NORDIC FIRMS MUST PREPARE MIDDLE AND BACK OFFICES FOR INCREASED VOLUMES AND COMPLEXITY, SAYS RESEARCH PAPER

Posted June 16, 2008

LONDON – Nordic financial institutions are ill-prepared for increased trading complexity and increased transaction volumes expected in the next few years, according to research by BNY Mellon in conjunction with McKinsey & Company that drew from interviews with executives at 25 asset management departments of leading Nordic pension funds and insurers.

The firms interviewed hold an average of 20 to 25 billion euros in assets, and collectively manage more than 560 billion euros in assets. Key findings of the research, published in a white paper entitled “Inside the Engine Room,” include: 

• The key priorities for the middle- and back office are reduction of operational risk and support for new products and instruments. Less pressing concerns are cost reduction, improved client service and generating more revenues.

• The biggest challenges for the middle- and back office are attracting and retaining talent, and managing the technology landscape.

• The focus in operations has been mainly building rather than optimizing middle- and back office processes. As a result, many institutions are not prepared for the expected increase in volumes and complexity.

• Many firms have not achieved “best practice” and underestimate the opportunity to improve in that area.

• Most institutions are still learning to use and manage third-party partners effectively, which limits how much they can leverage outside resources to address middle- and back-office challenges

• The middle and back offices are well integrated with the front office, which enable these sides to work well together.

Nordic institutions should address these issues by reinforcing links with the front office and coordinating more with peers to address technology challenges, in part through more effective user groups for key technology suppliers, according to the white paper.