The current pandemic has revealed several weak points within the financial industry and has forced market leaders to revisit their top priorities. Within a few weeks, we experienced an unprecedented deterioration of economic growth, reduced investor confidence, and a rapid shift to remote working, which has restricted face-to-face interactions, and considerably increased our exposure to cyber risks. We have seen our clients experience significant pressure due to limited digital readiness, heavy reliance on third-party providers, and challenges in performing critical functions in a remote capacity.
The financial sector may not operate the same as it did before COVID-19; we should use this challenge to forge the new norm and set the course for the years to come.
Below we outline what Alpha has noted as the key areas of improvement and how the Asset and Wealth Management industry can turn this crisis into an opportunity.
What are the key concerns in the market?
As our clients navigate the new norm and stabilise their BAU, several pain points have emerged that should be top of mind.
The strongly embedded custom of conducting business in a face-to-face environment (e.g. AML/KYC checks, onboarding, payment management) now requires a structural re-design and cultural shift. Furthermore, the crisis has revealed critical dependencies on delivery chains with third parties, which are slowing down business operations and testing the resilience of Operating Models. To address this operational risk resulting from external dependencies, players are encouraged to reassess their outsourcing strategies, implement greater monitoring controls, and ensure the service level agreements adhere to the firm’s evolved Business Continuity Planning (BCP).
Accelerating Digital Readiness
The lack of investment in IT infrastructure over the last decade has come to light with the current global crisis, which has created significant hurdles for continuing BAU. Among the largest challenges are the readiness and agility of remote working infrastructure. (Click here to read the results of Alpha’s 2020 Digital Readiness survey) Of course, digital enterprise is not possible without a digital culture. The abrupt move to a remote working reality demonstrated significant need for (1) establishing a new management approach for motivating teams and integrating remote working into the corporate culture, (2) agility in implementing and adopting new tools to re-organize priorities and ensure continued BAU, (3) training and change management of staff and upper management to adapt to digital working culture, and (4) ensuring the organisation carries over the resulting added value to the post-COVID reality.
Monitoring Risk, Regulation & Compliance
Much of the uncertainty that Alpha has been seeing concerns companies’ capabilities and execution within Risk, Regulation, and Compliance. Although regulators have started to ease remote work access, this greater flexibility brings greater risk for regulatory breaches resulting from remote working (e.g. NAV calculation disruptions, cybersecurity risks due to remote access to core systems, etc.). Companies must ensure that adequate data protection and IT security are maintained while also providing suitable equipment for home office arrangements. The fiscal impacts of cross-border workers should also be considered as restrictions on the number of days employees were allowed may once again surface, now that the lockdown period has passed.
Turning a crisis into concrete opportunities
Client is King
It is possible that the past months have impacted the future vision and strategy for many players in the market. Alpha recommends taking this time to consider how the market environment will respond to the new normal and how client behaviours and expectations have changed. Due to the unworkability of the conventional business development techniques (face-to-face meetings, in-person presentations, workshops, etc.), companies should consider expanding their digital channels. Digital channels should be client-centric and make the client transition as painless as possible. An alternative method to creating the “chemistry” of in-person interaction can be through a combination of customised client touchpoints with a tailored journey for the different client personas relevant to the organization.
Building Resilient Operating Models and Empowering Project Portfolios
The fundamental building blocks for a strong operating model will come from the lessons learned collected throughout this experience. It is important to consider how value will be delivered to clients in this new reality and whether the current operating model is capable of making this possible. It is imperative that market players develop resilient and agile operating models. However, resilience and agility are not possible without structural changes to the enterprise, including digitisation of key business activities. Understanding the digital readiness of the firm and setting the digital strategy for the coming years will be vital in ensuring that the operating model remains flexible. This will inevitably impact the project portfolio and a reshuffling of priorities may be in order.
Capabilities and execution
Structural change cannot be completed without reviewing the policies and controls in place and adapting them to the new, post-COVID enterprise. Changes to the operating model require a careful review of operational and regulatory risk management framework, third-party dependency monitoring, reassessment of compliance reporting functions, as well as an evaluation of the resilience model and crisis management plan.
How Alpha can help
Conducting business as usual and increasing shareholder value at times of great uncertainty can be a complex challenge. An easy and effective way to get started is to first identify where along the journey the company is: struggling with the changes, adapting to the new normal, or ready to start living and shaping the future?
Conduct an operating model assessment and a digital maturity health check to understand where the company currently stands and to see where the possibilities lie. Alpha has extensive experience in designing optimal target operating models and technical solutions across the value chain of Asset and Wealth Managers. Contact Kevin O’Shaughnessy for UK or Global, or Veit Jung and Milena Czaczkowska in Alpha Luxembourg at email@example.com to discuss how Alpha can help you with your transitioning to the new normal.