Creating tomorrow's Corporate Action System Today: Ranking the most important corporate actions system functionality for future growth
The attempt to rank corporate actions system functionality in order of importance is never going to be a one-size-fits-all exercise. Different users have different priorities and what is important right now will soon become standard or even obsolete. However, the regulatory, political and economic environment is having a profound effect on the way corporate action functionalities are and will be prioritised. It is therefore important to look forward to provide insight on the most important functionality required today in order to prepare financial institutions for the opportunities of tomorrow.
We’ve Come A long Way
The processing of corporate actions has evolved over the years in terms of efficiency, standardization and process automation. Whereas a decade ago, corporate actions processes were predominantly manual in nature and involved a high degree of paperwork, the developments of the past 10 years have assisted in maturing corporate actions processes and functionalities relating to capture, interpretation and dissemination of information.
Corporate actions solutions have come a long way in this time. Financial institutions have now come to expect a high level of functionality and complementary services in this area - improvements and innovations such as: user-friendly, intuitive interfaces for data entry; user-configurable rules to define preferred sources; data comparison and completeness rules; narrative conflict management to enhance system-wide STP; and the ability to integrate various sub-systems to increase breaklessness across the asset servicing function.
The focus now has shifted from data scrubbing and the creation of golden records to the automation of downstream corporate actions processes, encouraged by an ever-changing, globalized business environment, where cross-border corporate actions have become commonplace. The benefits of downstream automation include improved client servicing through differentiated services, better monitoring and control of corporate action risk and ensured high performance and scalability to support increasing volumes and business growth.
So what is next on the horizon? What are the key characteristics and functionalities required to support future opportunities that need to be built into corporate actions systems today?
Breakthrough technology is already making fundamental changes to the way financial professionals work. There is an ever-increasing use of technology in personal and professional life, near paperless offices, flexible working and the anytime, anywhere information ethos extended to every aspect of the working experience.
The emergence of Web 2.0 functionality and its enriched digital experience means that users will come to demand more of their business applications. Corporate actions solutions will need to keep pace with this expectation and increase focus on providing an enhanced user experience as well as supporting changing work habits. A corporate actions system that provides the inherent flexibility to tailor the user experience will be able to take operational efficiency a step further, ensuring optimum productivity at the user level.
The increasing footprint of mobile-delivered business applications within the banking industry means that it is only a matter of time before this filters through to the post-trade environment. Corporate actions systems that are web-enabled will be increasingly accessed from mobile devices and they will need to be designed to provide the appropriate functionality and security for both employee and customer users on the move. With the increased use of mobile devices, touch screen and handheld device compatibility, including SMS and email capability for sending alerts, are likely to become indispensable.
New corporate governance regulations which are focusing on better investor empowerment, communication and transparency will mandate a change in how post-trade data is disseminated and used. External customers need more visibility of their portfolios and the actions taking place post-trade. They want to be able to analyse their portfolios, be automatically notified of corporate actions and be able to take action quickly and directly through electronic channels.
Corporate actions systems will look to provide a self-service channel for clients, ensuring maximum transparency and reaping the efficiency benefits of true straight-through processing. Such a service puts users in control, enabling them to initiate transactions, perform trend and what-if analyses, set preferences and act on information electronically, speeding up the process. The combination of straight through processing and additional functionality such as automated instruction management provides for extended deadline dates to clients and fewer defaults on deadlines.
Similarly, acceptance of ISO 20022 specifications for proxy events will likely make now-established proxy systems redundant. The future proxy voting system will be web-based, empowering shareholders to be part of the decision making process from the start.
Push, not pull
The drive for increased transparency, better reporting and better control of post-trade risk will see a shift to corporate actions systems that proactively push information to users, helping them visualise and prioritise tasks according to risk and cost.
The ability to provide sophisticated alert systems, compatible with SMS and email will support this trend and change how users interact with the corporate actions system. They will need to spend less time searching for information and will be able to set their own unique parameters to monitor and be alerted to risk.
With financial institutions moving towards integrated business models, the common asset servicing platform, a platform flexible enough to support requirements across business lines, will be a top priority, one that is likely to bring benefits to financial institutions and its clients alike. Convergence onto a common asset servicing and securities processing platform enables financial institutions to deliver a consistent and improved client experience whilst centralising control and administration to improve performance, risk monitoring and make the best use of operations resources.
Support for structured products
Further volume and process scalability will become crucial to corporate actions platforms for providing business and cost benefits to clients. This will further be necessitated by the likely introductions of new structured products and instrument types which will potentially change the way corporate actions are processed.
Corporate actions systems have come a long way, but there is further to go. If we look at the industry developments ahead, it becomes clear what characteristics and functionality should be built-in now. From a systems perspective it is important to provide the flexibility and scale required to manage the different aspects of a financial institution’s business on a common platform as well as prepare for the support of more complex derivative instruments. Support for new technologies and new ways of working will be key to ensuring maximum user productivity and a revolutionised client experience, as will a move to a next generation user interface. In an increasingly competitive environment, the ability to innovate new client services quickly and efficiently will help financial institutions strengthen and retain their market share. And the move to a proactive system of alerts by user-set parameters will ensure that reduced risk and increased transparency are deeply embedded in the automated process.
Authored by Maureen McCabe, Manmohan Singh and Prashant A