About a-team Marketing Services

A-Team Insight Blogs

Investment Banks Can’t Afford Not to MIND the Front Office Risk GAP

Subscribe to our newsletter

By Oliver Blower, CEO of VoxSmart.

A phrase heard by so many only to be listened to by so few. “Mind the gap”, synonymous with the mundane morning commuter grind, currently takes on a far greater significance for City traders travelling to work.

Not dissimilar to the cost conundrum facing the rail industry recently, when it comes to plugging gaps between when the trade was executed vs when it was booked, it is fair to say investment banks have been struggling. For too long now, trading desks have fallen foul of Prudential Regulatory Authority (PRA) requirements to book tickets within 15 minutes of executing their trades. Consequently, investment banks have been left paying in excess of £50 million per annum in fines.

Therefore, in these cost-conscious times, how and why have so many of the biggest financial institutions found themselves in this situation? The answer to this question lies in the daily interactions that take place between traders. As a case in point, a trader at say Morgan Stanley may well call up a counterparty at Citi to buy half a yard of dollar/yen, before then heading down the pub and subsequently forgetting to book the trade for three days. While the Citi trader may have booked the trade, the Morgan Stanley risk department has no clue because their trader is already three pints in down the Red Lion. The point is that no investment bank throughout this year can afford to be in a position where they are brushing this issue under the sticky pub carpet.

After years of seeing the PRA fines as a necessary evil, banks know they need to have a better grasp of their cost base. Today, a head of desks profit and loss (P&L) is coming under intense scrutiny from the business to reduce gross revenues to net revenues where possible. As a result, the days of absorbing these costs are long gone. From FX and rate to credit and equity derivatives, every single desk is under the microscope right now. The numbers that banks can recuperate from fines are now in the tens of millions – which is a significant percentage of any desks P&L.

The good news is that investment banks can turn to tech to close the front office risk gap. Certain firms are already deploying tools that enable them to become much more efficient in terms of their execution and booking capabilities. Ultimately, if banks are going to thrive in these bottom line conscious and compliance heavy times, identifying pivotal issues surrounding trade booking and execution times is one major way to shave a few million off the cost base.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: New trends and technologies influencing post-trade digitalisation

While digital transformation of front-office functions at financial institutions is well underway, the back office is lagging, calling on firms to reassess and innovate post-trade processes. The need for change is highlighted by specific issues, including the move towards T+1 settlement and increasing regulatory scrutiny of post-trade processes, as well as broader challenges of legacy...

BLOG

Trading Technologies Expands Risk Management Offering and Post-Trade Allocation Services

Trading Technologies, the trading software, infrastructure and data solutions vendor, through its partnership with KRM22, the risk management software company, is making the KRM22 Risk Manager available to customers on the TT platform. Incorporating KRM22’s real-time post-trade risk service will significantly enhance TT’s risk toolset, according to a recent company announcement. KRM22’s risk scoring system...

EVENT

ESG Data & Tech Briefing APAC

Join us in one of the greenest cities in the world as we bring together thought leading ESG specialists to explore how financial institutions are adapting to the evolving ESG regulatory and market infrastructure.

GUIDE

Regulatory Data Handbook 2019/2020 – Seventh Edition

Welcome to A-Team Group’s best read handbook, the Regulatory Data Handbook, which is now in its seventh edition and continues to grow in terms of the number of regulations covered, the detail of each regulation and the impact that all the rules and regulations will have on data and data management at your institution. This...