Hasan Rauf of Omgeo talks to Hubbis about some of the operational challenges in the private banking industry in Asia, and looks at issues relating to risk mitigation.
Date: Jan 6, 2012
What are some of the challenges that private banks in Asia are facing from an operational perspective?
The Asian private wealth industry is evolving rapidly and there’s no doubt that the establishment of sound operational practices is paramount.
It’s important to note that the rapid growth of the private wealth industry in Asia makes it especially important for Asian private wealth managers to be able to scale their business. They don’t want operations to be a hindrance or barrier to growth.
To meet this need, a firm’s operational infrastructure must be capable of supporting complex products to suit the growing sophistication of the Asia client base. Plus, if companies are investing in multiple markets, it’s also important they ensure that the processes they adopt are relevant regionally and globally. Banks need a global infrastructure to support growth and mitigate operational risk.
In addition, private wealth managers need to be able to demonstrate stability. This is especially important in the wake of the financial crisis. Our clients are telling us that investors are not just looking for good returns on investment when they review a manager. Investors want to know that the company will be there for the foreseeable future – so it’s vital that private wealth managers demonstrate solvency, security and effective risk-management processes, including a sound operational infrastructure.
Finally, regional hubbing, or centralisation of operations, is also something we are hearing a lot about.
Singapore and Hong Kong are the main centres for this because both countries offer stability, robust financial systems and access to sustained growth.
You recently did a survey on post-trade operations in Singapore. What were some of the key findings?
We commissioned an external research company to conduct a study into the post-trade processes in the Singapore private wealth industry. At the time, we felt there was a good understanding of front-office issues facing the industry but the process for after-trade execution had less of a focus.
Our research was conducted with 34 executives from 29 private banking firms, focused on the operational workflow of private banks.
The study highlighted that many Singapore private banks were processing trades manually. This meant they were heavily dependent on human resources. Some of the most interesting findings were:
The survey also confirmed that a number of different operational models were being leveraged. These models were dependent on size, regional presence and growth plans for the region. Some had regional hubs in Singapore; others were matching and settling trades via their global head office or parent company.
There were also varied levels of understanding of what constituted a fully-automated trade lifecycle. Many of those interviewed placed a high value on the automated integration of front, middle and back-office processes, but also highlighted they wanted to make improvements to their existing processes.
Companies acknowledged that operations was an area that they needed to further evaluate. While some banks were already undertaking projects to review their operations, it was still early days. Since then, we have seen the trend towards an increased focus on operational risk management continue to grow.
What are some of the issues that COOs face when it comes to risk mitigation?
Companies need to be able to demonstrate robust risk management practices for all forms of risk – trading, credit and operational risk. There’s no room for complacency. This means firms must have the necessary risk management processes in place.
At the same time, costs have to be monitored. COOs need to ensure that they have effective risk management platforms in place to meet their budgets.
Asian private wealth managers operate in a number of different markets across the region – so firms need to be conscious of the local regulatory environment.
Private wealth is growing rapidly in Singapore, Malaysia, and Indonesia, and there’s also a big focus on China, so localisation is critical.
Of course, the primary focus for private banks, though, is to foster growth and then sustain that growth. In order to compete, private banks need to differentiate themselves. This needs to be supported by a solid infrastructure that provides consistency and operational efficiency.
Private banks will only be able to achieve this by having robust platforms to support their business.
What are some of the services that Omgeo offers in this space to private banks in Asia?
Omgeo pioneered trade automation. We set the standard for post-trade efficiency in equity and fixed income markets. We are a joint venture between Thomson Reuters and the Depository Trust and Clearing Corporation and have a global community of more than 6,500 clients and 80 technology partners in 50 countries around the world.
Asia is our fastest-growing region. We have offices in eight Asian markets supporting a client community of domestic and international clients, including private banks.
Since we carried out the Singapore survey, we have been working with private wealth firms across the region to increase industry awareness about how reducing manual trade processes can improve scalability and reduce operational risk.
Omgeo enables our clients to match trades electronically, so that very little manual intervention is required; trades are handled on an exception-only basis. So as a private banks experience growth in their business, our ability to process their trades efficiently is unaffected. Creating scalability is a key theme in our discussions with these firms.
In addition to trade matching, we enable trades to be automatically enriched with settlement instructions. In fact, we have the world’s largest electronic database of settlement and account instructions (SIs) – so if you are executing trades with a broker either domestically or internationally, chances are that that broker is also matching trades and exchanging SIs with Omgeo.