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TOP 10 CHALLENGES FOR INVESTMENT BANKS 2016


Global Structural Reform:
A new-era response to business restructuring

Challenge 06

Introduction

Investment bank restructuring presents a strategic opportunity to transform, optimize capital and satisfy the bottom line, while aligning with global regulations.

The financial crisis has resulted in widespread bank restructuring driven by cost reduction, business optimization, competition and regulation. Initially, investment banks focused on immediate cost reduction and simplification programs; however, subsequent macroeconomic developments, coupled with the ensuing market and regulatory pressures, have triggered the need for structural change in business and operating models.

Rule-makers have been prolific in recent years, with individual jurisdictions seeking to reshape financial institutions and enhance their operational resilience. Since this persistent wave of regulation shows no signs of abating, banks can no longer rely on traditional ways of working and are being forced to make hard choices about their post-crisis business models.

Recent events revealed numerous weaknesses in global regulatory frameworks and banks’ risk management practices. Regulatory authorities are now considering new measures to increase financial market stability, including requiring each bank to provide a consolidated view across all businesses and types of risk (e.g., market, credit and liquidity risk). For example, the fundamental review of the trading book (FRTB) restricts banks’ capital, limits positions and curtails principal trading. As such, banks are faced with a new approach to market risk management.

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MAJOR PILLARS OF STRUCTURAL REFORM

SIX CORE COMPONENTS OF A RESTRUCTURING PLAN

REGULATIONS

SEVEN PILLARS OF STRUCTURAL REFORM

Accenture sees seven major pillars of structural reform that are forcing change across each jurisdiction in which financial institutions operate:

Global Structural Reform

Investment banks are now prepared to face the reality of this task—whether they have had time to digest their position or are playing catch-up with competitors.

Banks must synchronize their regulatory and strategic business planning and make restructuring in response to regulation part of their business strategy toolkit. Looking at the regulatory landscape holistically can help banks identify inter-regional synergies to leverage.

Inter-regional synergies across the regulatory landscape


  • Capital adequacy
  • Clearing
  • Liquidity standards
  • Ring-fencing
  • Pre- and post-trade transparency
  • Record keeping
  • Reporting
  • Best execution

  • Market electronification
  • Timely post-trading process
  • Control enhancement
  • Market abuse and manipulation prevention
  • Adverse trading and insider information
  • Investor protection


Source: Accenture Research

Evaluating the business mix

As investment banks look to tackle the restructuring challenge, five core considerations must be reviewed against business priorities. These considerations can help banks optimize capital and satisfy the bottom line, while adhering to regulations.

New business and operating model

Against this backdrop, a “consolidation” operating model is starting to emerge. Investment banks are looking for ways to simplify their structures by streamlining their business activities and ultimately “thinning out” their legal entity structures to support consolidation and net capital benefits.

Regardless of what shape the business restructuring takes—for example, disposals or exits, acquisitions, transfers to improve capital and funding positions, transfers to improve resolvability or wind-downs—there is no single solution for responding to this challenge. Each institution’s response should reflect its strengths, weaknesses and future expectations. Banks can begin by taking the following steps:

WHAT’S THE CATCH?

Core components of investment banking restructuring

Transfer Mechanics
Includes the design and execution of legal mechanisms to effect the transfer, and associated client/market communication, rebooking, hedging and funding activities in the sending and receiving entities.
Capital, Liquidity and Funding
Involves managing the transfer within the constraints imposed by the balance sheet and capital position of sending and receiving entities.
Clients, Products and Business Model
Includes managing the transfer of “live” revenue strategies, critical client relationships and trades. Corporate structure and assets may need adjusting to maintain the viability of the transferring business.
Operational Data and Configuration
Includes managing the definition, remediation and setup of client, instrument, price, hierarchy and calendar data in the receiving entity, and making any adjustments within the sending entity.
Processes, Systems and Infrastructure
Involves the extension of receiving execution and control infrastructure by enhancing existing or integrating transferring capability. Will address business process and information, application functionality and technical services.
Organization, People and Property
Involves consulting with staff bodies and organizational restructuring. Also involves the provision of premises and third-party services and associated contract novation.

Source: Accenture Research

A FRAMEWORK TO DEAL WITH RESTRUCTURING

Restructuring exercises require banks to consider a number of factors—a potentially cumbersome process if the bank has a particularly complex organizational structure. Without a logical framework, it can be challenging to determine the robustness and completeness of a restructuring plan. Typically, investment banks will need to consider six core components (see table above).

These components should be considered at each stage of the restructure, from due diligence to legal close, and accompanied by stringent regulatory and program management.

A structured framework is not a one-size-fits-all solution. Rather, such frameworks can help banks increase certainty and speed when conducting certain initiatives. In addition, calibration of local and global regulations can help frame implementation programs.



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