As the landscape of communication continues to evolve in our increasingly digital world, the financial services industry is feeling the pinch of regulatory scrutiny. In recent years, financial firms have faced nearly $2 billion in penalties from the SEC and CFTC due to unregulated “off-channel” messaging. This surge in “off-channel” communication, including usage of platforms such as WhatsApp, WeChat, SMS, LINE, and mobile calls, is largely fueled by the rise of hybrid work. Yet, regulators maintain that all business communications must be monitored, auditable, and occur only within official channels. In the words of SEC Chair Gary Gensler, “As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels. And they must maintain and preserve those communications.”
Operations Teams are (Finally) Getting the Recognition They Deserve
In years past, the operations function at financial institutions was often regarded as background infrastructure (and also at times, overlooked by colleagues in other departments). But now, we’ve seen a shift – as the industry undergoes a massive digital transformation amidst a complex and evolving regulatory environment, operations has become a critical area of focus at the highest levels of the organization. In other words, operations professionals are finally getting the recognition they deserve.
The back office gets a seat at the table
The global finance industry’s perception of operations is changing. A simple analogy to illustrate this shift is the relationship between a car and its engine. A luxury vehicle may boast a sleek finish, state-of-the-art features, and a comfortable interior, but if the engine runs poorly, the value of the car is significantly diminished.
Operations are the engine of a financial organization. And as the industry demands a higher standard of performance in areas like regulatory compliance and risk management, the people who keep these engines running smoothly are now more critical than ever. Ops teams now occupy a seat at the table during reviews with brokers and buy-side clients, where process automation and accurate data exchange between interoperable market infrastructures factor heavily into decisions about where to allocate business. Nowadays, processes like trade settlement, regulatory reporting, and other operations functions can literally win–or cost–a sell-side firm significant shares of business.
Regulatory trends spotlight the importance of operations
A major reason for the increased focus on operations is the current global regulatory environment. Since the 2008 market crash and subsequent recession, regulators around the world have tightened compliance requirements for financial institutions–a trend that shows no sign of slowing down. The list of new regulatory measures since 2008 reads like alphabet soup: EMIR, MiFID II, SRD II, ISO 20022, SFDR, SFTR, CSDR, etc. These changes, which affect processes ranging across trade confirmation & settlement, regulatory reporting, governance, and other areas, demand skilled operations teams to keep an organization abreast of shifting compliance requirements. And the more regulatory developments arise, the more crucial operations are to the successful functioning of the organization.
In addition, financial services firms are laser-focused on pre- and post-execution in real time, as well as establishing standardized and interoperable workflows to reduce market risk (if not eliminate it altogether) while increasing profitability. Operations professionals, learning from past and present gaps and mistakes, are the ones equipped to re-engineer their firms’ operating models by engaging with strategic third-party vendors that complement their technology and enable secure interoperability with verified counterparts.
As the industry’s perception of operations evolves, professionals in this area should take a renewed sense of pride and purpose in their work. They have earned a seat at the table in financial market associations, and play an important role in advocating for market changes and establishing guidelines for best practices. The sales team may be the stereotypical star players in the world of finance–but when it comes to the value professionals bring to an organization, senior management is increasingly recognizing the people who keep the engine running smoothly.
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