Earlier in the year, amid volatile scenes not seen since the 2008 financial crisis, three US banks – each with sizeable exposures to the technology and crypto sectors – failed. The weekend that followed saw Credit Suisse sold to UBS as fears mounted about its financial health – together with that of the wider banking system.
As we have digested these events, having had time to examine the fallout, what has become apparent is that the role of the network manager has never been more important. MYRIAD Group Technologies Ltd (MGTL) looks at some of the main themes that we must consider.
Is consolidation of agent bank networks the answer?
Amid the challenging macro conditions, some network teams are looking to consolidate their networks so as to generate cost efficiencies. Instead of engaging with a different agent bank in individual countries or clusters across a homogenous geographical region, some network teams are opting to work with just one counterparty in a major hub market, who will provide them with coverage for an entire region.
However, network managers using the hub model may be less inclined to visit local financial market infrastructures (FMIs) including exchanges and CSDs (central securities depositories) in the individual countries within their networks, a deficiency which could potentially result in risks going unchecked in those markets.
MGTL is also looking for ways to simplify some of these operational processes for its clients, most notably by helping them with invoice management. It is doing this by working towards a system whereby users can capture a single invoice for each agent bank across all of their markets. Such standardisation will help drive efficiencies and simplify client operations.
Although rationalising the number of agent banks can result in synergies and simplified workflows, it can also lead to heightened concentration risk. As investors get increasingly jittery about structural vulnerabilities in the banking system, network managers are thinking very carefully once again about contingency planning.
While a handful of network teams insist on running hot contingency plans – or dual networks, the majority of providers appear perfectly content with having a warm contingency plan in place. In other words, this is when network managers will have an agreement with a secondary agent bank enabling them to move assets should their primary provider fail.
A new look due diligence set up
The pandemic has forced network managers to think about operational resilience in a way they might not have done previously. Increasingly, network teams are conducting due diligences not just on agent banks but on their operational hubs as well, and even third and fourth party service providers.
Network managers are upping the ante on the due diligences they perform on agent banks. One network manager said their team was taking a more evidenced based approach to due diligence, by insisting their providers prove – whether it be through documentary evidence or diary entries – that they are doing what they say they are.
This heightened focus on due diligence comes ahead of the introduction of the EU’s DORA (Digital Operational Resilience Act). The provisions are expected to standardise the rules around operational resilience and cyber-security regulation across the EU 27, and will apply to a wide range of financial institutions.
Network managers – a shake up since the pandemic
Network teams have changed the way they work since the pandemic, focusing increasingly on processes such as resilience, while also trying to streamline their operations in general. Given the growing importance around banking resolution and operational resilience, MGTL can help network managers ensure these plans are robust and watertight.
Read Simon Shepherd’s thoughts on how utilising our platforms can help your Recovery and Resolution planning. https://myriadgt.com/recovery-and-resolution-2/