Magazine Issues » October 2012

INSIDE VIEW: Adapting to change

Conveyor beltFor financial firms that operate in multiple markets, tailoring brands for each geography can be time and cost-intensive. Tony Collins, of Opal, says chances are being missed to roll out standardised products.

As the finance sector undergoes unprecedented change, the opportunity is there to standardise investment products. We are reminded of the fact that the financial services world is increasingly globalised almost on a daily basis following the onset of the financial crisis, with events in Athens, Berlin and Wall Street sending shockwaves around the globe.

The crisis has helped to highlight just how interconnected the world’s finance industries are as events in one country impact the way firms operate internationally.

Investment patterns have also become much more internationalised, with Western investors turning increasingly to emerging markets and the rise of sovereign wealth funds, such as those in the Middle East.

The downturn has also made the market a much tougher place, with all-time high levels of volatility and increased competitiveness. However, the global marketplace does open a door to a number of opportunities for firms to overhaul their business models in order to emerge in a prominent position on the global stage.

The greatest such opportunity is to increase efficiency – one just needs to take a look at governments’ drastic attempts to make their finances and functions more economical.

Regulatory compliance is driving ever-stricter guidelines when it comes to developing new products. Regulatory bodies have been quick to recognise the need and potential for a global standardisation of rules and guidelines. Although financial markers will always need rules tailored to their specific conditions, there has been a drive by regulatory authorities, such as the UK’s Financial Services Authority and international equivalents, to homogenise their guidelines as much as possible.

This trend is being driven partially by similar demands from governments worldwide in light of failings that led up to the financial crisis, but also by a universal recognition to make international compliance more achievable for firms.

This is especially the case in Europe where the requirements of the single currency and regulatory drives from the EU and covers most of the 27 member states. For example, the European Banking Authority was set up last year to harmonise banking guidelines across the EU.

Legislation surrounding capital requirements is also having an increasingly international footprint, with Basel III banking standards applicable to most markets and similar moves in the insurance sector, such as Solvency II, being replicated in markets around the world, like Bermuda.

Some US legislation, such as the Foreign Account Tax Compliance Act, also has a global jurisdiction. All banks, regardless of their primary location, are required to declare US account holders to the American Internal Revenue Service for tax purposes.

Standardising products for an international audience highlights a need to meet similar financial needs across the globe. Rapid economic growth in developing markets over the past decade, coupled with the sharp slowdown of developed economies since 2008, has evened out the global playing field.

The explosive growth of a new middle class in emerging nations – particularly in Brazil, Russia, India and China – means that many more consumers in the developing world now have a similar purchasing power and financial needs as those in more developed markets.

If this is the case, then why should those markets not be given similar options when it comes to investment products? After all, we now all have similar plans and concerns, such as saving for our retirement or protecting our wealth, regardless of whereabouts in the world we live.

Therefore, investment products of a similar nature are relevant for a much wider, global audience than in previous years. This highlights the potential that a standardisation of product development holds for firms looking to maximise efficiency and global reach while minimising time and cost. Uniform products can be designed and developed with only minor tweaking needed at the point of launch across various markets.

With most regions of the world in an economically precarious position, time is essential and cost savings are a priority for many organisations. The development of investment products depends heavily on regulatory requirements and consumer demand.

As these two influencing factors level out across different markets, providers have a chance to streamline the development of their products, which can then be tweaked to suit individual regions and countries.

This is where financial services firms can use an outsourcer to their full advantage. A third party will have the expertise and optimum services in place to standardise the product development process as much as possible, which can amount to serious time and money savings for organisations launching products in different markets.

This is an increasingly important priority as firms look to gain a foothold in emerging nations without compromising their operations in the weaker core markets of Europe and North America.

By tapping into the international expertise third parties can offer, organisations can increase the global impact of their products. Outsourcers can also act as a bridgehead to launch these quickly and efficiently on a shared risk model.

Tony Collins is chairman at Opal Financial Services

©2012 funds europe