When the global pandemic forced banks and asset managers to activate their business continuity plans across the world, many firms acted swiftly to slow the spread of the virus and protect against business disruption.
Sending thousands of employees to home offices or backup locations was not something that firms had practiced on a global scale. “This isn’t exactly a regular drill that firms have run before,” said Danielle Tierney, Senior Adviser Market Surveillance and Trade Compliance, Greenwich Associates, speaking on a webinar. While firms conduct fire drills, “a pandemic working-from-home drill is not quite that one,” said Tierney.
Financial firms reacted to the humanitarian crisis first, while coping with stressed markets, the lack of in-person interaction, and the impact on providing client service.
According to a recent webinar by CRISIL GR&A and Greenwich Associates, globally distributed teams played a critical role in enabling banks and asset managers to mitigate the COVID-19 disruption to business and served as a potent BCP tool.
“The change to remote working models has shown tremendous dependency on globally distributed teams and it’s an important component in everyone’s business continuity models,” said Dmitri Londos, president of CRISIL, an S&P Global Company, who moderated the webinar.
Based on a client survey, Londos said even with tremendous volatility in terms of increased trading volumes − and after some initial hiccups – banks and asset managers had very little disruption.
On the April 29 webinar, panelists from a variety of banks and asset managers shared their best practices and discussed how actions taken during the pandemic could change their operating models in the future.
Despite some of the complexities involved, such as political, social and cultural at the macro level, arranging vacations, supply chains and measuring productivity, panelists conveyed the value of globally dispersed teams in terms of backing up operations and transferring workloads.
“In an interlinked world, we’ve realized that these global cross-functional teams have become a vital pulse to an organization,” said Mihir Trivedi, Managing Director, Operational Risk Management at Nuveen with $1 trillion in assets under management.
At the outset, Nuveen focused on the safety of its people and relied on its business continuity plans to ensure adequate coverage across high priority processes – trading, sales, and distribution. In addition to identifying key individuals, it concentrated on technology risk and backups that had to support the business continuity plans.
Backups were secured from coast-to-coast and across continents not only to support trading systems and infrastructure but to handle the volatile markets, said Trivedi. While BCP plan are set in advance, they had not planned for a long duration nor to withstand such heavy spikes in equity trading volumes not seen since the 2008 crisis. “But having the globally distributed teams there we were really able to take on the brunt and blunt of what’s happened,” said Trivedi.
Part of the complexity is that financial firms were exposed to local conditions based on public health bodies and government guidelines based on the profile of how the disease spread in countries and their response to the virus. “Despite being a global pandemic, it’s been a highly localized challenge to firms like ourselves,” said Roland Spurr, Chief Administrative Officer, Global Equities at Alliance Bernstein.
But this structure, allowed Alliance Bernstein with $576 billion in AUM to push a variety of workloads to different offices as individual countries responded in cascades to the virus. “Having a large number of globally distributed teams has allowed us to do genuine follow-the-sun workload transfer both with regard to client servicing, research, portfolio management, trading, and all of our support activities,” said Spurr.
Technology standardization was extremely important to Alliance Bernstein’s supporting 4,000 staffers across 51 different locations, said Spurr. One of the realizations was that not everyone working from home had a robust home setup with sufficient laptop and monitor sizes. Providing hardware was key, especially to junior staffers around the world, said Spurr. Alliance supplied a virtual desktop that connects to two servers locally, giving 100% redundancy in each of its sites, so as not to overburden or overload any of its systems, he said.
By having all of its offices on the same technology setup, client service could by handled by a different local office. In a BCP situation, different offices are keeping track of client relationships with the same systems, allowing for a seamless hand-off when clients, prospects, and consultants are speaking to people. “The key for us is that we’ve been nimble and flexible enough that we can get our people to meet our clients virtually in the technology solution that our clients prefer,” said Spurr.
With the rapid switchover to remote work, sell-side firms also planned for some loss of productivity in a crisis. “We have always planned for a team to be down, or a site to be down, and that is part of why being in a globally distributed environment in the U.S. and around the world is part of our BCP plan,” said Kurt Schieding, Corporate Model Risk, Business Strategy & Operations at Wells Fargo. Instead, Schieding said, he was “pleasantly surprised by the ability of teams around the world to come up and work remotely very quickly.” Though he cited minor losses in terms of people being offline for periods of time and not able to work, Schieding said: “In the grand scheme, under a productivity measurement basis, we really didn’t lose much.” Wells Fargo plans look at productivity before the crisis and afterwards, to put some data round its theories, he said.
Panelists views aligned with the results of CRISIL’s survey conducted as a live poll finding that nearly 50% of respondents experienced a marginal rise in their productivity.
Londos said there is a misconception or false expectation around the idea that productivity would go down when a work from home situation would be in place for such a long period of time. Other industries have done this for some time, he noted. In fact, parts of the financial services segment had a very strong first quarter result with 20% growth, he said. Within the U.S., clients in FICC and equities have seen growth of 30-35%. Londos said that could not have happened without productivity stepping up in that area.
However, shifting technology and employees to operate remotely was not flawless.
More than 70% of respondents in a CRISIL GR&A survey listed communications and coordination with global teams as a key challenge and robust IT infrastructure as a primary enabler. Other challenges include third-party partners’ performance risks and information security risks.
For example, asset managers depend on a complex ecosystem of technology providers, valuation services, administrators, and custodians. Many of these suppliers were also working remotely. One concern is that firms relaxed some of their controls on processes.
In moments of crisis, exposure to operational risks, model risks, cybersecurity attacks, and fraud can increase exponentially, cautioned CRISIL’s Londos. On the cybersecurity front, financial firms have seen an increase in phishing incidents and robocalls.
A radical shift from physical to virtual remote processes overnight exposed firms to risks of cybersecurity attacks and fraudulent activity. Thus, one of the best practices to emerge for the future is monitoring both internal and external activity, leveraging intelligent threat services to identify malicious activity, and gathering data to understand the total impact.
Compliance was a key challenge, said Danielle Tierney of Greenwich Associates. “I don’t think that anyone was immune to disruption in this area,” said Tierney.
One distinguishing factor was whether or not firms focused on compliance previously and had invested in compliance tools. “Investment in compliance infrastructure, especially surveillance tools, is not a profit generating function, so it’s difficult to calculate the ROI until you have a real-life use case as we do now,” said Tierney.
An early indicator of compliance issues was the CFTC’s no-action relief for lapses in voice recording. This is a response to widespread inability to comply with voice recording requirements, said Tierney. On March 17, the CFTC gave targeted relief to futures commission merchants, swap dealers, introducing brokers, and other market participants, in response to the pandemic.
“Regulators had the common sense not to punish firms knowing they were going through a difficult time,” said Tierney. “But this is for a limited period and doesn’t excuse any market abuse violations they incurred because of this lapse in compliance coverage,” added Tierney. “No further downtime should happen again,” she said, cautioning that regulators won’t be as lenient the next time since the exact conditions are known.
Return to Work
Now that global economies are reopening, banks and asset managers are planning for a return to offices. How will the best practices learned during the pandemic influence their post-COVID operating reality? Will there be changes to enterprise operating models?
On May 27, CNBC reported that Goldman Sachs is planning on having traders and markets personnel return to offices in the U.S. and London over the next few weeks.
Goldman is not bringing back all of their employees – maybe up to 50% — while social distancing is in place, and will allow employees who don’t feel comfortable returning, to continue to work from home, according to CNBC.
“Remote work is a game changer for all of us, said Alliance Bernstein’s Spurr. Noting that it will change the way that people expect to interact with their employers and firms with their clients. “While there are pros and cons to the current interruptions such as losing personal presence with clients and our colleagues,” Spurr said remote work can be a “phenomenal leveler” which creates opportunities for small asset managers. It will also “allow larger asset managers to rethink their fixed costs and engineer flexibility around them,” he said.
Rather than consolidate into single large offices or operations in fewer regions or locations, which has been the policy since the 2008 financial crisis, larger firms may reverse that strategy entirely as people explore the potential to work remotely on a longer-term basis, he said.
Technology advances in artificial intelligence are going to reduce the number of people needed in the business, he said. The pandemic could accelerate those technology trends, said Spurr.
While there is uncertainty over COVID’s impact on the economy, banks and asset managers are expected to forge ahead with automation projects, and some may leverage their globally distributed teams and back-office locations in less expensive cities.
“The global pandemic has convinced [Goldman] executives to push forward with automating manual processes with technology and to push more people into back office sites in cities like Bangalore, India, Dallas, Salt Lake City and Warsaw, Poland,” wrote CNBC.
Demand for using secure cloud infrastructures is expected to increase, said Tierney. In addition, Tierney said the case has been made for investment in holistic compliance coverage, which means coverage of all sources of data that goes into trade decisions.
But it will not be a return to pre-crisis operating models, especially in compliance. Further investments in compliance tools, secure infrastructure, infosecurity, BCP, and communications will be key enablers to prevent future disruptions.
“More importantly, globally distributed teams are here to stay,” said Londos. “That’s a fact that has been verified by the post-COVID situation.