How the Back Office became glamorous

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With the global financial crisis of 2008 still fresh in banks’ memories, the Back Office plays an integral role in ensuring it doesn’t happen again. And as clever as new technology is,  expert-human knowledge remains vital.

Traders have always been centre stage. They’re the face of banking, those who do the deals and make the headlines. But that’s just the start of the process, the real heroes of executing the deal can be found in the Back Office. It is the Back Office that not only govern the flow of money between institutions but also avoids operational risk and failed settlements. So says Thabiso Ramosolo, Executive Director of leading SA fintech consultancy Elenjical Solution.

Highly automated, but still changing

“From trade confirmations, to trade settlements and reconciliations, the Back Office ensures that everyone is getting paid what they’re owed, on time,” explains Ramosolo. The function covers the details of a payment exchange between two parties, and generates the message to be processed by various payment networks, such as the global Swift Standard. While even as recently as a decade ago it used to be a highly laborious manual process, today most of these responsibilities are now fully automated.

In some cases, software takes over the entire trade confirmation process. “It replaces the legal requirement of payment confirmations that you used have to go through – it compares both sides of the exchange, verifying that they match,” says Ramosolo.

This reliance on automated systems has led to a misconception that Back Office staff’s work has been supplanted. But the reality is that highly skilled individuals are now needed more than ever. In fact, without them, banks are at risk of operational deficiencies.

More than just competitive edge

A crucial constituent of the Back Office offering is Reconciling, which searches for systemic anomalies in a bit to ensure that payments are made correctly. Unlike the Confirmation process, this can’t be completely automated. “The systems that institutions rely on for monetary exchanges are designed by humans, so they have the potential to be flawed. There are layers of intricacies to be attentive to, and humans remain the most effective final arbiter.” says Ramosolo.

Automation isn’t killing jobs in the Back Office function – if anything, it’s raising the importance of the individuals that operate within its walls. If trade reviews are poor and errors slip through, banks and financial institutions are at risk of under or overpaying parties – and having to deal with the repercussions of failed settlements.

The demands on the Back Office are constantly changing. Ramosolo cites ‘collateral management’ as a new function that is taken on by the Back Office as a result of the financial crisis, which requires expertise. “It’s the task of reducing settlement risk, and isn’t a traditional skillset you’d normally find in the Back Office. It demands a high level of skill and updated knowledge – you need to have an in-depth understanding of the integrities of the market and its different entities,” he explains.

The Back Office needs expertise if it’s to achieve its full potential. Big tech players like Elenjical Solutions are more than just added competitive edge – banks need their proficiency to keep operational defects low, and protect their interests in the ever-changing market.