From Status Quo to Engine of Opportunity: 20 Years in Banking Ops

On a recent rainy Sunday afternoon, I found myself reflecting on how much banking operations has changed since I joined my first ops team in 1998. Over the last 20 years, ops has reinvented itself for the better, faster, and cheaper, as well as vastly improved its interoperability with the rest of the financial ecosystem.

One of the starkest differences between then and now is the way financial institutions regard their ops functions. Back then, banks tended to allocate budget (and consequently, technology) primarily to the front office, because that was the growth driver. In the back office, there was a mindset of “if it’s not broken, don’t fix it.” As a result, most ops teams’ technology resources were scant, and recordkeeping was often fragmented and incomplete.

Then came the 2008 financial crisis.

The financial crisis caused a shift in priorities (and rules)

The 2008 Lehman Brothers default had a domino effect on the stability of the financial markets, and revealed that regulators lacked a comprehensive understanding of banks’ exposure. Since then, regulatory changes and other significant events have resulted in an emphasis on risk management and a shift in how banks prioritise operations processes. More specifically, the fallout from 2008 emphasized the need for technology that enables financial institutions to reconcile live trades in real time if and when a default happens.

Regulators also recognized this need, and governing bodies around the world implemented new rules accordingly. In terms of regulatory changes that prompted banks to adopt enhanced operations technology (in particular, automation), 2012 was a pivotal year. Regulators across all jurisdictions mandated compliance with T+1 transactions reporting (e.g. EMIR, CFTC, AUSTRAC, ASIC, HKMA, MAS, FSA TR). This meant that firms had to re-engineer their post-execution recordkeeping and build a reporting process in just a few months–without having budgeted for the costs or the significant manpower effort that these tasks demanded.

Hurricane Sandy, Brexit, and COVID-19 accelerate change

As the financial industry worked to adapt to the regulatory changes prompted by the 2008 crisis, a natural disaster added a new layer of chaos. When Hurricane Sandy battered the East Coast of the U.S. and paralyzed New York City’s financial district in October of 2012, colleagues in EMEA and Asia had to cover and perform processes for operations teams and other staff members in offices affected by the storm. Companies were not fully prepared to transition roles and responsibilities to another region. It was pure chaos, with a significant number of trades unmatched and failing to settle in the market.

Sandy taught the banking industry an important new lesson: it revealed the need for a “follow the sun” approach, where business coverage can be supported by other regions’ personnel if needed. That means training global teams to access post-execution platforms and complete tasks from different locations than where the trades are originally executed. But it wasn’t long before two other unexpected events took the banking world by surprise and forced financial firms to swiftly change their operating models and scale up their technology use.

On 23rd June 2016, the world woke up to the totally unexpected news that the UK wished to leave Europe. What is now commonly referred to as “Brexit” would force many banks operating as UK-based legal entities to set up new European entities if they wished to continue operating in Europe. This was financially burdensome and technologically challenging. The new European entities’ technology had to be interoperable with the UK ones. Many UK live trades had to be novated to the new entities. Management had to be able to monitor positions, breaks, and cash balances in real time in all legal entities. The cherry on top was the recruitment and training of new personnel, which could not be done in person for cost purposes. This is when we started seeing more and more interviews and training programs conducted via video conference.

Changes, though, are often for the best. All the events we experienced from 2008 onwards helped prepare us for the latest unexpected crisis: the arrival of the coronavirus pandemic in early 2020. Covid-19 not only turned our lives upside down, but forced the financial markets to adopt a remote working model, practically overnight. The pandemic could have brought the global finance industry to its knees, but instead we rolled up our sleeves and started operating on virtual teams. Thanks partly to lessons learned from Sandy and Brexit, the operations function was already enabled to access all platforms and perform processes remotely. Our managers were no longer physically sitting across from us, but were a click away on our communication and collaboration platforms. This is where four-eyes checks authorisations were performed, payments authorised and year-end reviews discussed. The majority of firms also supported their employees’ mental health by organizing many types of virtual social evenings.

Over the last two years, we have learned to value our virtual offices. As Covid-19 subsides in many places, we continue to appreciate the work/life balance that our new arrangements afforded.

A new operations mindset proliferates

Today, banking operations is a field buzzing with innovation and driving change. My pen and paper are long gone, and so is the “if it’s not broken, don’t fix it” approach to operations technology. Banks are now seeing the value of proactively investing in operations and modernizing technology, rather than scrambling to adapt when new regulations are announced or a crisis hits. Ops employees are empowered to lead the way, and technology plays a crucial role in protecting market participants in both predictable and unforeseen circumstances—as well as supporting business growth and delivering a first-class client service experience.

In addition, the mindset of regarding processes as chores has shifted in favour of mining processes for opportunities and new business. If you walk the floor at a bank in 2022, you are very likely to stumble into a weekly scrum where ops teams are asking (and answering) “How can we do it better, faster, cheaper and in real time?” On the other hand, firms that are not challenging themselves on innovation and are content with their technical status quo have fallen behind the curve. They will likely lose business to their competitors and increase their operational and regulatory risk.

My fellow banking operations colleagues and I have witnessed an incredible journey over the last 20 years. I feel privileged to work for Symphony to support our users as they evolve their technology to build better, faster, cheaper, and more interoperable workflows. To learn more, take a look at the illuminating ops discussions and insights showcased at Symphony Innovate 2021.

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