If the outsourcing of Middle and Back Office functions was becoming common across the Financial Services sector before the 2007-8 financial crisis, the wave of regulation that followed accelerated this trend.
Large bodies of regulation, such as Basel III, have paid particular attention to the integrity of risk management, the capabilities of IT systems and governance and reporting processes. This has meant large-scale investment in IT by Financial Services companies, and many firms have recognised that it is more efficient to outsource their requirements and concentrate internal resources on their core businesses.
Regulation continues to develop. With the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States and the European Market Infrastructures Regulation (EMIR) in Europe, for example, obligatory clearing and reporting for over-the-counter derivatives has followed. Again, the attraction of outsourcing has increased.
If regulation has been a major factor behind outsourcing, it is by no means the only one. Cost pressures, the drive for greater efficiency, the need to demonstrate prudent administration to stakeholders, risk management and advances in technology have all played their part. It is fair to say that very few companies now use only home developed solutions and processes to run their operations. Especially so where they are standardised across particular markets, such as equities and bond clearing.
BNP Paribas Securities Services, working with YouGov, surveyed fifty senior individuals from across a range of Banks, Brokers, Broker-Dealers and other sell-side organisations, to look at outsourcing in greater detail. These individuals all have a prominent say in the post-trade operations of their firms, and results from the survey shed light on current outsourcing patterns and motivations, as well as hinting at future developments in this area.
The survey can be accessed here.
This article was written by Julien Kasparian of BNP Paribas Securities Services. For more information please contact Julien Kasparian.