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Top 10 challenges for investment banks in 2015: Managing Collateral (Part 2)

Beat Monnerat, Accenture's senior managing director of financial services for Asia Pacific | Dec. 13, 2014
For the seventh consecutive year Accenture outlines ten of the key challenges facing investment banks in the coming year. This is day two of Accenture delineating a challenge a day.

CIOs need to recognise that regulatory pressures have greatly increased the need for efficient collateral management, transforming it from a support function at the end of the trade lifecycle into one that now sits at the core of the business. 

While the majority of banks have recognised the importance of achieving a consolidated view of collateral across all lines of business, Accenture takes the position that many financial institutions have a long way to go before achieving a truly efficient collateral-optimisation model. The CIO plays a key role in this process.

To be fair, most banks have taken steps to move on from a collateral management solution that is siloed across asset classes at the end of the trade lifecycle to a managed solution that consolidates certain processes across asset classes and takes advantage of the associated optimisation benefits. But we think banks need to go a step further in order to create a comprehensive solution that addresses several key areas, including capital and liquidity planning, dynamic use of assets as collateral, improved risk management capabilities and a consolidated, enterprise-wide collateral inventory. 

This requires a sound IT platform. Banks are already developing algorithms to assess collateral needs rapidly and accurately. These new models must be seamlessly integrated with existing capabilities that manage inventory, collateral requirements and margin calls, valuation of securities and communication with counterparties. 

Banks have made significant progress in consolidating their collateral operations, but additional work is required to truly optimise the collateral function and make it a core driver of the future banking business model. 

Banks also must assess if they are capable of delivering an integrated collateral management and optimisation service in-house, or if they are better served by outsourcing to a provider or undertaking a joint venture with a third party. 

The CIO needs a seat at the table to assess these decisions. But it unquestionably has the potential to streamline business. Indeed, in Accenture's view this centralisation of collateral has the potential to unlock inefficiencies worth in the region of €4bn across the industry.


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