Giles Elliott, Head of Business Development, Capital Markets, TCS BaNCS

Many operations managers will tell you that their greatest operating risks lie in transactions that open loss exposures to market price movement risks – and hence the processing of asset servicing and, in particular, voluntary corporate actions, are generally very high up on this list.

There are a few areas that are the center of focus for most managers – the validation of corporate event notifications, entitlements, processing of client instructions and finally the accurate processing of tax entitlements.

We often see operations will complex workflows dictated by the need to address the specific causes of losses over vast periods of operating history. This approach is understandable as firms seek explicit actions to avoid a loss event’s recurrence. But over time it adds complexity to operating flows and in-turn its own form of operating risk.

However, we are seeing the latest cloud-based asset servicing platforms bring a raft of benefits for these models, where the inherent agility that is built into the cloud model is combined with the evolving use of the latest technologies and analytical techniques.    

The risk of missing a corporate actions event or an election, or interpretating or applying them incorrectly is still great, and this is despite huge strides in the market in terms of market practices, standardization and improved messaging. The solution hitherto has been to add additional data vendor sources, but this in-turn can delay the release to clients, while any automation or data normalization challenges, or notable differences in interpretation is investigated and resolved.

Without dwelling on the benefits of stronger formatted digital announcements from issuers, the latest asset servicing system tools are automating data normalization and the configuration of rules that generate a preferred “golden announcement” based on past performance results from their most accurate vendors. Sophisticated data validation tools are also providing far more depth into insights on data that carries a low confidence level, for example, a rights issue price that is falling outside the usual discount ranges even if matched by different providers. But we are also seeing the use of AI to scan original prospectuses and extract pertinent data or details.

Dashboards aligned to digital workflows are now seen as critical to a modern operating model. Every corporate event carries a different risk profile, not purely from the voluntary nature of these, but also due to the nature of open uninstructed positions, client market exposures and other nuances related to the market deadline proximity. For most events, categorizing them by event type, market, number of options and entitled positions, or type of position though is simply not enough – a more sophisticated algorithm is needed to calibrate relative risk and view these on sophisticated dashboards that allow managers to focus their attention in the right places.

The cloud is helping this by providing access to a broader set of data points, sophisticated analytical tools and processing capacity to assess risks in a more detailed way than has often been possible before.

Machine Learning is also changing the operating model, and the most common applications consider all previous actions taken to predict the likely processing solutions, reducing the amount of workflow undertaken. And with this higher automation, teams can focus more heavily on their real risk management priorities.

The final area that is also changing is the ability to automate investment decisions, using a broader set of cloud-based data to assess the decisions that are still largely manual in today’s systems. As tools evolve here based on the use of more complex algorithms and AI, we will see a shift towards highly automated investment decisions further changing the risk profile of instruction management.

TCS BaNCS Cloud for Asset Servicing is providing clients with many tools to enhance risk management, drawing in the benefits of the cloud and a broader integrated data ecosystem, while maintaining an optimised processing model for clients. This is driving a new model for this side of the industry, where alignment with a leading technology firm ensures that the very latest risk management tools are available to industry operations teams.

Disclaimer: Views or opinions represented in this blog are based on the author’s own research and do not represent TCS BaNCS.

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Giles Elliott, Head of Business Development, Capital Markets, TCS BaNCS

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