When deciding where to place my child as I went back to work, I thought I had decided on hiring an in-home nanny. Contrast with dropping off a child in the morning then arriving in the afternoon to a clean home, as you left it.
Others have decided to stick to a more diversified operating model providing a range of financial services across borders. Opinions still diverge on what the perfect balance is and what a sound and well-structured bank should look like. What everybody agrees on, however, is that managing these global operating models has become more expensive and that the focus for banks is, more than ever, on cost optimisation.
Simply put, as capital requirements are impacting the pricing of financial products, banks need to lower their operating costs in order to remain competitive.
Outsourcing to remain competitive In the first years following the crisis, banks have divested —sometimes significantly— their riskier activities and applied their capital to more cost-efficient businesses. Over the last ten years, however, this phenomenon has gathered momentum and the nature of the outsourced tasks has evolved.
Offshoring benefits risks until recently, IT processes and client relationship management especially in retail banking accounted for the majority of large-scale outsourcing, whereas we see an increasing number of banks starting to use managed services for critical processes and support activities.
The types of functions now being outsourced range from compliance processing tasks to critical day-to-day business activities.
Similarly, in the UK, some banks have chosen to outsource the management of their PPI claims, rather than having to build and train entire teams to deal specifically with this matter likely to be dissolved when the FCA sets a deadline for customers to file their claims.
These systems, which are populated by the banks with their own KYC data, follow standardised processes to make sure that the documentation provided consisting of customer identity and tax information is consistent from one institution to the next and across multiple jurisdictions.
In investment banking and capital markets, banks have also started mutualising some of their processing activities. And according to many securities executives, that might be the future model for securities processing.
Over the last few years, several post-trade processing solutions have appeared. They cater to banks looking to streamline their securities businesses by outsourcing key post-trade functions such as settlement, books and records, control, etc.
Some of these platforms are on the verge to become standardised solutions, shared by all their clients. What are the risks for banks? A well thought-out outsourcing strategy —combined with carefully carried out due diligence— can set a bank apart from its competitors.
What then, are the risks for banks? Companies often focus on making sure vendors deliver, but they sometimes forget about the ancillary, operational risks of outsourcing.
These risks can be very large and significantly impact capital requirements. The failure resulted in paralysis of critical banking systems —a costly error. Another one had to compensate thousands of customers whose personal information had been stolen and sold illegally.
The data had been stored by a vendor on a USB stick which was subsequently lost.
It is important to understand that by importing efficiency, companies are also importing risks Scandals have also been frequent in the investment world where rogue traders have lost billions before computer control systems, managed by third party vendors, detected unauthorised trading patterns.
On a specific instance, a bank lost over a billion dollars because data incriminating one of its traders, collected by a third party, never made it to its compliance team. It had been deleted by error as part of a system upgrade — performed by a vendor. For a bank or any financial institution, following a carefully developed and detailed outsourcing methodology is paramount to significantly lower its operational risks.
They should have a clear due diligence approval process for potential companies they outsource to and outsourcing policies to ensure that both parties understand what is expected and how business should be conducted.
Compliance and Operational Risk teams should carry out regular reviews to verify that their suppliers are compliant. Given the potential for extreme loss events, it is also critical to plan ahead and have a capital efficient solution to mitigate these risks — naturally imported when a company decides to outsource some of its activities.Advantages and Risks of Offshoring, Nearshoring or Onshoring Oct 15, By Leslie Weller In Blog No Comment This is the second of a three part blog series on information technology outsourcing (ITO).
5 Benefits of Offshoring; Search. Offshoring is simply the process of getting work done in another country. You take an activity and move to an offshore location, but that activity is still completely managed within your company, so you control the outcomes.
Advantages and Risks of Offshoring, Nearshoring or Onshoring Oct 15, By Leslie Weller In Blog No Comment This is the second of a three part blog series on information technology outsourcing (ITO). Banks: The Benefits and Risks of Outsourcing. as banks have been on the forefront of the trend since outsourcing and offshoring started to become the norm in the service sector.
Over the last ten years, however, this phenomenon has gathered momentum and the nature of the outsourced tasks has evolved. What are the risks for banks? The benefits and risks of outsourcing Duke University's Offshoring Research Network and PricewaterhouseCoopers (PwC), outsourcing providers around the .
Here are 5 benefits of Offshoring: Business Growth; Offshoring allows you to reduce one of the most expensive parts of your business, the labour costs.
Freeing this up will allow you to reinvest funds in to your business and give you the opportunity to expand your offerings and service. Essentially working on your business rather than in your.