In the current environment of increased regulation, tighter margins and changing conditions, it is essential that investment banks continue to cut costs. However, many have reached a limitation on the benefits of offshoring and outsourcing, while others have realised that achieving cost reduction through internal scale cannot be fully achieved with in-house shared services. As a result, a new model is required.
Meanwhile, there is also an increasing realisation that standards will play an important role in responding to these industry challenges, by allowing for greater "interoperability" across firms.
Based on these factors, Accenture believes the market is now ready to enter the next wave of collaborative innovation in the form of a new breed of utilities.
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Over the years, investment banks have created utilities or shared platforms in selected shared domains. However, post-financial crisis pressures in the industry have served to highlight the opportunities for utilities to reduce costs, achieve standardisation of processes, mutualise risk and increase service quality in core processing functions.
Regulatory burdens are continuing to rise, along with data volumes and management costs, and banks need to find a mechanism that enables them to achieve cost reductions and efficiencies at a time when targets are set around returns rather than revenue. With data burdens growing organically and now accelerating, the market has responded.
By bringing together the homogenous operations of multiple organisations, utilities can drive cost savings through economies of scale, and the establishing of best practices and industry standards. Utilities also minimise the duplication of effort, allowing banks to shift resources to areas of greater value.
While utility adoption does not remove the regulatory responsibilities borne by banks, an increased volume of participant inputs improves data quality and, in turn, the quality of reporting to regulators. The creation of industry best practices is a means of driving standards, as opposed to responding to regulatory mandates. Moving day-to-day processing functions to the utility model allows banks to focus on the control and governance functions required to meet the regulatory requirements of the firm's activity.
The creation of the first true market utility for financial services is at once the next challenge and opportunity for the industry. Accenture believes market participants have the opportunity to create consortia for utility functions which will be viewed as neutral third parties, benefiting all in terms of data quality, lower costs, and the creation of standards around which the industry and regulators can co-ordinate.
The challenge remains in finding those organisations that are willing and able to make the first move. From Accenture's perspective the choice is simple: choose to lead the transformation and have the first mover advantage, or get left behind.
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