If you want to understand where the industry is going next, you should, of course, stay up to date with regulatory announcements and activity — even outside your own jurisdiction. But not all change is driven by regulators and legislators. Some of the most far-reaching changes come from a simple need to build or improve relationships with customers, as the need for better claims management illustrates. After all, it is hard to build positive relationships with someone when they owe you money, or you owe them.
The challenge here is that the data — and communications — required to manage claims and relationships effectively tend to be both substantial and variable. For asset servicing teams, the list of corporate action events that need to be processed can be extensive, and the associated claims that need to be tracked across both receivables and payables can present plenty of hurdles for the claims management team.
It gets even more challenging when your firm is operating in a jurisdiction where claims are concentrated within key windows in the calendar. In Europe, for example, many companies pay their dividends over a similar period leading, inevitably, to huge spikes in volume between March and June. That means a period of long shifts for operations teams working on the repatriation of real or manufactured dividends to the underlying beneficial owners.
Of course, many of those holders will have traded heavily within this period specifically to optimise their own tax position, causing the volume spike to spiral still further upwards.
When operations teams are relying on manual processes, or minimally automated processes, the work starts to pile up, with poor rates of straight-through processing and plenty of exceptions to manage. That makes it difficult to scale the claims management process to handle higher volumes that are concentrated at specific times of year, or around different corporate actions.
Without automation, delays are inevitable. Taking the European dividend season as a case in point, it’s not unusual for corporate actions teams to still be processing and settling dividend claims 3 months after dividend season has come to an end. In an extremely high-volume year, and with inadequate processes, a bank may still be working through the backlog 6 months later.
This undermines relationships and all the work that your business does to acquire and retain valuable customers. It also incurs costs. Money is tied up to meet capital adequacy requirements and aged debtors build up. You don’t have a complete picture of your funding and you can end up locking up funds — often completely unnecessarily — especially if you have risk-weighted assets. Money tied up cannot be invested and cannot work to improve return on equity. The opportunity costs can mount up fast.
The seasonality of the problem can also create an ‘out of sight, out of mind’ approach, something that left untended can become a substantial drain on costs, margins, and reputations. The better approach is to use the experience as a driver to implement greater levels of automation so that your claims management operation ceases to be such a time-consuming paper chase.
Making sure the right information is in the right place, in easily readable formats and at the right time is crucial. Automating the issuance and reconciliation of receivable claims, and the reconciliation, payment, and settlement of payable claims, gives you greater control and oversight of what is outstanding. This in turn enables you to reduce the volume and value of aged debtors sitting on the books, improve funding for trades, and reduce your risk-weighted assets.
In the end, optimising claims operations is all about managing data and communications, through many channels, as efficiently as possible. Deploying a platform designed around a deep understanding of the way that data flows through your business, and the way that each function uses it, can create substantial operational efficiencies, optimise your funds, and keep your clients onside.
Get in touch if you’d like to learn more MeritsoftCapMarkets@Cognizant.com.