Capital Markets Report

Transcription

1 Accenture 2014 High Performance Finance Study Capital Markets Report GROWTH REALIGNMENT INTEGRATION

2 INTRODUCTION Capital markets institutions have been hit hard by the financial crisis, and face the challenge of balancing growth and realignment. At the same time, new regulatory and compliance requirements have placed pressures on internal structures. Siloed risk, finance and operations organizations make it more difficult to establish effective regulatory reporting processes. Other aspects of complexity also loom large, including managing new and complex risks, dealing with complex legacy systems and managing the needs of different stakeholders. Against this background, there is an evolving role for the CFO in managing multiple transformation requirements across the business. Our 2014 High Performance Finance Study comprised surveys of more than 600 senior finance executives across the globe and key sectors of those, 9% were from capital markets institutions. We also conducted interviews with a number of chief financial officers (CFOs) and other senior finance professionals from capital markets firms. 1 2

3 REGULATORY MANAGEMENT GOVERNANCE 3

4 Finding 1: Institutions are striking a careful balance between growth and realignment Capital markets institutions have felt the full force of the financial crisis and regulatory response. Faced with a decline in revenues, a reduction in trading volumes and a wide range of new regulatory requirements, the sector has responded by cutting capacity and focusing on its core business. Capital markets institutions are continuing to pull back from capital-intensive activities and transforming their business models in order to reposition themselves for the future. As part of these efforts, almost 80% of respondents say that they have focused their investment on core businesses. 1 These cost pressures will remain for the foreseeable future. Spending on compliance with regulations, such as Dodd-Frank and the US Federal Reserve s Comprehensive Capital Analysis and Review (CCAR), continues to grow. Some large investment banks are recruiting thousands of additional employees and spending billions of dollars annually on risk and compliance. With spending on risk and compliance near the top of the priority list, this inevitably has an impact on other parts of the business, and means that costs outside of these functions will remain under intense pressure. Among our respondents, almost 85% say that a greater appreciation of the inherent risks in a business has been a significant driver of the strategic business realignments they are making, while 57% point to the rising cost of servicing clients. 1 With the economy showing signs of recovery, capital markets institutions are under pressure to increase revenues and return on equity. Over the next two years, almost 85% say that they will expand into new and emerging markets in search of new opportunities with fewer competitors. 1 Although growth in emerging markets has slowed in recent months, these remain lucrative destinations for investment. More and more companies in these regions are embracing capital markets financing solutions, rather than traditional corporate banking and debt. Government investment in infrastructure and public services in these regions also provide a platform for growth. The scale of transformation in the industry means that capital markets institutions are also jostling for market share and taking advantage of others repositioning. Among our respondents, almost two-thirds say that they will gain market share from competitors leaving select business lines over the next two years. 1 This is an opportunity for smaller players, in particular. Without the same regulatory pressures on the capital side, these institutions can take advantage of the fact that their larger competitors are being forced to exit certain lines of business. For smaller institutions, this could be a powerful enabler of growth that could lead to a changed competitive environment in the next few years. Figure 1. Capital markets respondents will continue their strategic business realignment efforts Which of the following strategic business realignments has your organization undertaken in the past two years vs. will undertake in the next two years? Focus investment on core businesses 79% 83% Expand to new and emerging markets where there are more opportunities and fewer competitors 72% 85% Gain market share from competitors leaving select business lines 60% 66% Minimize investment in or divest unprofitable business lines 22% 28% No strategic realignments 2% 0% Past 2 years Next 2 years 4

5 Figure 2. Risk driving capital market respondents strategic business realignment decisions How significant were the following factors in making these strategic business realignments? Greater appreciation of the inherent risks in selected businesses The need for significant investments to remain competitive in a selected business Client guidance on which services to continue offering 22% 62% 16% 21% 41% 36% 10 48% 41% 2% Earnings can be increased by accessing new markets and new products, while regulatory topics and cost pressures challenge the degrees of freedom in business development. Dr. Jochen Sutor, Head of Group Finance at Commerzbank AG Rising cost of servicing clients 24 33% 43% The degree of competition in a selected business 22 35% 41% 2% Greater appreciation of the cost of capital inherent in selected businesses 21 36% 43% Demand in selected businesses is in long-term decline 7% 33% 57% 3% Very significant Significant Somewhat significant Not at all significant Note: Due to rounding, total may not equal 100 percent Figure 3. Capital markets respondents will continue to shift focus to investing for growth Which one of the following best characterizes your company s/organization s overall focus today and which do you expect to characterize your focus in 2 years time? Primarily on cost control 9% 19% Primarily on investment in growth-oriented activities (e.g. innovation, market expansion, etc.) 69% 72% About evenly split between cost control and growth 12% 19% Today In 2 years 5

6 Finding 2: Integration remains a key barrier to managing new risk, regulatory and compliance requirements Capital markets institutions have long understood that closer integration between risk and finance will drive better decision making, capital management and a deeper understanding of the underlying drivers of the threats and opportunities facing the business. In practice, however, this integration has been difficult to achieve. Today s regulatory pressures mean that this topic is once again top of the agenda. For now, though, capital markets institutions continue to struggle with integrating existing finance and risk processes. Almost six out of ten respondents cite this as a challenge. 1 A silo-based organizational model and governance also serves as a barrier to effective risk, regulatory and compliance management. 1 Traditionally, data has been treated separately by the risk and finance functions, but capital markets institutions are now paying significant attention to how they can align these data sources and make them consistent. Many are moving to single sourcing of data to ensure a single version of the truth across the two functions. This will help to reduce duplication, improve the consistency of data, and give institutions greater confidence in their decision making. Finance can never be completely digitized. The residual human factor will always remain, and organizations must be careful that they will get garbage out of their data if they feed garbage in. Furthermore, businesses can be tempted to focus on the rearview mirror, when they must also remember to keep looking ahead especially in times of rapidly changing business environment. Harald Vertneg, Head of Accounting Austria & CEE at UniCredit Bank Austria Figure 4. Integrating finance and risk, modeling capabilities, organization models and governance are the key challenges for capital markets respondents What are your organization s key challenges in addressing new risk, regulatory and compliance requirements? Integrating with existing finance and risk processes (e.g., planning, forecasting, capital management, reporting) Modeling capability 14% 26% 17% 19% 12% 21% Silo-based organization model and governance 12% 17% 19% Lack of integrated applications and processes 17% 16% 5% Lack of data standardization across risk, finance and operations 5% 12% 10% Access to talent knowledgeable of business and regulatory impacts 12% 2% 3% Lack of sufficient dedicated resources 10% 7% Inability to adapt quickly enough to meet regulatory changes 5% 5% 7% Granularity and quality of data 2% 7% 5% Lack of executive sponsorship/alignment and/or funding 2% 3% 7% Note: Percentage of capital markets respondents ranking 1, 2 or 3 6

7 Finding 3: Institutions share a strong aspiration to migrate to a more enterprisewide approach to regulatory management Currently, almost one-quarter of capital markets institutions say that their risk, finance and operations organizations are siloed organizations with limited governance over regulatory reporting processes. In two years time, this proportion is expected to fall to just 10% as institutions address these issues. Equally, an enterprise-wide approach is likely to become more prevalent. Today, just 9% of capital markets respondents say that they have an enterprise-wide regulatory reporting center of excellence (CoE) with a single governance model. In two years time, respondents aspire to see a major shift in this situation, with 60% aspiring to reach this level. 1 A centralized regulatory reporting CoE office offers capital markets institutions the opportunity to manage the impact of new regulations in a more efficient way. Rather than responding to each piece of legislation in an ad hoc way, the regulatory reporting CoE enables institutions to leverage existing capabilities, adopt a consistent approach to compliance and provide greater transparency over the management of regulation across the enterprise. A key question, however, relates to which activities should be migrated to the regulatory reporting CoE. Some institutions might have enterprise-wide services, but others may choose only to migrate a small proportion of processes there. Over time, this can change as the CoE becomes more established and well resourced. In our view, an enterprise-wide approach to regulatory management will be very appealing to large US institutions, but less so to non- US firms that face different challenges and country-specific regulatory environments. For these institutions, a more regional approach may be more appropriate. There has been a significant increase in the influence of the finance division due to organizational changes. We are now involved in all major projects. Kurt Bachinger, Head of Planning & Controlling Austria at UniCredit Bank Austria Figure 5. Capital markets respondents show a strong desire to move to an enterprise-wide regulatory reporting CoE Which of the following best describes your organization s risk, regulatory reporting and compliance organization model now, and what is the target model in two years time? Risk, finance and operations are siloed organizations with limited governance over regulatory (e.g. Fed, FCC, OCC, etc.) reporting processes 10% 22% Regulatory reporting governance model in place across risk, finance and operations 29% 69% Enterprise-wide regulatory reporting center of excellence with a single governance model 9% 60% Now In 2 years 7

8 Finding 4: Complexity is a key challenge Capital markets institutions face an environment of spiraling complexity. They must contend with the ongoing fall-out from the financial crisis, and a barrage of local and global regulation. Capital requirements are becoming far more stringent, forcing banks and capital markets firms to rethink their business models and key strategic priorities. At the same time, they are under pressure from shareholders to grow revenue streams, increase market share and maintain margins against a highly challenging market backdrop. Internal management and technology challenges often created as a result of regulation are compounding this complexity. Asked about the key challenges they face as a senior finance executive, respondents from capital markets institutions point to the need to optimize the capital structure of the enterprise. Other aspects of complexity also loom large, including managing new and complex risks, dealing with complex legacy systems and managing the complex needs of stakeholders. 1 In capital markets, complexity cannot be avoided indeed, it is a natural by-product of growth and success. High-performing businesses must therefore find ways of managing complexity for example, by standardizing and optimizing processes to streamline and simplify the organization. Reducing complexity, through standardization and centralization, is essential in order to achieve objectives. Jochen Hauser, Head of Data Governance at UniCredit Bank Austria Figure 6. The need to optimize capital is a major challenge for surveyed capital markets senior finance executives Which of the following are your greatest challenges as a senior finance executive? The need to optimize the capital structure of the enterprise 62% Managing new and complex financial, business and operational risks 52% Complex legacy systems and environment 50% Managing the complex needs of all stakeholders (board of directors, investors, etc.) 50% Adapting the service model to align with business strategies and improve performance 29% The need to support complex enterprise operating models, making process standardization difficult across finance 28% Finding and retaining a skilled finance workforce 24% Insufficient funding to enhance the finance function s capabilities 19% Lack of integration between corporate vision, strategy, operating plans and reporting processes 19% Inadequate access to appropriate enterprise-wide performance management information 16% Lack of value-orientated culture and finance acumen throughout the enterprise 14% Not enough time to focus on value-oriented finance capabilities due to high level of manual work, attention to controls or regulatory requirements Converting increased volumes of data into business insight to meet the speed required for decision making 12% 10% 8

9 Finding 5: Key aspects of transformation remain a real challenge for capital markets institutions In the past few years, many capital markets institutions have been through radical cost reduction exercises. These have included initiatives such as widespread outsourcing, the migration of activities to shared services centers and more general operational cost reductions. But there is variation across the industry. Those institutions that were most severely affected by the crisis have taken the most radical steps towards cost reduction, whereas those that emerged in a stronger position are at an earlier stage of the journey. 1 These activities have coincided with the need to respond to a barrage of regulatory change. This places huge pressure on the organization, because it must undergo multiple major transformation programs simultaneously, which may have conflicting goals. The CFO plays an instrumental role in juggling these multiple transformation requirements. The notion that the CFO is focused primarily on cost control is now a thing of the past; in most organizations, finance leaders are demonstrating that they have a much bigger role to play in a broader transformation agenda. For now, though, the scale of the changes being made mean that many in the industry are struggling to keep pace. In particular, finance leaders in the capital markets sector say that their companies struggle to manage the change process and measure the business benefits of transformation. 1 We are going through radical organization change. We have spent the last year and a half mapping out every single process across the financial piece, and we re reengineering every single one of them. Over the last few years we ve reduced the finance cost base by about 24%, and the way we were able to do that is by re-engineering the process. We re going to do the same again over the next few years. If you don t re-engineer your processes, you ll never be able to meet the challenge: to be cheaper, to deal with the regulators, and to free up the CFO to interface with the business. Neil Smith, COO Group Finance at Deutsche Bank Figure 7. Managing and measuring benefits of business transformation are key challenges to capital markets respondents Which of the following aspects of business transformation does your organization find most challenging? Managing the change process 52% Measuring the business benefits of transformation 50% Reaching consensus among key stakeholders 43% Finding the resources to execute the transformation plan 38% Identifying the right expertise to execute the transformation plan 31% Overcoming resistance to change 24% Achieving profitability without increasing revenues 22% Building the business case for transformation 21% Explaining the benefits of the change to key external stakeholders 19% 9

10 CONCLUSION Capital markets institutions will continue to face strong cost pressures for the foreseeable future, but they must also increase revenues and return on equity. CFOs will have a key role to play in ensuring a balance between growth and realignment. They will also need to ensure closer integration between risk and finance, in order to deal effectively with new risk, regulatory and compliance requirements. Companies will increasingly migrate to a more enterprisewide approach to regulatory management. Complexity will remain a major challenge, and the CFO will need to drive the business to find new ways of managing complexity, for example, by standardizing and optimizing processes to streamline and simplify the organization. The finance function has shown that it has an important role to play in business transformation, and there is scope to deepen further this role as companies struggle to keep pace with far-reaching changes in the industry. The CFO has the opportunity to emerge as the value architect of a successful capital markets business. It is necessary to work on both ends: increasing earnings through growth while keeping a tight control on costs. Dr. Jochen Sutor, Head of Group Finance at Commerzbank AG TALENT SCARCITY BUSINESS TRANSFORMATION 10

11 OPTIMIZE CAPITAL STRUCTURE COMPLEXITY SILOED OPERATIONS GROWTH 11

12 NOTES 1. Accenture 2014 High Performance Finance Study, September Access at: insight-high-performance-finance-study.aspx ABOUT ACCENTURE Accenture is a global management consulting, technology services and outsourcing company, with approximately 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, Its home page is STAY CONNECTED Accenture Finance & Risk Services financeandrisk/pages/index.aspx Connect With Us groups?gid= Join Us accenturestrategy Follow Us Watch Us DISCLAIMER: This document is intended for general informational purposes only and does not take into account the reader s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. Copyright 2014 Accenture All rights reserved _lc Accenture, its logo, and High Performance Delivered are trademarks of Accenture.