The year ahead will undoubtedly be another challenging one. Never before have Investment Banks had to compete on so many fronts, but 2014 represents the first year since 2007 for potential growth-on-growth.
As discussed in my previous blog post regarding the first 3 challenges for investment banks in 2014, the clearest of these is the thorough restructuring that the industry continues to experience. Investment Banks are setting ambitious cost targets for the year ahead, but restructuring effectively means more than cost-cutting. Focusing on core businesses, leveraging new sources of value and developing a culture of responsibility will all be crucial.
In this blog post I will elaborate on the next 3 challenges in 2014 we identified while working closely with leading industry participants: Sustainable Funding, Improving Surveillance and Mitigating Conduct Risk, and Finance as Strategic Enabler.
Challenge 04: Sustainable Funding
Investment banks are facing a ‘perfect storm’ of collateral and liquidity pressures. Regulatory reform has increased the volume of collateralised trades and mandates larger capital and liquidity buffers – so the demand for good quality collateral continues to rise. But, with tighter eligibility rules and market uncertainty, the availability of collateral is shrinking. How can investment banks chart a safe path through these choppy waters?
Investment banks have been reassessing their funding strategy for many years. But truly high performers are taking action in two ways. They are investing in process automation to optimise the use of all assets across their business. And they are taking offerings to their clients that maximise the pool of assets at their disposal, tap additional pockets of liquidity in the market, and manage collateral more efficiently.
Challenge 05: Improving Surveillance and Mitigating Conduct Risk
Conduct risk has become a hot topic for investment banks. As a spate of recent high profile incidents has shown, inappropriate conduct can erode confidence, compromise integrity and have major repercussions for reputation and performance. Surveillance is a powerful way of combatting this damaging behaviour, both pre- and post-trade.
While investment banks have access to a number of potential tools to improve their monitoring capabilities, enhancing trade surveillance is a top priority. The road to a robust, resilient surveillance framework can appear long and arduous. But with breakthroughs in technology and ever-improving industry knowledge of the conduct of risk – as well as the right guide – it’s by no means insurmountable. And, banks that deliver the required change will emerge more resilient, competitive and ready for whatever the future holds.
Challenge 06: Finance as Strategic Enabler
It’s during times of turmoil that new leaders come to the fore. And, for investment banks, the financial crisis and subsequent market conditions provided the perfect platform for Finance to demonstrate its abilities. Whereas Finance was traditionally a trusted steward and performance reporter, it has rapidly become a valuable business partner.
The influence of Finance functions in investment banking is increasing – a trend we believes will accelerate. Whilst the actions required by Finance are increasingly clear, the difference for the winning Banks is the speed and quality of execution. To become a genuine business partner, Finance needs to broaden and develop its skill base. This involves training and recruitment focused on building leadership, communication skills, strategic insight and the ability to challenge the status quo.
