Regulations that aim to boost oversight and transparency post crisis are adding to the pressure on fund administrators. How can they balance managing operational risk against achieving operational efficiency, whilst at the same time maintaining economies of scale?

There has been a recent trend in the transfer agency space to increase the number of control points within end-to-end processes, often resulting in several people monitoring aspects of each transaction. These changes are designed to reduce operational, financial and reputational risk. However, administrators must balance due care with wrapping too many people around a transaction. By applying over-rigorous controls, organisations run the risk of causing a drag on the back-office, impeding their ability to bring new products to market and, ironically, introducing additional risks.

Imagine the scenario in a restaurant where the head chef makes a dish and checks that it has been seasoned correctly. If the sous-chef and the waiter check too, you could end up in a situation where despite being flavoured correctly, the meal is cold before it makes it out of the kitchen. The time-consuming, people-heavy review process has impaired the end result. As in the kitchen, operational risk needs to have a balance between achieving the goal and not impacting the overall operation.

Firms must look to solutions which identify potential risks, then reduce those risks by reviewing processes in a controlled manner, and enhancing them where required to maintain efficiency. Technology has an important part to play as it can introduce additional checks within existing functionality and automate (either partially or fully) those processes susceptible to risk. It can also provide new processes and tools to manage the growing dependency on automated real-time business processes. Automation can undoubtedly enable significant improvement in productivity.

The key to mitigating operational risk, is finding the right balance between automation and protection.

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Neil Richards

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