Banks are having a tough time due to operating costs, margin compression, and regulatory initiatives. By combining and outsourcing execution and custody – E2C – they can nevertheless counteract these trends.
Banks currently face multiple challenges, including the critical mass of business areas and associated economies of scale as well as ongoing margin compression. This increasingly complex state of affairs is compounded by the fact that more money needs to be invested in response to the stricter requirements flowing from regulatory initiatives and standards (FinSA, MiFID II, CSDR, etc.). At the same time, substantial financial resources need to be spent on digitalization in order to take full advantage of any future benefits. Very often this leaves limited resources for other developments.
"All banks find themselves in this 'costs-regulation-innovation-efficiency' spiral. They need to set the right priorities and constantly work harder in order to remain profitable," says Markus Bhend, Head of Execution and Custody Sales for Financial Institutions at Credit Suisse (Switzerland) Ltd.
Credit Suisse advises banks on how to address these challenges. In recent years, this has resulted in the creation of an innovative service package that brings together the two areas of execution and custody. Where appropriate, this can be complemented on a modular basis by payment transactions in various currencies and CLS as well as regulatory services (product risk classification). "With E2C we take responsibility for best execution compliant order placement in the market, safe custody, and comprehensive asset servicing, for which Credit Suisse has received numerous awards," says Markus Bhend.
This combination enables banks to lower their operating costs, realize efficiencies, and increasingly refocus on their core business. As orders are booked directly to the securities safekeeping account, they no longer need to be delivered externally to or from another custodian – Credit Suisse handles this for them in the market. Accordingly, banks no longer incur the costs of external delivery; much more importantly, the risk of potential fines under the CSDR Settlement Discipline Regime, which is being introduced in February 2022, is eliminated.
Credit Suisse relies on its many years of experience and expertise when performing this dual role, and gives other banks access to its global network – a network comprising more than 120 stock exchange, broker, and transfer agent relationships, as well as over 70 custodians.
Orders are submitted via standardized interfaces, thus ensuring fully automated processing. The orders are reviewed with regard to regulatory requirements, and are subject to further quality and safety checks before being placed on the market.
Also, through innovative API interfaces, Credit Suisse uses state-of-the-art technology that enables the banks to monitor their own transactions in real time.
At a time when banks' core business is undergoing transformation, the externalization of individual processes and services is an increasingly timely idea. Through the outsourcing of E2C to Credit Suisse, the bank not only assumes operational responsibility for securities business, but also endeavors to secure investments that will enable it to ramp up innovation in response to varied client needs and regulatory market requirements.
According to Markus Bhend, "Only banks that rethink their operational processes and structures on a regular basis and therefore make sure they're fit for the future will remain competitive. Being supported by an external E2C partner like Credit Suisse can help in that regard."
