A lot has changed in the financial world since 2008, and since the demise of Lehman’s, the needs of financial organisations have altered drastically. A number of external factors have seen the way buy-side firms revise the way in which they conduct their business as well as realigning their priorities. Mundane tasks once seen as back office duties, collateral management for instance, now hold much greater importance and significance for any buy-side firm.
Here, we will take a look at the top 4 challenges facing operations within the buy-side, and how they can tackle these issues head on in the most cost efficient and proactive manner.
- Complex regulatory reforms
Unsurprisingly, regulation enforcement continues to create challenges and pressure on the day-to-day workflow of operational departments. The profound operational changes are highly demanding for buy-side firms who have never before required such a fixed and regulated infrastructure in place to manage and collateralise their over-the-counter (OTC) Derivatives. The regulatory demands born out of the crash have seen a rise in central clearing for OTC derivatives, use of trade depositories, tightening eligibility criteria, Basel III capital charges and a change of internal counterparty credit risk management practices to name but a few constraints pushing operations departments to their limits.
However, regulations do not have to be as complicated as they seem, with the right technology in place. The right solution will be one that does not require a large upheaval every time a new regulation is put in place; new technology solutions, as a opposed to legacy technology vendors, are highly adaptable to the regulations they manage, and effective solutions will also have automatic links to trade repositories and provide EMIR reporting functionalities out of the box. This automated, bespoke reporting that innovative technology solutions provide, allows firms to be equipped for every eventuality whilst safe in the knowledge that they are inline with Dodd-Frank/EMIR regulations.
- System Limitations
Firms now have the added challenge of restructuring and reorganising their business operations, to keep inline with regulatory demands. However, these industry changes calls for systems and solutions to be in place for firms to better tackle these challenges.
Not only is it hard enough for firms to know what and when they need to do something, it is about having the necessary technology solution and adequate resources in place to facilitate it. However, this is easier said than done when departments are also working with a restricted budget, which hinders the level of technological resources available to them. Without having a system in place to deal with specific tasks in hand, the demands of regulatory changes can feel like a hindrance on operational departments.
Operations need to implement a system that eradicates the current inefficiencies that current methods – spreadsheets – impose and allow firms to gain full control over their activities. Most importantly, whilst spreadsheets offer amazing elasticity and are quick to implement, re-keying and the cut-and-paste of data is inefficient and prone to humour error. The collation of different disciplines that a technology solution provides allows firms to minimise human involvement and stamp out manual, time consuming processes.
- Restricted Budget
One could suggest that it is the small to medium-size buy side firms have felt the brunt of the recent industry pressures the most, as they are simply less equipped to on-board market solutions because of the extortionate and bloated cost structures of legacy technology solutions.
Small buy-side firms do not have the capital to throw at hefty IT solutions or the budget to hire more staff to deal with the increasing regulatory demands. Companies have only just started to emerge triumphant from the 2008 crisis but they have returned to a very different landscape – one where the bottom line is not the only consideration. With such restrictions in place, it is necessary for asset managers to collate, validate and automate their data for greater transparency and control of their business. However, this sort of privilege comes at a price and this is why most of the buy-side uses in-house technology that they independently build and manage. According to AcadiaSoft, over 90% of the buy-side still uses spreadsheets as opposed to external software technology, but this in-house method of managing data can prove costly and inefficient.
However, best of breed technology providers will offer a high performance solution, but come in at highly competitive prices. SaaS solutions can be bought for a quarter of the price of current technology solutions, and still deliver high performance functionalities and benefits that over shadow those of a legacy vendor.
One reason that SaaS solutions can be bought at this affordable price is because they do not require any additional hardware, there is no software that needs to be installed and there is no need for costly IT teams to oversee maintenance and integration of the system into your environment. Due to these factors, it also takes considerably less time to integrate a SaaS and get it functioning along side other technological solutions operations may have in place.
- So little time, So much to do
The changes around trading processes have changed drastically and this has meant that companies now have to do a lot more, with the same resources;
Efficient time management has never been so important. The financial crisis caused operational departments to be hauled to the front end of businesses, coming under scrutiny and evaluation like never before.
Again, the right technology solution can help operations tackle the challenge of juggling an increased workload. As regulations start to bite and firms are asked to do more work with the same resources, that’s when the efficiencies of dedicated platforms become vital. Having an external system designed for usability and scalability is incredibly valuable, and allows you to manage your time in the most effective way. Not only does the right solution help operations become more organised, the right technology provider takes on the majority of the workload, providing it has all the relevant information from the client, and makes the implementation of new system seamless.
Above all, the emergence of new technology solutions offer a variety of functionalities and benefits that are of interest to the financial world – namely allowing firms to manage time efficiently, stay regulatory compliant and keep costs to a minimum – something incumbent technology and manual methodologies simply cannot do.