No-touch collateral management world
19 November 2020
Wassel Dammak explains why firms should leverage technology to drive efficiency and invest in a profit-making collateral IT infrastructure
Image: stock.adobe.com/greenbutterfly
Past pandemics have driven people to innovate their way out of problems and reinvent environments, eliminating difficulties for a new state. While containing COVID-19, managing short-term disruption has been, and still is, a priority since the beginning of the year, credit risk, treasury and collateral departments need to prepare for the future by transforming their legacy IT stack to be cost-effective, flexible, regulatory compliant and built to be scalable and resilient.
Technology could be the main enabler for such transformation provided the vision of the target operating model is articulated, agreed and shared among the teams working around the collateral space. In a few years, collateral resources will be a collection of cloud-enabled inter-connected microservices talking seamlessly to each other, integrating easily to existing systems, interacting with external utilities and providing timely auto-recovering mechanisms. The orchestrator of such resources can ask for a robot or a human intervention in a digital manner whenever the automation is stopped: welcome to the no-touch collateral management world.
The path to such a world starts with the analysis of business processes using techniques like process mining to understand where the inefficiencies and bottlenecks are to begin transforming. The journey needs to be agile, delivering benefits in quick cycles, at a low cost and keeping in mind that the targeted final state might (and will certainly) change.
Efficiency drivers
Typically, technical efficiency is driven by technologies that decrease the cost of the collateral IT infrastructure. Moving an application to a cloud or adopting PostgreSQL could achieve significant cost savings, especially when the application has a true microservices architecture.
Operational efficiency could be increased by getting rid of all the residual manual processes hidden within the straight-through processing chain like interpreting and double-keying massive amounts of data. Using ‘intelligent’ components that parse the data, transform it, enrich it, interpret the requests and route them to the microservice that triggers the corresponding process is key to eliminate those inefficiencies and related costs.
Further efficiency can be achieved by optimising the use and prioritising the source of the collateral assets, a process that takes into consideration multiple dimensions (liquidity buffers, regulatory constraints, high-quality liquid asset availability, etc) to propose the best allocations of collateral assets, review permanently past allocations against available inventory and learn from the historic data to make informed decisions across an enterprise multi-asset inventory.
Profitability enablers
Financial institutions need to think of the best IT model between outsourcing to services providers, subscribing to utilities or keeping internally a certain set of services deemed sensitive from a data or a competitive perspective. There won’t be a unique model applicable to all firms but rather a fit-for-purpose setup that fulfils the objectives of each institution.
Firms looking to offer collateral services need an architecture with a store of technical and business components that can be packaged in multiple ways to adapt to clients’ requirements, in a competitive environment characterised by squeezed margins and continuous changes. The flexibility of such architecture allows users to react quickly to market threats and opportunities, maintain constant readiness thanks to its transformational nature.
Those firms leverage the same store of components to offer on the top a catalogue of business services offered with a rapid client onboarding and a quick time to market. Services like margining, reconciliation, optimisation, SIMM monitoring, margin settlements, etc, can be ‘activated’ in a matter of days or weeks with an open, resilient and ready to run application.
Mutualising the IT infrastructure could be another solution to amortise its cost and monetise its automated and standardised capabilities. The architecture must cater to a multi-banks-in-a-box model with all security and data segregation constraints. More added-value services are not shared to keep the competitive edge.
Choose the partner
The right partner is the one who can help financial firms achieve efficiency, maximise profits while transforming their IT legacy stack towards a target state that is flexible, compartmentalised and permanently ready to adapt and deliver value in short cycles and timeframes.
At Vermeg, we offer a comprehensive digital store with a set of technical and business components to enable and accelerate such transformation. Adopting a compartmentalised-approach with a technology that can interoperate and seamlessly integrate with existing systems is a key driver of our product strategy.
We accompany firms in their transformation and offer support through a cost-efficient, end-to-end collateral management service via a cloud-hosted software-as-a-service for financial institutions seeking to avoid the burdens of buying, supporting and running the software and the related hardware.
Technology could be the main enabler for such transformation provided the vision of the target operating model is articulated, agreed and shared among the teams working around the collateral space. In a few years, collateral resources will be a collection of cloud-enabled inter-connected microservices talking seamlessly to each other, integrating easily to existing systems, interacting with external utilities and providing timely auto-recovering mechanisms. The orchestrator of such resources can ask for a robot or a human intervention in a digital manner whenever the automation is stopped: welcome to the no-touch collateral management world.
The path to such a world starts with the analysis of business processes using techniques like process mining to understand where the inefficiencies and bottlenecks are to begin transforming. The journey needs to be agile, delivering benefits in quick cycles, at a low cost and keeping in mind that the targeted final state might (and will certainly) change.
Efficiency drivers
Typically, technical efficiency is driven by technologies that decrease the cost of the collateral IT infrastructure. Moving an application to a cloud or adopting PostgreSQL could achieve significant cost savings, especially when the application has a true microservices architecture.
Operational efficiency could be increased by getting rid of all the residual manual processes hidden within the straight-through processing chain like interpreting and double-keying massive amounts of data. Using ‘intelligent’ components that parse the data, transform it, enrich it, interpret the requests and route them to the microservice that triggers the corresponding process is key to eliminate those inefficiencies and related costs.
Further efficiency can be achieved by optimising the use and prioritising the source of the collateral assets, a process that takes into consideration multiple dimensions (liquidity buffers, regulatory constraints, high-quality liquid asset availability, etc) to propose the best allocations of collateral assets, review permanently past allocations against available inventory and learn from the historic data to make informed decisions across an enterprise multi-asset inventory.
Profitability enablers
Financial institutions need to think of the best IT model between outsourcing to services providers, subscribing to utilities or keeping internally a certain set of services deemed sensitive from a data or a competitive perspective. There won’t be a unique model applicable to all firms but rather a fit-for-purpose setup that fulfils the objectives of each institution.
Firms looking to offer collateral services need an architecture with a store of technical and business components that can be packaged in multiple ways to adapt to clients’ requirements, in a competitive environment characterised by squeezed margins and continuous changes. The flexibility of such architecture allows users to react quickly to market threats and opportunities, maintain constant readiness thanks to its transformational nature.
Those firms leverage the same store of components to offer on the top a catalogue of business services offered with a rapid client onboarding and a quick time to market. Services like margining, reconciliation, optimisation, SIMM monitoring, margin settlements, etc, can be ‘activated’ in a matter of days or weeks with an open, resilient and ready to run application.
Mutualising the IT infrastructure could be another solution to amortise its cost and monetise its automated and standardised capabilities. The architecture must cater to a multi-banks-in-a-box model with all security and data segregation constraints. More added-value services are not shared to keep the competitive edge.
Choose the partner
The right partner is the one who can help financial firms achieve efficiency, maximise profits while transforming their IT legacy stack towards a target state that is flexible, compartmentalised and permanently ready to adapt and deliver value in short cycles and timeframes.
At Vermeg, we offer a comprehensive digital store with a set of technical and business components to enable and accelerate such transformation. Adopting a compartmentalised-approach with a technology that can interoperate and seamlessly integrate with existing systems is a key driver of our product strategy.
We accompany firms in their transformation and offer support through a cost-efficient, end-to-end collateral management service via a cloud-hosted software-as-a-service for financial institutions seeking to avoid the burdens of buying, supporting and running the software and the related hardware.
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