Recent Posts

Archive

Tags

Goodbye Back-Office 1.0 and welcome Back-Office 2.0



When it comes to risk management, the game is changing for the Back-Office operations. The days where processing professionals used to care mainly about confirmations, settlements, payments, matching, reconciliations, disputes, postings… are passed. They need to learn how to manage risk by using tools built for Front-Office traders and risk managers.

It requires a new set of skills.

I have identified two major trends in Back-Office for the Developed Countries:

1) The typical activities for post-trade [confirmations…postings]: these processes will be industrialized and delegated to smart solutions. Technology [ Micro-Services, AI, RPM, Utilities…] combined with the Standardization of Operations, will automate these functions, making them more efficient and more STP. And this is happening very fast.

This means, there will be huge pressure on the workforce in this area.

Emerging countries Back-Office manual interventions still have years to go and the workforce will remain protected.

2) A new game has appeared in town for the Back-Office and requires new skills: Risk Management.

Best to illustrate through few examples:

Collateral Management: It used to be a B/O function [CSA management, Interest management, margin management, allocation management, dispute management, settlement management] until the crisis of 2008. Then we started seeing a remarkable shift. The need for collateralized trades exploded, and Collateral Management moved from the B/O corner to be at the center of managing funding optimization and liquidity risk. The Collateral Manager, among other things, needs to run “What-if” scenarios on market conditions [Market data & behavior] to identify new patterns for margin requirements. The CM will also run complex optimization scenarios to select the Cheapest to Deliver or Receive the Best Quality Collateral. These are totally new skills and technological needs that are becoming very desirable.

Payment Management (Intra-Day): Where it was enough to issue the correct payments on-time [of course make sure you have the funds], new skills are required from the Payment Officer. In addition to his/her standard operations, he/she needs to run “what-if” scenarios [market data and behaviors] to identify under stress what margins will be called, at what time in the day, identify the required liquidity venues under each scenario and build daily corresponding risk profiles to be prepared for any crisis.

This requires understanding of how Market Data movements and business changes (credit rating downgrade, business reduction...) impact different margin pricing. It also requires a tight coordination and understanding of Collateral Management to optimize liquidity venues.

IFRS 9: A complete set of rules imposed in Back-Office to better integrate risk management in accounting. Accountants need to be agile thinkers, demonstrate a new array of skills and knowledge, to better understand and coordinate with Credit Risk experts to successfully implement IFRS 9.

Operation costs (KPI): Back-Office operations are assigned a cost per transaction and this cost is being integrated into the P&L reporting for the desks. There will be a need to run “What-if” scenarios to simulate late payments, defaults, wrong data… and identify the worst cost to see the impact on the P&L. This is a new concept that Back-Office people were not concerned with.

These are few examples where Risk Management is becoming part of the Back-Office landscape.

This is an ideal time for banks’ Back-Office Executive Management to think how to be creative and reinvent the profession to benefit from the existing resources.

When it comes to risk management, the game is changing for the Back-Office operations. The days where processing professionals used to care mainly about confirmations, settlements, payments, matching, reconciliations, disputes, postings… are passed. They need to learn how to manage risk by using tools built for Front-Office traders and risk managers.

It requires a new set of skills.

If you liked the post to share it on LinkedIn, Facebook or Twitter. It helps spread the knowledge

#Banking #Treasury #PortfolioManagement #AssetManagement #BuySide #Fintekminds #Fintech #BackOffice #Processing

  • LinkedIn Social Icon
  • Facebook Social Icon

©2020 by FinTekMinds llc