As banks make strategic decisions about which markets to focus on, they oftentimes need to simplify processes.
To do this banks should take a firm-wide view of change, looking across management structures, operations and technology to shed the complexity made redundant by a shifting business focus.
There are two underlying drivers of this simplification agenda: regulation and technology. Regulation is pushing banks to a more transparent, streamlined operating model. Technology developments have highlighted the need for unified, scalable technologies, rather than ad hoc solutions bolted onto existing architectures.
Let's look at regulation first. It is simultaneously increasing the cost of business and the need to rationalise structures in businesses where banks choose to remain. New requirements from Dodd-Frank, and the European Union's Markets in Financial Instruments Directive, or MiFID, for instance, will push 90per cent of the market's voice and manual interactions to electronic platforms and, by 2016, the move to electronic trading venues is expected to cause sales and trading losses of 9 percent, heightening the need to rationalize the cost base. The dual running of systems during transition will further increase costs, emphasising the need to decommission legacy systems effectively.
As for technology, too many banks are trying to scale-up by building on existing technology that isn't putting clients' needs first. For example, 85 per cent of listed futures and options are now traded electronically, but many customers complain of "data overload", finding their bank's platform unnavigable as pricing, counterparty information and execution avenues are often fed from different departments.
A steady rise in complexity has taken place within investment banks, which up until now had not been a focus as a result of pre-financial crisis revenue and profitability levels. Post-crisis, regulation, cost reduction and client expectations are forcing banks to address this complexity by clearly defining their offerings, simplifying their operating structures, and rationalising common processes and technology across a more focused organisation.
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