Investment Management in Financial Services UK
Driving Digital Transformation in the Investment Banking Front Office.
Market Challenges Creating a New Focus
In the current, uncertain market environment, Investment Banks are facing tougher competition, reduced fees and margins and regulatory pressures whilst needing to reassess how to drive a differentiated client engagement with better banker productivity. An increased focus on the front office is due to four factors:
- Need for a differentiated client experience - Following a significant spend on regulatory requirements, Investment Banks are re-defining how to drive revenues through a better, more connected client experience. This includes refining how better, real-time access to client and third party data can drive more insightful conversations and connecting this insight to action within CRM. Consideration of how key client engagement tools, including pitch books can be both automated and transformed, moving from static PowerPoint to interactive decks and virtual labs to bring pitches to life is also topical.
- User experience - Current front office applications are, for the most part, not working for bankers. Technology has been developed by technology primarily for operations, resulting in important user features being missed (including simple features like task automation and search), whilst usability tends to be at the bottom of the list of “must haves”, resulting in poor user adoption. This low adoption results both in experienced bankers lacking proper tools to be effective in the market, but also means that bankers start to work “off grid” on Outlook or Excel, resulting in a loss of critical insight for the Banks to drive a more effective, targeted client focus.
- Employee experience - The largest impacted banker group of poor user experience tends to be the analysts and junior bankers who expect better and more collaborative tools to drive activity that can often be repetitive; specifically for projects task allocation and pitch book creation significantly impacting their productivity. A tech-savvy generation of Analysts and Associates look for digital enablement in their day-to-day jobs that matches their personal experiences outside of work. Faced with excessive administration from poorly connected and manual tools, this burden compounds churn at grades that are critical for longer term Investment Banking success.
- Move to “off the shelf” - Technology used in the front office tends to include a suite of legacy platforms built or acquired over the years with numerous, specific applications that are costly to maintain, difficult to understand and hard to sustain. It isn’t unusual for banks to have 30+ applications providing information for, and enabling workflows around contact, client and opportunity management and KYC. This legacy technology is increasingly problematic due to the poor employee experience it drives, but is also limiting banks’ ability to drive innovation quickly, due to the lack of APIs connecting into applications for automation, client life cycle management and analytics.
Boosting Pillar Strength: PRA consults on enhancements to the Pillar 2 Framework
In March 2019, the Prudential Regulation Authority (PRA) published consultation paper (CP 5/19) to update the Pillar 2 capital framework and to reflect on-going enhancements in setting the PRA buffer (Pillar 2B).
As the CP states, its key objective is to “...bring greater clarity, consistency and transparency to the PRA’s capital setting approach. In promoting a greater level of transparency, the PRA seeks to promote financial stability, the safety and soundness of PRA-authorised firms, and facilitate more informed and effective capital planning for banks.”
This CP is relevant to PRA-authorised banks, building societies and PRA-designated investment firms (‘firms’). This CP is not relevant to credit unions, insurance and reinsurance firms. It is open for review, question or comment by 13 June 2019 and the PRA proposes to implement it from 1 October 2019.
The FCA takes forward investment pathways and other remedies from its Retirement Outcomes Review
The FCA recently published a package of measures to address the potential harm it found during its Retirement Outcomes Review (“ROR”). The package includes:
- a consultation aimed at improving outcomes in the drawdown market including the introduction of ‘investment pathways’ to help non-advised consumers choose the best way to invest their money; and
- final rules and guidance aimed at improving the information consumers receive in the lead-up to, and after, accessing their pension savings.
The future of defined benefit pensions – the regulatory framework for “superfund” consolidators
The importance of the Department for Work and Pensions (DWP) December 2018 Consultation on defined benefit (DB) pension scheme consolidation does not need to be stated. However, were there any doubt, the breadth and depth of the responses to the consultation, following its close at the beginning of February, underscore how critical the legal and regulatory framework for “superfunds” will be.
This blog explores some of the key proposals in what we consider to be the most critical areas covered by the DWP’s consultation, together with the feedback and proposals that the DWP has received in the respective responses of The Pensions Regulator (TPR), the Pension Protection Fund (PPF) and the Prudential Regulation Authority (PRA).
The end of the Term Funding Scheme
We do not currently expect there to be an extension to the Term Funding Scheme [“TFS”] nor a replacement scheme. Therefore, the ending of the scheme will require a significant change in the funding plans of many UK lenders, some of whom have become reliant on central bank funding to drive growth. As a result we expect securitisation markets to revive and deposit rates to increase in the near term, especially around peaks in the scheme’s maturity profile. The notional value of UK covered bond schemes is also likely to rise for smaller, less highly rated issuers seeking attractive spreads. To avoid sharp increases in their underlying cost of funds, Treasurers will have to move early and look to develop their funding infrastructure well in advance of their contractual maturity payments to the Bank in order to avoid costly funding issues and potential headwinds to future growth.
Innovation and data privacy: the ICO’s technology strategy 2018-21
New technologies and evolving business models have required regulators to review their capabilities and respond to new risks posed. And the UK Information Commissioner’s Office (ICO) is no exception. The new General Data Protection Regulation (GDPR) has vested considerable powers to the ICO to regulate and supervise data privacy risks. Increasing concerns about the wholesale use and processing of personal data by firms are reflected in the ICO's recently published Technology Strategy, which outlines its objectives and focus areas through eight technology goals.
The ICO strategy’s leitmotif is that technological advances “need not come at the expense of data protection and privacy rights” and that “privacy and innovation are not mutually exclusive”. Through the development of its technology strategy, the ICO’s overall aim is to remain relevant by ensuring that the monitoring and understanding of technological change, and its impact on information rights, are a core component of its work going forward.
PS18/4: Credit Cards and Persistent Debt
This blog is aimed at credit card providers but has read across to other consumer credit firms such as debt purchasers, credit reference agencies, debt management companies and providers of free debt advice.
Open-Source or Proprietary Software for Credit Risk: It’s all about asking the right questions
It is no secret that technology and its impact on companies’ business models is shaking up the general market. Technology disruption isn’t limited to media, retail, or transport (to name a few industries), but this disruption is widespread, also impacting financial services. The general theme is that technology enabled companies can execute quicker, cheaper and with greater precision.
Pillar 2 Liquidity: Cashflow Mismatch Risk
Introduction
The PRA recently issued their policy statement on Pillar 2 Liquidity and have finalised the reporting requirements for Cashflow Mismatch Risk (CFMR). This followed the consultation papers released in May 2016 and July 2017. While the policy statement covers CFMR, franchise viability, intraday liquidity and other liquidity risks, this blog focuses on CFMR given the significant implications for firms.
PRA Business Plan 2018/19
The PRA published its Business Plan for 2018/2019 on 9 April 2018. The Business Plan, structured around the PRA’s eight core strategic goals, is cross-sectoral, outlining the work the PRA intends to undertake for the upcoming year across both banking and insurance sectors.