Making sense of the back-office utility model

Global Custodian sits down with Nick Smith, senior vice president of managed services for SmartStream Technologies, to discuss how banks can make greater use of a back-office utility model.
By Joe Parsons

GC: Why is a third-party utility model beneficial for market participants’ post-trade operations?

Nick Smith: For years the banks have been outsourcing parts of their business to reduce headcount costs, but what has become challenging is managing the increasing costs of running IT operations. There has been a push to a utility model to enable the banks to share the costs across the business, with the mutualisation of processes where there are no competitive advantages with the product offering. From the client perspective they are focused on the services they receive, and many support groups are not client-facing. So we are enabling a model where banks can share these costs by utilising a utility supported by true subject matter experts, while our clients can continue focusing on client facing activities.

GC: What regulatory developments will make a utility model enticing?

NS: Out platforms use the latest technology to protect our clients’ interests, and addition to comply with the latest industry standards, are ISO accredited and subject to regular audits. Clients benefit from sharing costs incurred from adapting and complying with the latest regulatory changes through using a utility. MiFID II is a clear example of where the utility model can help. What SmartStream is doing is providing the tools to ensure that our clients are able to meet the requirements set in the rules, and ensuring the quality and integrity of is the data being reported to the regulators. 

GC: How does a utility model fit into the client’s day-to-day workflow?

NS: The utility within Managed Services provides immediate scalability to clients, who also benefit from a large supply of trained and skilled resources servicing their business. In reality, no other party is as skilled in using our TLM product suite as we are. Our people have access to all of the latest product releases, tools and training which has a direct impact of the service delivery that our Managed Service clients receive.

GC: Will disruptive ledger technology play a role in enhancing the utility model?

NS: It is in the interest of our utility clients to have as few exceptions as possible when it comes to reconciliations. By utitlising the latest developments in technology we aim to reduce exceptions processing within our client organisations. Within our Managed Service utility, we are busy developing opportunities in AI, robotics and blockchain. We are developing widespread use of robotics in Q2 and Q3 2018. AI capabilities will be used in areas such as automating exception processing, and blockchain will ensure the integrity of the data within the industry.

GC: What other developments could help evolve the outsourced utility model?

NS: As margins continue to reduce in the financial services industry, focus on reducing operating costs also continues. The market’s appetite for utilities has steadily developed over the last five to seven years. Utilities are developing across the industry across a range of processes, as the marketplace continues to explore mutualisation of processes, benefiting from multi-tenant platforms and the willingness to engage in partnerships to evolve new models.

Some organisations have either already, or are considering, the complete outsourcing of their back-office in order to manage the increasing costs across their technology platforms. Our clients are from all parts of the industry. From new hedge funds to top tier investment banks. From buy-side asset managers through to sell-side broker dealers.