Developing a truly digital bank for private banking


Reimagining the role of banks' front offices

Digitalisation of front offices to comply with banking regulations

Business models for banks are uncertain due to changing and fragmented regulatory expectations. However, a lot of terrain can be won in their front office practices. In order to do so, a comprehensive approach has to be implemented that requires a great trust in digitising of processes and controls.

Harmen Meijnen - 29 March2018

Demanding times for banks

For nearly a decade, large global banks have been scrambling to achieve compliance with a myriad of post-crisis regulations and supervisory guidance. This has made it difficult to strategically prioritize and implement sustainable solutions that could embed these requirements into the first line of defense operating model in a efficient and strategic fashion. Given competing priorities, relatively short time frames, increased regulatory expectations, and limited resources, a tactical and often reactive focus was both understandable and required.

However, times are changing. Due to a post-crisis momentum, which has resulted in heightened expectations from regulators, customers, shareholders and stakeholders, large global banks are demanded to enhance profitability while preserving and optimizing capital deployment. Thereby, it is expected for large global banks that the bar will continue to be raised with respect to full integrated detective controls able to demonstrate progress on implementing preventative control

Along with changing demands, business models for global banks remain uncertain due to changing and fragmented regulatory expectations and a lack of harmonized definitions of key concepts. Banking groups must navigate this current uncertainty while focusing on ensuring efficient, well governed business models that support sustainably profitable business lines.

Reimagining the first line of defense’s role in bank regulatory compliance

Current and required front office practices

Banks can win a lot of terrain in their front office practices. For quite some time already, front offices haven't been fully engaged in the end-to-end design and the implementation efforts of banks. Not only has this led to mixed results in the fully operationalizing the full slate of regulatory requirements for the front office, it has also contributed to certain disconnects and inefficiencies in the technology architecture and operating models across the first and second lines of defence - a major concern for regulation compliance.

As a result, the time has come for the front office to strategically design and invest in a more comprehensive approach to respond to, manage, and deliver against an expanded regulatory, business, and control agenda.

A strong front office leadership is required to:

  1. Initiate strategic business organizational reviews
  2. Refine, rationalize, and expand its role and influence within the process and control framework
  3. Assess opportunities where enhanced use of automation would lead to cost reductions and improved control environments
  4. Plan and hold the organization accountable to deliver wellcoordinated strategic change initiatives that will lead to stronger economic benefits and position the organization to succeed
  5. Establish control groups within the front office as necessary

Leveraging control processes

For banks, there are several ways to increase efficiency. First of all, automation can significantly improve business processes by streamlining existing processes and activities to create greater efficiency and provide employees with time to focus on more strategic areas. At the moment, robotic process automation (RPA) is most widely used in banking and securities to automate workflow or routine and repeatable tasks. But other methodologies such as business process management (BPM) and business decision management (BDM), can be used to automate highly complex end-to-end business processes.

Secondly, another way is digital development. Front-office digitization will create efficiency benefits, along with improvements in cost-effective quality, scalability, and resiliency. It can also help mitigate risk and control costs for the enterprise by:

  1. Expanding implementation of preventive controls and reducing overall reliance on only detective controls
  2. Establishing and enhancing foundational controls through the elimination of root cause issues that can have an impact on the front-office control agenda
  3. Streamlining and rationalizing key businesses and control processes 
  4. Enhancing reporting and visual analytics

More information on the future bank?

In the upcoming months we will share a range of articles with you on the future of banking, based on ‘seven wicked problems’ we have identified. Our research skills and day-to-day experience in working with banks have allowed us to dive into these challenges more deeply. By sharing our insights, we strive to help you with the choices you face in your day-to-day work and with aligning your leadership, culture and organizational structure to a fully digital mindset, optimizing the use of proprietary and external data.

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