"Look Out, Banks!"

There are post-Brexit opportunities being missed

Hugo Pound, Leadership Advisor, r.d.i

Richard Cato, Banking Operations Advisor, r.d.i

Here is the Skype exchange between Hugo (in italics) and Richard (as bold as ever) that initiated this paper. We think the Q & A and the following paper will promote thoughts, challenges and action in UK-based banks, particularly in small to medium-sized businesses, more threatened by competition in the market and less able to find a significantly differentiated space.

Why haven’t the banks seemingly got their heads up to the opportunities that may come from Brexit? 

As good leadership is about providing a sense of purpose and a sense of inspiration, why does it feel that both are lacking in the banking sector currently?

Are they focused more on Operations and ‘making it work’ or is there little movement there, too?”

"I think there are two factors. There is clearly [1] an immense focus on regulatory issues and compliance, MIFID II etc. and [2] an apathy which can also be stretched into nervousness surrounding London's dominance.

Brexit doesn't mean Europe goes away, it changes the way we operate yet provides opportunities.

The $64 thousand dollar question is how that movement can be triggered?"

Good question! Focusing on regulation & compliance is just good management. Apathy and nervousness are a sign of ‘learned helplessness’ (i.e. whatever we do, it won’t make any difference?).

So leaders in the business have to encourage good management but challenge people to realise that management is not enough. They need to challenge the spectators and cynic

They get active. 

What might that mean for people in the Operations arena of a bank?

"Focus on the opportunities. The UK has been largely excluded from T2 & T2S discussions. For example, some currently centralised roles should or must be executed on the continent. Operations can be more economic, indirectly enjoying an additional Disaster Recovery site and greater depth of HR than from Asia Pacific. Leveraging T2S could provide rationalisation of Agent Bank networks. I think the challenge is to move from being reactive to proactive.

Is that achieved from a top down strategy or a bottom up drive fueled by enthusiasm?"

Top down! A Board or top leadership team has to come together to thrash through the pros and cons of doing nothing versus moving now – and once they’ve determined a ‘desired state’, then get others in on the agenda.

Who is facing down the cynics, the spectators, who is encouraging the real ‘players’, those people who can see that it’s time to move? 

So my question is, what gets people moving with pace and purpose, particularly in Operations?”

"People in Operations are no different from anyone else. Two things are required, the first is a ‘believer’ internally, prepared to bang the drum and elicit support. This person could come from Operations but, with support from other non-Front Office centralised teams such as Compliance and Treasury, that would make for a powerful three line whip.

It needs a visionary COO. Know any?"

Look Out, Banks!

The title of this paper has a double meaning. 

Firstly, UK-based banks are being too slow to assess and develop a range of responses to the potential opportunities that can emerge from Brexit (whatever than might eventually turn out to be). They had better look out or others will grab those opportunities ahead of them. 

Secondly, banks need to look out to Europe (and Central Europe in particular), to source those opportunities in a post-EU membership world.

Like everyone, here at r.d.i. we have spent a lot of time considering the impact of the outcome of the Brexit vote. We do not have all the answers but question the level of inaction that seems to be gripping the Financial Services sector. It appears there is a strong, apathetic “wait and see” mentality across the industry, perhaps due to a vacuum of detailed information from the Government. Yet business usually leads from the front, having a clear view of what is best for it and moves forward, allowing the politicians and legislation to follow in its wake. So what can be confidently surmised as likely to happen?

·     Employment restrictions will change both inwardly and outwardly

·     UK/European regulations will branch out on different paths.

·     The jurisdiction of secure data will be questioned.

Is the finer detail needed to determine a planned response? At r.d.i. we think not.

Let’s take the HR implications first. Of the G20, the UK is the largest investor in India and India returns the compliment, investing more in the UK than any EU nation, so we do know that that relationship it is number one priority for the UK Government. There are literally millions of incredibly well educated, intelligent MBAs in India who are virtually impossible to bring to the UK at present. When this is abolished, any haemorrhage in intellect from our current European partners can be substituted via this source.

London currently enjoys a plentiful supply of excellent, well educated staff from CEE, likely to be the first target area for potential removal or non-replacement. This in itself can be regarded as an opportunity. UK companies should regard CEE as an excellent venue for offshoring. Clearly the staff tick the box, real estate is economic compared to the UK, the cities are a delight and from London it is possible to fly in and out on one day.

The establishment of a CEE office offers three potentially interesting and useful bi-products;

1.    Risk dilution caused by segregating processes,

2.    Immediate increase in Disaster Recovery options and

3.    An opportunity to review the previously offshored strategy in Asia Pacific (more expensive than Hyderabad but more accessible).

If it is accepted that this makes some sense, which functions are potentially impacted?

·     Centralised dealing desks in London, so a European dealing desk maybe required. Not a huge problem as the technology will be shared, (albeit there may be a need to segregate GL’s)

·     The same is likely to apply to Treasury and Compliance functions but this will mean locals on the ground become experts, allowing London to relinquish this responsibility

·     European secure data currently resides in the UK; probably not possible in the future so it can be housed in the new site in CEE.

If there are any benefits to be had from T2 & T2S the CEE office is now positioned to leverage them.

So London Financial Services needs to start putting together real business plans assuming the worst, exploiting the opportunities. Look out, banks; it’ll be worth it.

 r.d.i is a firm of strategy and leadership consultants which advises a wide range of companies about moving from a current state to a desired state – you can see most of them on our website client list.