derivatives (MRUD), The Banking Recovery & Resolution Directive (BRRD), QFC clauses in the US, BCBS 239 and potential implications of Brexit are all prompting action. All these regulatory drivers have the potential to trigger another repapering exercise on a scale and timetable similar to the uncleared margin rules.
Fortunately, there are new boots to help you scale the paper mountain. Technology offers opportunities to learn and help ensure the industry isn’t blind-sided again. Rapidly emerging technology and process improvement solutions will enable organisations to re-engineer and streamline documentation processes, data management and automate BAU processes with a long-term focus. Smart contracts and digitised documentation technology can eliminate Word from the documentation process.
What About These New Boots?
In a market dominated by inefficient and fragmented processes, digital negotiation capability is relatively new. It’s taken a compelling event like the un-cleared margin rules to drive the agenda for access to ‘single source data’ within negotiated documents for onward consumption.
Only SaaS technology built on open standards can truly integrate golden source agreement data into the architecture and systems that need it across the business.
Cost and timing also play a role. Previously, upfront costs and forthcoming regulatory pressures had been a deterrent. Firms were simply not in a position to consider changing existing processes. Now, the industry focus is still on the tail end of re-papering to achieve compliance for the uncleared margin rules. But shortly after this, the focus will switch to cost reduction through automation and lowering TCO by moving expenditure from Capex to Opex using a SaaS model. Firms will look to streamline the end-to-end processing of documents and data management and enable data interrogation for MIS.
Papa’s Got Some Brand New Boots
The new generation of technology and process solutions enable data-driven documents. These documents contain embedded data items, such as legal terms that can be extracted into a structured machine-readable format for downstream processing. Even during negotiation, the tagging of these data items is preserved so once negotiation is complete, the data can be extracted and ingested into downstream systems. These data points are critical to margin, risk, and capital calculations. Getting live data into the systems is a regulatory requirement and, increasingly, a business differentiator.
With the help of some wily G15 institutions, Smart Communications, one of our close partners, has been working hard for the last three years to build an industry solution to help climb and conquer the paper trail mountain.
The solution, SmartDX, allows participants (our mountain climbers) to share the cost of ownership and maintenance of a central market infrastructure. SmartDX provides its users with a single environment to draft, negotiate and manage all documentation to meet regulatory requirements, yield greater operational efficiencies and introduce transparency via digitised documentation.
These new high-tech boots are now receiving significant interest from the industry. There’s more than one who wants to take them for a spin after realising those old-school boots have seen their best days. The active participation of high-profile sell- and buy-side firms in these pilots demonstrate the growing demand for industry-wide adoption of a centralized online document collaboration service and the gains in efficiency it could bring.
Taking The First Step
Moving to a new platform isn’t without cost, and the main impact is training people to adopt the new way of doing things. The potential ROI is clear, and it would enable organizations to operate more efficiently at higher levels of volume and scale, and to prepare for the next repapering challenge. Only this time the industry can arm itself with new high-tech boots for the climb ahead.
Find out more about how Smart Communications and SmartDX™ are scaling the most important conversations in financial services here.