Discover more about middle office outsourcing and its potential future trends that CFOs should be aware of.
Since the market cycle is constantly changing, Chief Financial Officers (CFOs) are under pressure to raise margins on investments for their customers. This has driven companies to re-evaluate their processes and outsource non-essential tasks to strengthen their emphasis on the essential skills that allow them to maximise profits. That lets them focus more on what they do best, which helps them make the most money.
What is Middle Office Outsourcing?
Middle office outsourcing is the act of giving third-party service providers control over non-investment decision-making tasks such as trade settlement assistance, investment accounting (IBOR), data aggregation, client reporting and performance monitoring. Financial institutions may concentrate on their core capabilities by outsourcing non-essential operations to specialised providers who can carry them out more quickly and effectively.
Six Future Trends in Middle Office Outsourcing
1. Growing Application of New Technology
The need for middle-office outsourcing has grown a lot because of technological progress. Technology improvements like machine learning, AI and automation have let service providers such as Linedata, offer more advanced solutions to handle complicated jobs and processes more quickly and correctly. Because of this, financial institutions can outsource middle office tasks with more trust, knowing that their work will be done quickly and accurately.
Furthermore, the advancement of technology has resulted in greater regulatory scrutiny and complexity, making it more difficult for financial institutions to perform middle office operations in-house. Outsourcing these operations to a third-party service provider with regulatory compliance experience and resources may assist financial institutions in remaining compliant with rules and decrease the risk of non-compliance.
2. Rise of Cloud and Automated Methods
Financial institutions need to get the most out of middle office tasks like billing and balancing, portfolio accounting and adding staff. Outsourcing these tasks helps them avoid problems with interrupted work and incorrect reports. This way, automation will be one of the most critical trends in the global middle office outsourcing market. It will get rid of things that aren’t needed to lower running costs.
Automating tasks in the middle office has facilitated increased real-time flow. Not only does this free up significant resources, but it also makes it possible to extract actual data and send it precisely where required. Previously, allocations and confirmations would have been handled via email or spreadsheets.
The middle office outsourcing market is expected to grow in the coming years thanks to cloud solutions and more automation. Cloud-based middle office solutions help make operations more flexible by offering regular updates and improvements and the ability to scale up or down as needed and add new features as companies release new products.
3. Conformity to Standards
Formulating and implementing standards applicable across an entire sector will play a significant role in the future market infrastructure. One merely has to consider Financial Information eXchange (FIX), which has revolutionised trading in stocks and fixed income. Because of the growth of industry standards, you do not have to start from scratch to meet new customers’ requirements. Instead, you can iterate and advance the technology. Not only does this produce enormous efficiencies, but having widely utilised standards also offers more significant opportunities for interoperability, integration and real-time flow across the whole trade life cycle.
4. Providing Market Data
Portfolio management is keeping an eye on how each security in a stock portfolio is doing and ensuring that the portfolio is growing at the rate that the owner wants it to. High-net-worth (HNW) people can safely and effectively handle their money with the help of stock and trade management. It also gives you real-time data and analytics that help you make better business choices.
It also improves the performance of management and makes operations more flexible. There is more competition in the world of investment management, so many buyers are paying attention to the set costs that come with it. Investors are also coming up with new business plans to help them make smart choices about selling non-core parts of their companies, like middle-office tasks.
5. Consolidation
Consolidating a company’s middle and back offices has as its primary objective the integration of all front-office data streams, products and platforms into a single standardised dashboard with thoroughly filtered data. That will provide an all-encompassing perspective of what an organisation is up to regarding its assets, markets and customers. A single cross-asset system that manages all electronic processes in place of segmented middle and back-office services is advantageous in capturing synergies and economies of scale. That enables businesses to be more focused and competitive in the front office.
6. Insight into the End-Use Market
Numerous stakeholders, including brokers, custodians and other third parties, are involved when providing middle office services. As a result of clients outsourcing their middle office activities to streamline the workflow process and cut overall costs and expenditures, there has been a growth in the demand for exceptional middle office services.
In addition to this, because of the significant investments and expenditures involved, it is challenging for organisations that deal in private equity and hedge funds to diversify the asset risks and fulfil the regulatory compliance requirements. As a result, they prefer giving it to a third party to handle instead.
Conclusion
Middle-office outsourcing is projected to rise as financial institutions strive to boost efficiency, decrease costs and remain competitive. One of the key drivers propelling the middle office outsourcing market is the rising demand to increase overall corporate efficiency. Providers are currently coming up with unique services and product offerings to satisfy an organisation’s criteria regarding their efficiency level.
In addition, they are concentrating on developing strategic planning that is directly connected with the operations and activities of the organisation. With the above-discussed future trends, outsourcing services for the middle office will be able to link corporate goals with management planning, which in turn helps keep diverse operations inside an organisation coordinated.
