Future-Proof Your Firm’s Middle- and Back-Office Operations
May 15, 2024
Read Time: 6 minutes
Data & Governance
Inst'l Asset Managers
Dirk FoleManaging Director, Chief Client Officer
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The true value of a digital transformation for investment firms lies in modernizing their middle- and back-office systems. Modernizing these systems, the backbone of a firm’s operations, can help improve long-term competitiveness, cost-efficiency, resilience, security, and compliance protocols in a constantly changing regulatory landscape.
Modernization requires a deep understanding of existing operations and processes and a clear view of the firm’s strategic direction. Despite potential complexity and cost, bringing these systems up to speed is worthwhile, particularly for firms positioned for growth.
Due to the growing acceptance of the need to innovate, demand has increased for ready-to-deploy technology that can harmonize data flows across the front, middle, and back office. Clean and normalized data has the power to optimize processes and empower an institution to make informed decisions – while effectively managing data across business functions – and is critical to maintaining operational efficiency.
Access to comprehensive data across business functions allows teams to nimbly address numerous functions, including 1) ingesting industry-specific metrics and data points; 2) aggregating asset data and ensuring strict governance of the investment lifecycle; and 3) consolidating portfolio data on a single platform to allow for comprehensive oversight.
Although it may seem challenging to manage the complexities of the transition to cloud-based processes – particularly in light of increasing regulatory and security issues – these challenges can be reframed as opportunities. As an example, recent regulatory changes – such as the upcoming T+1 settlement rollout in the U.S. – have pressed firms to re-think their current operational infrastructures and workflows. The end result is that efforts to drive efficiency internally can assist a firm’s core efforts to drive alpha.
With T+1 settlement requirements taking effect owing to the SEC’s updated rules, financial institutions will face significant pressure to meet strict deadlines. To accelerate readiness, firms will need to speed up their electronic post-trade communications with brokers and custodians, with an emphasis on accuracy. Post-trade processing has many moving parts and historically, costly errors can happen at any number of junctures. Issues that will need attention include incomplete matching of settlement instructions, the inability to borrow, and the perpetuation of operational and technology issues.
While some firms have already been outsourcing their middle- and back-office operations, significantly more are now realizing that many of their functions can be performed more efficiently by forming a relationship with an external partner.
The demand for a more scalable operations model has motivated firms to look at outsourcing as a means of improving operations and reducing reliance on internal teams that may come with risks of attrition, key person dependency, and higher recruitment costs. Market uncertainty is further compelling managers to control costs and reduce variability while creating scale.
There has been a renewed demand for superior talent and technology to help mitigate the impact of potential market uncertainty on firm operations, with an increased emphasis on the drive for real-time transparency into:
The right outsourcing partner can help connect data across multiple processes, resulting in increased transparency, efficiency gains, and single source of truth through operational standardization. Examples include:
The motivators for outsourcing are many, but several rise to the top: The freedom for firms to focus on their core competencies, access to teams of professionals to help firms optimize their middle- and back-office operations and help build scale, and cost controls. Middle- and back-office outsourcing can help support firms by leveraging the expertise and global presence of their outsourcing partner in a number of areas:
The sometimes forgotten but essential middle and back office are now front and center of the financial industry’s change management plans. For years, firms have been investing in front-office technology to streamline workflows in the face of squeezed trading margins and higher trading costs. But now the focus has shifted to enhancing efficiency by investing in resilient technology for middle & back office that offers faster and more effective processing and takes advantage of the many benefits of partnering with outsourced talent.
With the proper technology and an experienced team overseeing operations functions, benefits and resulting value may include:
Today’s operating models must have the flexibility to adapt to a firm’s changing business needs. The COVID-19 pandemic, for example, caused disruptions in day-to-day operations, the effects of which are still being felt at some institutions, in some cases resulting in a shortage of skilled operations personnel. Outsourcing to a sophisticated partner can provide relief for staffing instability and allow managers to focus on growth strategies. Today, firms are seeking support in areas such as:
The ability to collect and optimize data is essential to any firm’s success and growth. Improving operational efficiency and maintaining data integrity while reducing costs is critical. Outsourcing to a proven partner to help harmonize your middle- and back-office processes can move your firm closer to achieving these objectives more quickly and with minimal disruption. It makes sense to work with a technology and service partner with the systems knowledge and expertise to enhance your operations.
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