The imperative for efficient processing has never been more pressing. The financial services industry’s quest for automation is not merely a luxury but a necessity to thrive in an increasingly competitive environment. Streamlining digital onboarding of customers, their subsequent ability to self-serve, initiate orders and communicate or interact through digital channels have been taking centre stage and grabbing large chunks of funding.
However, at AFME’s 2023 OPTIC operations conference in Brussels, an impressive 50% of the audience vote went to corporate actions automation as the area most in need of investment, with matching/settlement attracting 39% and AML/KYC only managing 3rd place. Clearly, the topic has gathered some momentum, as The International Securities Services Association (ISSA) and #theValueExchange have since been running an industry-wide survey to explore the challenges to achieving automation in corporate actions processing.
A financial services organisation can be compared to a team sport. Highly paid players that score for the team attract the attention and finance, as the team would not be in a position to win otherwise. But, without an innovative midfield to deliver the ball to the strike force and a solid defence to keep the opposition at bay, it doesn’t matter how effective or efficient the front line is. Without the ball, it is impossible to score.
In many firms, processing corporate actions remains one of the most manual, inefficient and, therefore, high-cost, error-prone departments. Solving the issues requires two fundamental components:
- A core system with in-built powerful, automated corporate action processing capability
- High quality, timely data in a standardised, readable format
High-quality corporate events information in a structured data format is widely available and improving all the time, even if multiple sources are required to achieve a “golden” record that will drive subsequent processing.
The greater need is for institutions to implement a core system with an integrated, dynamic corporate actions processing engine to power their custodian activities. Only then, can workflows be automated and streamlined in order to optimise how events are managed and essential functions delivered, for example:
- The exchange of SWIFT messages with counterparties in full-STP mode;
- Management of default instructions for non-mandatory events;
- Automated management of over-subscriptions;
- Timely alerts when actions need to be taken;
- Management of any specific accounting requirements or restrictions with fully automated booking.
Corporate action events should be automatically created according to defined criteria and conditions, while users should be able to easily navigate from event administration to the corporate action itself. Other key features that promote automation and efficiency, include; flexibility when managing instructions, which could be customer specific in the case of elective events, as well as pre-defined default instructions for each type of voluntary event, in case instructions have not been received by a given deadline.
Indeed, straight-through-processing (STP) needs to be customisable for every corporate action event:
- Definition of the relevant data sources for each type of event and subsequent automatic association with the appropriate products and events;
- Generation of the “golden” record to be used, through automated matching, with alerts and notifications generated for any discrepancies or incomplete data, so that exceptions handling can be optimised;
- Definition of the desired levels of STP where, for example; more straightforward events may be highly automated, while, more complex events may require a degree of human intervention or oversight;
- Alerts generated to notify appropriate resources, for example when instructions are missing, or a deadline is approaching, so that the required action can be triggered.
Efficiency may also be increased significantly when communications with global and sub-custodians are achieved seamlessly into a modern core system, ensuring data consistency and full automation, not only for event notification, but also for the management of instructions, as well as the reconciliation of holdings.
Investment in corporate actions automation can and will play an important role in addressing the challenges faced, not only by specific institutions, but also the industry as a whole:
- Reducing operational risks/processing errors/losses
- Enhancing staff productivity
- Reducing operating costs
- Improving customer service and satisfaction levels
With the midfield and defence working at optimal efficiency, the front-office will have even greater opportunities to score and the profit margins each time that they do will be that much greater!
– Regional Sales Manager at ERI, Fellow of the IAP (Institution of Analysts & Programmers)
ERI is the supplier of the , offering award-winning levels of innovation, real-time securities and corporate action processing automation and compliance.