In the second of our two-part article, we continue to bring you insights from our panelists shared during DTCC’s annual Industry Forum in Kuala Lumpur, Malaysia.
Involving Regulators in the Digital Movement
In view of a possible “tug-of-war” between front and back offices for extra information technology budget, Nigel Gnoh, Associate Director – Business Development for South East Asia at DTCC, asked whether regulatory authorities should play a more active role in driving digital transformation or be involved in specific areas.
Raymond Tang, Chief Executive Officer, Eastspring Investment Berhad, addressed this question by expressing the need for the authority in Malaysia to establish a common framework for the industry to adopt – while pursuing a new digital trend or addressing a regulatory requirement such as setting guidelines for KYC. This will avoid silos being built across the industry.
“Initiated by Bank Negara, Bursa Malaysia and the Securities Commission Malaysia, capital markets in Malaysia will eventually be unified under one KYC platform come next year,” Raymond said. “This will ease the pain of onboarding new clients and facilitate client movements within the industry.”
Chan Boon-Hiong, Global Head of Market Advocacy Securities Services, Deutsche Bank, on the other hand, felt that the role of the regulator in today’s collaborative economy is to work hand in hand with the industry – to position Malaysia as an attractive market for domestic and global investors. “To retain the competitive edge, firms must remain relevant – in pursuit of new trends – or risk losing out at the national level,” he cautioned.
Progressing to Digital Banking
With new entrants entering the banking arena, traditional financial institutions are pressured to defend their turf as margins are being squeezed by these non-bank financial and fintech players, set to disrupt the global financial services industry.
With countries open to embracing digital banking services, Boon-Hiong commented that moving into this arena would encourage greater competition. He proposed that initiatives be introduced to incentivize incumbents to reinvent and improve their offerings.
“The digital banking of today is a revamped version of the first virtual bank – EGG – that was set up about 20 years ago,” Raymond reflected.
While EGG did not take off the way it should, Raymond is cautiously optimistic about today’s digital banking offerings. Uncertain if these non-bank providers will eventually fall under Bank of Negara’s purview, he is concerned of the potential risks – cybersecurity, credit, liquidity, etc., if clear guidelines are not established for these new entrants when they offer lending services.
Moving from Siloed Analog to Integrated Digital Firms
When asked to comment on the future course of action that firms should take in today’s digital age, different views were offered.
“Given the short time frame available to process transactions and close positions for the day, the job at the back office is now made much easier with support from DTCC and other service providers in expediting the pre-settlement, post-trade settlement workflow through automation,” said Noor Aini Binte Shaik Awab, Chief Operating Officer, Hong Leong Asset Management. “As asset managers diversify their portfolios and expand coverage of asset classes, more automated solutions should be available to assist the industry.”
Rejina Rahim, Managing Director and Country Head, Nomura Asset Management Malaysia, commented, “Changing the mindset of her firm’s shareholders to embrace technological innovation needed to scale the business is key. Because of the need for a strong balance sheet, securing the C-suite attention to support back office operations will remain an ongoing challenge despite the promise of greater operational efficiency.”
Raymond, on the hand, has the blessing of his shareholders to progress with the firm’s digital transformation.
“While going digital will help to improve business agility, time and thought must be given to ensure that the enterprise-wide digital endeavor is well-coordinated and aligned across business functions,” Raymond said, adding that the digital deliverables should be able to withstand scrutiny from the regulators and a longer shelf life – to avoid the need for frequent fixes.
Boon-Hiong remarked that insights from the top is important – in setting the direction and hence culture for the firm.
“Deutsche Bank has set up an intrapreneurship initiative that draws resources across business disciplines and expertise to challenge and find new value,” Boon-Hiong said. “Supported by the firm’s senior management, the goal is to capitalize the expertise of an independent and collective team to improve the way we do things – ultimately leading to change management, if required.”
Hasan Rauf, DTCC Executive Director and Head of Business Development for Asia Pacific, summarized the lively panel discussion.
“The current industry focus on leveraging technological capabilities and innovative solutions to drive digital transformation across the post-trade lifecycle will continue as capital market firms seek change strategies to meet evolving operational and cost requirements,” Rauf said. “We should harness technology to meet the needs of not only the front office but also the middle and back offices. As such, we should build an inclusive innovation culture that focus not only on top line revenue but also contributions from support functions.”
To emphasize his view, Rauf shared that managing collateral and the movement of margin calls were once a back-office responsibility. When it was brought to light that collateral can be used to generate revenue, the responsibility of managing collateral was transferred to the front office. The past support from the back office is thus forgotten.
In short, credit and recognition should be given to the unsung heroes in the financial services industry – the middle and back office teams.