“Modern Approach for Sustainability” F inancial services organisations are facing the most serious and prolonged crisis since the 1930s. Contagious uncertainty, instability and resulting write-downs are infecting ever more sections of the market. Funding is drying up. Equity values are becoming ever more volatile. Demand for financial products and services are falling back amid an accelerating slowdown in the global economy and dip in business and consumer confidence.
Organisations will need to demonstrate thorough understanding and control of their risks to rebuild investor confidence; attract funding and stabilise their businesses in the short term. Going forward, many may need to transform their business models and associated performance objectives and incentives as part of a more sustainable long-term approach to value creation.
While demanding, the current market environment could open up valuable opportunities for growth. Strongly capitalised groups are in a favourable position to pursue ambitious acquisition and business development strategies. Firms that can effectively manage costs and enhance understanding of individual customers' evolving needs will be able to build enduring and profitable client relationships. Emerging markets and alternative investment sectors also continue to offer significant potential for expansion.
In the given circumstances and prospectus, the focus of financial service provider had now shift rather stick to the traditional approach to dynamic and modern approach to:
1. Improvement on Market Reporting:
Successful financial services providers recognise that greater transparency and clear explanation of the rationale for business strategies will be critical in boosting market confidence and securing access to limited capital in the wake of the financial crisis.
Crucial considerations include effective explanation of the risk profile and the underlying strategy and implications. “Smart firms are therefore looking beyond basic compliance to provide real insights into the appetite for risk, the priorities and assumptions governing risk management and how risk influences key business decisions”.
Forward-looking companies are also looking closely at how to influence and respond to planned changes in market reporting to ensure they reflect the realities of their business and provide more relevant and reliable information for analysts and investors. Proposed developments include modifications to fair value measurement, a finalised International Finance Reporting Standard (IFRS) for insurance contracts and the increasing harmonisation of IFRS and US
Financial services providing organisations to convey the true strength and full potential of the business, meeting both the high standards of today’s regulatory reporting requirements and the even higher expectations of analysts and investors:·
transparency and disclosure·
- Compliance with
regulations and laws·
valuation of assets and liabilities·
- Developing and
reporting non-financial measures
2. Operational Improvement:
Many financial services organisations have found that their attempts to cut costs and improve efficiency in the wake of the financial crisis have been far less successful than hoped and are already proving difficult to sustain. There is a particular risk that knee-jerk operational shakeup could damage customer service or jettison the talent the business needs to capitalise on an upturn.
Smart firms are therefore looking at how to use the crisis as an opportunity to re-engineer their business in a way that can deliver lasting savings and sustainable improvements in operational efficiency. This includes realising potential synergies through the development of product ‘hubs’ and greater use of centralised service centres and other sourcing options. Further improvements could be achieved through a more aggressive approach to product rationalisation, reducing needless management layers and identifying opportunities for integration and consolidation in areas such as reconciliation. “Streamlining and simplification can not only cut costs, but also strengthen management control and oversight, as well as support and secure operationally organic and external growth, whether domestically or internationally”.
With a firm-wide view of value chains processes; cost, risk and profitability, the finance and operations functions to jointly identify opportunities for savings, operational improvements and developing strong, realistic, and executable business cases.
Financial services provider are cost manager and performance improvement experts who can help organisation to gain the edge in efficiency and cost competitive delivery, namely:·
- Process architecture and optimization, operational
transformation of finance, IT, HR, and operation functions in banking and
insurance business lines, as well as corporate levels.·
- Cost cutting and cost optimization.·
- Employee benefits and compensation programmes.·
- Global supply chain optimisation and management, including
set up of SSC, outsourcing, and off-shoring·
- Downsizings and carve-outs
3. HR Management:
Forward-looking financial services organisations recognise that a different set of skills, smart deployment of talent and the realignment of compensation structures will be critical to their ability to adapt to the fundamentally different competitive and regulatory environment that is emerging from the financial crisis.
As tough market conditions diminish the opportunities for short-term trading returns, successful firms will look at how to attract and nurture people with the mindset and ideas to develop lasting relationships, work within tougher risk and compliance demands and create value over the long-term.
A particular challenge is how to reward people when compensation policies are facing a tighter rein. It is therefore important to establish sound underlying principles for remuneration, including risk-adjusted incentives and some deferral of compensation, while allowing sufficient flexibility to take account of evolving strategies and particular types of commercial operation.
Ultimately, “the commitment and behaviour of the people within organisation will be critical in rebuilding the trust of consumers, markets and governments, without which investment, growth and profitability will not recover”.
Experts in the field should help financial services organisations to develop the capabilities need respond changing regulatory requirements and challenging market conditions. Dedicated financial services human resources team should work closely with clients to ensure that key aspects of talent management including recruitment, retention and reward reflect and support the overall strategy of the business.
4. Corporate Regulation
The financial crisis has highlighted has raised questions about the adequacy of the regulatory regimes governing financial services, which are being met with increasing demands and changes in the regulatory environment under which organisations operate.
For example, In the US, the Obama administration wants supervision of systemically critical institutions to be concentrated in the hands of the Federal Reserve and be backed up by more exacting capital requirements. In the UK, the Walker Report on governance calls on chairmen and non-executive directors to demonstrate more incisive understanding and willingness to challenge risk strategy. In the EU, insurers will need to assure supervisors that risk considerations are fully integrated into business decisions as part of Solvency II.
Within emerging markets, the pace of liberalisation is set to slow in the wake of the crisis. “Leading Financial organisations should be able to use the changes in regulation as an opportunity to develop a more systematic approach to governance, risk and capital management and use these capabilities to provide a more informed and assured approach to decision-making”. Facing greater media and political scrutiny, they will also be able to balance the need to restore profitability with the expectations of being a responsible corporate citizen.
Companies should focused more on the debate over regulatory change and its implications within the financial services industry. A multi-jurisdictional team of specialists can help client to understand and adapt to the developments ahead and turn strengthened compliance into competitive advantage.
5. Business Restructuring
Strategic expansion has given way to rapid contraction in the EU and US, as many groups seek to scale back peripheral operations and re-focus on their core business. In contrast to most Western markets, a majority of financial organisations in Asia remain intent on expansion, especially as they seek to improve their offering to the region’s growing middle class.
The ability to measure current and prospective risk-adjusted returns will be critical in identifying what businesses to develop or divest and convey the rationale for restructuring strategies to analysts and investors. “The most successful sellers will be able to divest businesses in a way that clearly identifies value for the potential buyer and supports the long-term strategy of the group”.
Restructuring will open up valuable opportunities for agile and strongly capitalised firms, who can step in to take advantage of divestment or market exit by weaker competitors. The absence of traditional sources of capital raising (such as the debt and equity markets) is likely to encourage less well-capitalised firms to explore alternative and innovative financing options to support their growth strategies. This could include private equity funding, either in the form of capital injections or strategic partnerships.
Business development specialists who can help boost the organisations to make the most of opportunities for restructuring and growth. This includes:
- Preparing lists
of suitable targets, both for sale and for purchase.
- Carrying out
realistic valuation and rigorous due diligence that reflect the heightened risk
and uncertainty in the current market climate.
- Developing a
clear and compelling rationale for prospective transactions.
- Ensuring value
realisation through effective post-merger integration.
- Identifying the
most profitable customers and focusing on the business that will reap the best
returns on investment in customer acquisition and retention.
- Ensuring that
the business model takes full account of customers’ needs, tax, financial and
regulatory considerations and the organisation’s capacity to change the way it
- Using new
technology to develop cost effective distribution and delivery.
6. Risk Management
In the face of an increasingly complex and uncertain commercial, regulatory and geopolitical environment, financial services organisations are looking to develop a more proactive, systematic and integrated approach to governance and risk management. However, “governance, risk management and compliance (GRC) are still primarily seen as a regulatory obligation rather than a value driver”.
Effective enterprise-wide risk management can help to underpin sound governance and related compliance requirements by providing a comprehensive framework of internal controls and reporting procedures. The enterprise-wide approach focuses both on familiar financial risks and harder-to-measure strategic, operational and reputational risks. The results are enhanced stakeholder confidence and sustainable value creation. A global CEO survey carried out by PricewaterhouseCoopers in 2003 revealed that among companies where enterprise-wide risk management is a priority, with most including both quantifiable and hard-to-measure risks in their programmes, more than two-thirds believed that it had improved their ability to take appropriate risks to help create value.
Develop strength and global network of specialists that can provide solutions to all matters related to risk management including policy and strategy, risk-based capital management, benchmarking, systems selection and development, enterprise-wide risk management and integrated governance, compliance and risk management solutions.