A new study by Oliver Wyman, commissioned by BNP Paribas Securities Services, estimated expenditure will significantly increase as banks look to expand the scope of outsourcing to all activities for all asset classes.
The study predicted between €500-700 million will be spent in outsourcing back-office functions for listed derivatives, securities and FX, which include trade confirmation, corporate actions, settlement, valuation, and reconciliations over the next three to five years.
It also estimates the market size for outsourcing collateral management could reach between €200-400 million.
Of the 32 European banks surveyed, the majority consider back-office functions – excluding clearing and custody – to be a commodity and therefore the easiest to outsource.
Oliver Wyman predicts the post-trade outsourcing market could grow up to €1.8 billion, with a significant proportion of this being “realised through traditional, but more mature, one-to-one outsourcing models.”
“We believe the increasing standardisation of business processes (sometimes driven by regulatory requirements) will become a key enabler for outsourcing in the future,” the study said.
Mandatory central clearing of derivatives, along with standardised settlement through TARGET2 Securities, could further boost this trend, it added.
Two of Europe’s largest banks, Barclays and Credit Suisse, have already turned to outsourcing their post-trade functions for listed and OTC derivatives by partnering with tech vendor FIS.
The study however, suggested middle-office outsourcing is less likely to be adopted by firms as “some banks find it difficult to segregate tasks from the front-office”, while others believe outsourcing is not seen to deliver any significant benefits.
Only 10% of banks said they outsource trade enrichment and allocation, and 23% said they outsource matching. It expects the middle-office outsourcing market size in Europe would reach only €50 million over the next three to five years.
The findings from the survey contrasts the moves made by the big custodians, such as BNY Mellon and JP Morgan, that have invested heavily in their middle-office outsourcing capabilities.
Most recently, BNY Mellon hired outsourcing veteran Teresa Messina as head of middle-office solutions, joining from Goldman Sachs Asset Management.