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Managing Corporate Actions with a SaaS delivery model : A Solution for Wealth Managers
Corporate actions processing continues to be one of the securities
industries most confounding problems. Over many years there has been a
considerable effort put in by various committees worldwide, with numerous
attempts to standardise through agreed procedures and messaging standards but
still an industry solution has proven elusive.
For Wealth Managers corporate actions operations have remained very static
during a heavy phase of industry change, through ISO15022 and advances in
technology and systems over the last decade. The need for Wealth Managers to
change and invest in new technology and systems has clearly not been
compelling. However, new rules and changing market structures are now making a
case for investment.
The efficient settlement of a corporate action is far more difficult today
than a decade ago. Despite the introduction of new message standards and
improved technology there is an increase in fails, worldwide and the costs and
risks remain substantial for everyone in the market. This increase could be due
to the growth of transaction volume and very complex dealing and investing
strategies, which are pressurising the corporate actions department and taxing
legacy systems. There has been no tangible reduction in costs and the risks
within the process remain, without any industry consensus or accepted
understanding.
A two speed capability has developed between the wholesale and the retail
market, which has grown over the years and is only getting wider. Whilst
wholesale markets enjoy SWIFT connectivity and high levels of STP brought about
from implementation of ISO15022, the retail market struggles with legacy
systems, non standard data communication and process management. A market is
only as strong as the weakest link and the weak link in corporate actions
processing is on the retail side.
The explosion of many new rules and regulations in the global securities
industry has burdened firms in the past and there appears no let up in the
future. Investing in technology solutions based on a regulatory demand rather
than an operational improvement has helped create a capability gap in
operational efficiency, which is most notable in the corporate actions
department.
For Wealth Managers the number of demands on their systems appears to be
almost exponential, with business support provided by a legacy system that was
designed for a bygone age. In an age, when the investor had most focus and
where their brokers supplied them with regulated services, which were reliable
and formed the operational basis that Wealth Managers could build their
business around.
However, when markets change it always brings about to a greater or lesser
extent, systems upgrades, developments or procurement. All of these have
significant implementation costs and have proven a deterrent for Wealth
Managers investment.
When the overall costs are added up they can be even more expensive than
the procured system, this too can be a deterrent.
Wealth Managers and other buy-side firms who have invested in new systems
over the last decade in Europe mainly did so because of MiFID. MiFID brought about many new regulatory
requirements, creating changes in market structure and new trading venues,
making the corporate actions process harder.
Portfolios are now executed on many more trading venues and cleared through
many more clearing houses. All this change has very little if any benefit to
Wealth Managers but does have cost impacts, if systems have to be enhanced or
solutions developed.
On the face of it the buy-side is in a ‘no win’ situation, being
constrained by its current systems technology and architecture. Unable to risk
total change or by the size of investment needed, to replace its legacy
technology. In the meantime new technology keeps advancing creating an
increasing gap. Ultimately Wealth Managers will have to invest but will
probably be seduced into an apparent cost effective stopgap solution and this
will only paper over the cracks. How then can the buy-side bridge the gap and
bring about a real cost effective solution to their problems?
Continual systems development and the need to remain compliant and
competitive in servicing their clients, is an expensive business to be in and
is getting more expensive. Outsourcing has been an option in the market for
years but with new technology and new service providers emerging, a fresh look
at cloud computing / SaaS models Software as a Service) is
imperative.
Software houses have gone through several decades of incredible change.
Accumulating knowledge, becoming the most informed and intuitive experts on
operational problems and learning how technology can best be applied to not
only solve problems but institute business opportunities and operational
efficiency for their customers. Wealth Managers can now benefit from these new
and refined offerings which offer an attractive alternative to developing their
own technology.
SaaS (also known as software on
demand) all have attractions for Wealth Managers. But it is a matter of choice
to find the best fit for the individual company.
For corporate actions a SaaS
solution can make use of the web through a cloud, enabling the buy-side to
achieve a similar quality of systems capability as the largest and best names
in the industry. The problems of any legacy system are negated, enabling
buy-side firms to have enormously, enhanced operational capability.
Modern, modular, software systems enable firms to take on board new
functionality as a staged approach, adding new modules as and when required.
For example the SaaS solution, could
provide Data Capture and Notifications leading eventually to a complete
offering covering the soup to nuts corporate action lifecycle. This is a very
low risk option, which is extremely cost effective, using a tried and trusted
solution, rather than the more challenging ‘Big Bang’ complete system
installation, with all the concerns this can bring.
Software vendors such as Vermeg, that have a full range of corporate actions
functionality but can also provide a wide range of systems capability to cover
complete operational processing and accounting needs are likely to offer the
best SaaS solution. Remember it is a mixture of technology modules,
IT competency and knowledge with experience that are required for the best
outcome.
The securities industry was once underpinned by a number of bureau service
firms. They all disappeared in the eighties as changes in the market called for
firms to invest in their own systems. However, the time has arrived when a
modern version of outsourcing can now be implemented.
For Wealth Managers the
technology seams are beginning to burst and it’s now time for an alternative to
be introduced. The future is loaded with new regulatory and business needs and
Wealth Managers are going to be under intense pressure to support their
business and a fresh look at outsourcing and SaaS solutions called for. It might be an
old idea but with today’s internet-based technology, it’s a whole new solution.
By Christian CURE (ccure@vermeg.com)
Executive Director, Vermeg
