Finding Advantage in the New Normal
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Finding Advantage
in the New Normal
An Economist Intelligence Unit
research programmeFINDING ADVANTAGE IN THE NEW NORMAL
Introduction
For financial services firms, a complex, highly regulated global
marketplace is now the “new normal”.
The challenges inherent in this new normal present a clear opportunity for companies to improve
performance while contributing to the bottom line and enhancing the client experience. By
integrating compliance and regulatory requirements, companies are achieving operational
efficiencies, refashioning their corporate cultures and developing and refining best practices.
Many firms are starting to view regulatory compliance as a catalyst for business transformation.
For individual firms and for the financial services industry as a whole, regulatory demands can help
drive the development of more robust, more unified, more responsive and more flexible operations.
Regulatory compliance can actually become a springboard for making needed improvements to
business models.
Companies of all sizes are embracing regulation as an avenue to achieve operational excellence.
Large sell-side firms that historically insource technology and operations are now turning to third
parties for assistance, while smaller firms are seeking to benefit from the increasing number of
shared services.
To understand just how operational teams are contributing business value to their companies in
these highly regulated times, the Economist Intelligence Unit (EIU) conducted a survey, sponsored
by Broadridge, of 414 financial services executives, 40% of whom hold C-level positions.
Some key takeaways from the research include:
• More than half of financial services executives surveyed say that expanding into new markets is
the single biggest overarching business orientation, with many citing regulatory compliance as the
biggest hurdle to organizational success.
• Regulatory compliance is heavily dependent on technology, which—despite becoming more
affordable—still requires companies to make the necessary investments.
• A robust, integrated and centralized system that accommodates varied regulatory demands from
multiple jurisdictions can form the basis for highly productive and efficient operations.
• Development of automated operational processes that integrate risk management, audit trails and
compliance functions is cited by nearly half of survey respondents as the best way to respond to
more intense and detailed regulatory and governance requirements.
• Businesses would be wise to foster a culture of compliance, which requires hiring specialists and
educating the entire employee base.
2FINDING ADVANTAGE IN THE NEW NORMAL
New Markets and New Each additional market presents many new
hurdles. Perhaps none are as challenging or as
Rules significant for operations teams as regulatory
compliance. Poor operations can attract more
More than half (57%) of executives surveyed by regulatory scrutiny.
the EIU say that expanding into new markets
is their single biggest business orientation. The In turn, more regulatory attention can result in
majority of respondents also cite more intense damaging publicity and customer attrition, not to
regulation and governance as the most important mention massive amounts of institutional time
challenge to organizational success. Put and resources spent clearing any issues.
regulatory compliance and new markets together
and the challenge is compounded. (See Chart
1 and Chart 2.) “There is no way you can compromise,” says Lars
Chart 1. What is your company’s overarching
Seier Christensen, CEO of Copenhagen-based Saxo
business orientation? Bank, a financial services firm focusing on online
0% 20% 40% 60% 80% 100% trading, with operations in 25 countries. “When
Expanding into new markets
allocating resources,” he says, “meeting regulatory
Consolidating existing markets requirements is always top of the list; if you don’t
Status quo meet those, you are potentially out of business.”
Chart 2. Which of the following trends
presents the single most important challenge
to the success of your organisation?
0% 20% 40% 60% 80% 100%
More intense regulation and
governance
Changes in market or
industry structure
Growing globalization
Technology advances
Other (please specify)
Don’t know/not applicable
3FINDING ADVANTAGE IN THE NEW NORMAL
Most brokerage firms and money managers with
international reach appear to have accepted the
An Opportunity for
realities of a more regulated global marketplace Tighter and Smoother
and are coming to grips with multiple regulatory
landscapes, though much more work is to be Controls
done: Only 17% of respondents to the EIU survey
While nearly everyone recognizes the challenges
say they are fully prepared for coming regulatory
inherent in increased regulation, less obvious are
reforms. (See Chart 3.)
the benefits. A robust, integrated and centralized
system that accommodates varied regulatory
Chart 3. How prepared is your company to
demands from multiple jurisdictions can form
implement new regulatory reforms?
the basis for highly productive and efficient
operations, including consolidating data that can
0% 20% 40% 60% 80% 100%
also be used for revenue-generating activities.
We are fully prepared for the
entire array of coming reforms
In years past, everything from speed and ease
We are prepared for most of use to solid risk management and systems
anticipated reforms and we
have initiatives in place to get
redundancy marked operational excellence within
ready for others the financial services industry. They all remain
We are only partially prepared
crucial. However, the 2008 global financial
crisis rearranged the mix. Handling regulatory
We are not prepared at all complexity is now front-and-center, reflecting
demands as well as heightened expectations from
Don’t know/Not applicable regulators and from the customers of financial
services firms.
As a result, operational improvements that ensure
strong regulatory management can help identify
and then remove internal structural conflicts that
“For many firms [a centralized system] not slow or complicate procedures. They can assist in
only helps them deal with regulatory issues, everything from audit trails to credit assessment
and can provide management and boards with
but is a basic enhancement to their ability to better monitoring.
operate efficiently,” says Randi Weinberg, a
They can make financial services firms more
senior manager with global consultancy Kurt responsive to the needs of increasingly
Salmon’s financial services practice. “You might sophisticated and demanding customers, and, just
be implementing a centralized system to address a as important, they can help improve the bottom
line, which has been severely impacted by new
regulatory concern as the primary motivation, but regulatory requirements.
there are a lot of downstream benefits.”
4FINDING ADVANTAGE IN THE NEW NORMAL
Center-of-Excellence Technology in the
Strategy Spotlight
Juggling multiple product offerings, regulations Regulatory compliance is heavily dependent
and regimes in many different countries requires on technology, which—despite becoming more
a sophisticated architecture in control and in affordable—still requires companies to make the
infrastructure. It requires careful planning, necessary investments. For smaller firms, that
manpower and capital. While each organization financial burden can translate into sacrificing new
may put its own imprint on regulatory-related markets or product innovation. Large firms with
operations, the key is system unification vast resources have an advantage in technology
and integration. Often, the most successful upgrades. Nonetheless, all companies, big or small,
institutions establish a specialized team that has are now facing the challenge of integrating and
global responsibility and that receives assistance unifying this technology across multiple functions
from local experts. and geographies.
“Many firms set up a center or a function that Saxo Bank focuses on the overarching goal to create
actually pulls all this together, implements a a unified system that reduces ad hoc operations as
framework internationally and works as a leader much as possible. According to Mr. Christensen, the
to help these different international resources to key is what he calls “our one-bank, one-platform
manage the regulatory and compliance functions strategy.” But “if it has to be done manually, then we
in a similar way,” says Ms. Weinberg, who has do it manually. Otherwise technology is always our
studied the process. first choice.” He adds that technological advances
over the past decade or so have steadily improved
Construction of automated operational processes and heightened the reliance on computerized
that integrate risk management, audit trails solutions.
and compliance functions is cited by almost
half of financial services executives as the best This electronic infrastructure is especially critical
way to respond to more intense regulatory and to regulatory demands, Mr. Christensen says. It
governance requirements. (See Chart 4.) State- provides an audit trail. It offers proof that processes
of-the-art technology forms the foundation, with are standardized and compliant.
local specialists and expertise a necessary support. Of importance, regulators are not the only ones
who can easily observe compliance; so, too, can a
financial services firm’s own executives and
Chart 4. What measures can operational units its board.
take directly to improve your firm’s response
to more intense regulatory and governance
requirements?
0% 20% 40% 60% 80% 100%
Building automated operational
processes that integrate risk
management, audit trails and
compliance functions
Monitoring the regulatory
reform agenda and assessing
the operational impacts
Attracting and developing
stronger risk management skills
Developing more transparent
reporting processes
Don’t know/not applicable
Other (please specify)
5FINDING ADVANTAGE IN THE NEW NORMAL
A Client-First In-House Solutions Versus
Environment in New Outside Expertise
Markets Balancing in-house expertise with external
support is always a difficult call for operations.
Regulatory compliance on a global scale is, Regulations-related systems are no exception.
of course, much easier said than done. Each While larger financial institutions can choose
jurisdiction has its own demands, reporting between constructing a system in-house or going
protocols, calculations and idiosyncrasies. outside, many others must outsource. Regardless
Even something as supposedly universal as the of the choice, the emphasis must be on systems
upcoming Basel III global accord on bank capital integration. “The definition of optimal is different
and liquidity will be subject to the interpretations for every institution,” says Ms. Weinberg. “Both
of country regulators. in-house and outsourcing require the same level of
oversight, and the more and different systems you
Robert Crudup is executive vice president at have, the more difficult integration is.” This would
SEI, a $600 billion money management firm. He indicate the strategic value of using the same
describes a constantly changing environment in technology or vendor for different outsourced
which regulatory compliance issues “keep coming. systems.
They never stop.” Sometimes, he adds, regulators
will announce a “very large regulatory requirement The increasing availability of affordable technology
with the guidelines to follow. Well, the guidelines through third-party vendors allows smaller firms to
don’t sometimes come as quickly as they should continue to compete in an increasingly complex,
and the onus is on us to get to the finish line.” highly regulated marketplace. Such is the case of
Saxo Bank. While due diligence from prospective
Accordingly, banks are spending time reviewing clients once focused on risk management, these
their operations in each country and deciding when days, it’s “How do these guys deal with regulatory
and how to shift capital allocations in or out of complexity?” says Mr. Christensen, who believes
legal entities. that having best-in-class systems offers a real
competitive advantage. “It lifts a bit of the stone
from the hearts of smaller institutions that feel
“For the more sophisticated investors, it is regulatory obligations are very overwhelming” and
a huge cost and a drain on resources, he says.
important to know that the products they buy and
are being offered to them in a given jurisdiction
Embracing Regulations
are safe and compliant,” says Mr. Christensen.
“It [compliance] has added a lot of complexity. Through Corporate
It is costly and takes up a lot of time. But it has Culture
some significant competitive advantages when Compliance and governance demands from
you have an approach like ours… able to meet the customers and regulators are here to stay. As
a result, a business ethos that accepts, if not
challenge and do that in an efficient manner.” welcomes, regulatory oversight is a worthy goal of
all financial services firms.
6FINDING ADVANTAGE IN THE NEW NORMAL
“Regulators won’t go away; they are here to stay,”
concludes Dmitry Pugachevsky, head of research at
Quantifi. “The sooner financial institutions admit “The more that these institutions are struggling
this and embrace this, the sooner they can benefit and being challenged by all the requirements, the
from a lot of operational plusses.”
more likely it is that vendors and service providers
Regulatory management and control must be
will develop tools for managing those challenges
integrated with the rest of operations. That goal,
however, may be at odds with the perception of and that multiple institutions will use the same
some employees who consider regulations and tools.” ~Randi Weinberg, senior manager, Kurt Salmon
compliance something distinct and separate from
other business functions.
To overcome this, financial services firms need to
work toward instilling a culture of compliance.
They will need to hire regulatory and compliance
specialists and empower them. These firms will
need to educate all staff, with management leading
by example. It’s not enough for executives to
comply, they need to truly embrace the changes
and integrate them into every aspect of operations
and the client experience.
Conclusion
In the past, many financial services firms operated
various product or market platforms that were
independent, not replicated elsewhere and
difficult to manage across the overall system.
Now, regulatory and compliance-related pressures
are forcing an overhaul of those platforms to
standardize them across offices and regions.
A centralized system of regulatory and compliance
operations has its benefits. It allows a firm to
embrace best practices, coordinate policies and
procedures and identify required resources.
This is critical not only for accurate and on-time
communication to regulators, but it also creates
more streamlined, efficient operations. All good for
businesses and the customers they serve.
7Contact us
For more information on this report, please visit
broadridge.com/OperationalExcellence.
About Broadridge
Broadridge Financial Solutions, Inc. (NYSE:BR) is the leading provider of
investor communications and technology-driven solutions for broker-
dealers, banks, mutual funds and corporate issuers globally. Broadridge’s
investor communications, securities processing and business process
outsourcing solutions help clients reduce their capital investments
in operations infrastructure, allowing them to increase their focus on
core business activities. With over 50 years of experience, Broadridge’s
infrastructure underpins proxy voting services for over 90% of public
companies and mutual funds in North America, and processes more than
$5 trillion in fixed income and equity trades per day. Broadridge employs
approximately 6,700 full-time associates in 14 countries. For more
information about Broadridge, please visit broadridge.com.
No part of this document may be distributed, reproduced or posted without the express written
permission of Broadridge Financial Solutions Inc. © 2014 Broadridge Financial Solutions, Inc.
Broadridge and the Broadridge logo are registered trademarks of Broadridge Financial Solutions, Inc.
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