Corporate Actions create complex, costly fluctuating processes that are often completed manually. This is further complicated by the large number of corporate action events where different actions require different processes. In addition, corporate actions demand specialist knowledge but they do not differentiate the business by adding value to customer satisfaction and corporate profile. Just like household chores, they only really get noticed when they are not done, or done incorrectly.
Unlike household chores, the consequences of failing to control corporate actions are potentially serious. They include exposure to fines for incorrect processing, reputational damage and assumption of unknown risk levels. These may not be fully understood until the risk becomes reality; at which point it is too late.
Then there is the issue of cost. Corporate actions departments are typically expensive to run and struggle to balance peak-time staffing with cost-effectiveness.
What can financial institutions do to address this situation? More to the point, given the downsides of inaction, why have so many done so little? You would think that a costly and generic process would be a prime candidate for industrialisation. Why not migrate to an automated platform, cut costs, drive up process consistency and forget about it. Unfortunately, a small number of large obstacles make this approach more complicated than it appears at first glance.
An absence of messaging and data standards is one of the major issues. Full-scale solutions struggle with the varied requirements of different corporate actions while customisation of individual software approaches is expensive and time consuming. And the corporate actions department has to compete with claims on budget from higher profile, regulatory compliance work. The result? Stagnation, as costs remain high and risks go unaddressed. But the times are finally changing for corporate actions for very good reasons.
Firstly, executives responsible for corporate actions are waking up to the risks. It’s no longer satisfactory, or even safe, to continue in a climate of unknowns, where a major loss event could happen at any time. And it’s unacceptable to leave a non-differentiating and basically unpredictable cost centre unchallenged.
Secondly, financial institutions are much more aware of the need for a single, standardized messaging environment to simplify processes - although they must now lobby hard for the cross-industry adoption of ISO 20022.
Thirdly, technology has evolved to cope with the demands of intensive corporate action automation.
They need urgently to do three key things:
Finally, the arguments for doing nothing are diminishing by the day. For corporate actions, the time for inaction has well and truly passed. Over to you!
The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.