Global COO, Markets Organisational Analysis Survey

Executive Summary

by Maurice Evlyn-Bufton, CEO of Armstrong Wolfe and Tim Williams, Head of Research, Armstrong Wolfe

This report summarises the collective efforts of our COO Community who, in coming together to review their businesses, provide insights in the hope of identifying the most effective way of operating.

Business Operating Models

The most common operating model appears to be a ‘business aligned’ model where operations and middle office are not owned directly by the COO. However, trade capture drew division on whether this function should be owned by operations or the COO directly. Similarly, the majority of respondents identified the corporate level COO as the owner of their operations function as a central Operations and Technology utility, some with a Head of Operations receiving equal reporting ownership.

Most respondents identified the global COO-CEO partnership as being the most effective working relationship and essential to influence sustainability of the COO function. Conversely, the existence of a Chief of Staff (CoS) function appeared limited in number. For those with a CoS, the combination has been effective where there is alignment of strategies, clear scope of mandate and avoidance of duplication. Some members believe the COO and CoS mandates are so similar in scope that duplication is inevitable. With the belief that the COO is recognised as an easy target for cost reduction exercises, how a business would view headcount on both a CoS and COO remains uncertain, but it is likely to draw attention.

When reviewing present functional ownership, there was a consensus that the COO owns strategy, 1st line controls, budgeting and regulatory change. Conversely, functions like fintech and innovation, front office technology and quantitative analytics appear to fall outside the COO’s direct management. It was clear though that whilst the COO mandate does have a strong focus on operational risk, resilience plans and regulatory and supervisory obligations, unwanted events in these areas have the potential to reset the COO’s mandate. Agility to react to these could be limited because in most instances, business management were heavily reliant on their existing permanent headcount with a below average contractor headcount spanning only 5-10% of the function.

The exact reasons for this operating model preference remain unclear, but looking forward, many believe that increasing regulatory oversight and SMCR will necessitate a change to a complete front to back COO owned model. Some are already pushing for this as the only way to ensure control of functions they are responsible to the regulator for. How this also impacts the contractor / permanent headcount ratio remains to be seen.

Managing Risk

The largest CCO model was COO-owned in a decentralised system but with a centralised CCO function owning policy-making and risk governance. A small minority were not operating with any CCO function at all but respondents who cited this had a correlation in their similar market size. It is also observed that the CCO is developing a mandate far beyond its original control mandate to be more forward-looking with the emphasis on having an external-facing lens to maximise their value to the business.

The output from the forums and survey continues the debate on who is best positioned to manage the overall risk function. Marginally this was identified to be the 1st Line, but noting the respondents were exclusively markets COOs/CCOs, the 2LoD participants were not given the opportunity to participate. Common themes for determining ownership included cultural absence from the 1st line or conversely, the fact 1LoD operate the controls on a daily basis and are better placed to manage risk. Some viewed this as a shared responsibility, but clearly problems exist when each function isn’t clearly defined and coverage gaps emerge.

75% of the COO community believe non-financial risk has less mature processes. Contributing factors include the fact it is a newer risk class, the technology is not as evolved, it is not as trackable as it’s a subjective risk and there is presently less spend on their on-risk systems. A number cited it was simply made a 2nd Line problem. The largest risks being related to cyber risk, vendor risk or regulatory risk. Over half believed creating a cross-industry set of benchmarks would reduce the ambiguity and subjectivity associated with measuring the risks. Similarly, the 1ST Line were again marginally viewed to be best placed to manage these risks, but that decision is far from unanimous.

What is clear is the COO community wants to continue to further define the 1st line controls mandate at future forums where the answer of ownership may become self-evident.

Geography

The roles offshored appeared uniform and include non-regulatory risk, certain operations functions, technology, onboarding functions and data functions – all located in India, Bangalore, Malaysia or Columbia. Only 60% of the community felt these migrations were successful and macro factors like outages have provided cause to consider what location are best for business continuity purposes in the future.

Nearshoring was seen by over half as a suitable alternative to managing some of the risk and there was agreement that the pandemic has prompted a revised view of the value of nearshoring versus offshoring. The majority citing that they would consider nearshoring equal or preferable to offshoring following the pandemic and the challenges it presented to offshored functions.

Change and Transformation

With a popular view that staff resource plans are driven by events, rather than yearly strategic planning, it is clear why change teams are so heavily reliant on a contractor workforce. Some respondents citing this was a problem they were looking to rebalance. With the unpredictability of reac tive staffing, it is easy to see how this situation manifests itself as contractors are easier to mobilise to event-specific tasks/deliverables. There is also the added benefit of hiring in SMEs in given subject areas, although conduct and culture can be hard to manage in temporary contractors. Such hiring model appears contradictory to the market where clients often seek to retain talent with change experience, with most contractors informing us they too would take permanent employment and help prevent that intellectual capital from leaving the organisation if it was offered.

The use of a third-party consultancy mirrors the use of contractors, with a larger percentage being deployed on ad hoc projects than as part of a strategic component of the bank’s workforce. There appears no key functional focus, with most functions having a high /medium priority for consultancy support across all areas.

The majority of respondents state change was delivered either directly by the product COOs or co-owned between a centralised change function and the product COO. Most appearing to operate with a Global Head of Markets change management, but few have a regional head to drive change management initiatives which is possibly because in many cases the COO would be an integral part in delivering on this book of work on a regional level.

Looking forward, it appears change functions will need to ensure they operate with a diverse talent pool as the large budget spends identified for the coming year are noted to be delivering further regulatory change, large transformational projects, limiting commercial spend, revenue generating efficiency, e-trading and large re-platforming projects.

The Future

The COO looks to be front and centre in the next five years. Macro factors including the effects of the pandemic, market change, technology and a changing regulatory landscape will see the markets COO central to those business-making decisions. Likewise, there is a belief the COO will also become closer aligned with 1LoD as a growing part of their book of work. In parallel, the CCO will be more business aligned, acting as an advisor to the business with the possible focus on reduction of 2nd Line and merging of the functions into a 1 A/B function. The reliance on clear, accurate, data is paramount and remains on of the largest business challenges to date.

Given the heavy headcount costs businesses are encountering, a reduction of expensive top end directors (and the intellectual capital they hold) appears inevitable to create a more streamlined operating model.

Threat, Risk and Wealth Management

Threat, Risk and Wealth Management

Threat, Risk and Wealth Management - Minutes from 23rd November 2021 A focus in China - co hosted with Goldman Sachs Asset Management When thinking of China's rising, many people see either a threat / risk or a huge wealth opportunity. In truth, it is a combination of...

Digitalisation of Products

Digitalisation of Products

Digitalisation of Products - Minutes from 23rd September 2022 The pandemic has accelerated the growth of digitization, increasing opportunities for women in fintech. Only 20% of Global fintech executives are women – it was discussed that diversity creates excellence....

Technology Leading the Change

Technology Leading the Change

Technology Leading the Change - Minutes from 13th October 2021 Remember, everyone in FinTech is learning - all technology is a continuation of human experience. Every new technology was learnt once by those who use it, they were all beginners at one point. The...

Staff Attrition and Operational Resilience

Staff Attrition and Operational Resilience

Staff attrition: How can the banking and asset management COO community address the exponential crisis facing the industry by Maurice Evlyn-Bufton, CEO of Armstrong Wolfe In this discussion paper we position human capital risk as an element of non-financial risk (NFR)...

Productivity in a hybrid working model

Productivity in a hybrid working model

Not a science, but a refocus on leadership and management in enhancing staff morale by Maurice Evlyn-Bufton, CEO of Armstrong Wolfe Since March 2021 productivity has been mostly assessed on a subjective and judgmental basis, sentiment and empathy playing a role due to...

X
X
X