By Tony Collins, Chairman of OPAL, the financial outsourcing company www.opal-uk.com
We live in an increasingly globalised world, particularly when it comes to financial services. Tony Collins, chairman of OPAL, the financial outsourcing company, examines the opportunity for a global standardisation of financial products.
As the finance sector undergoes unprecedented change, the opportunity is there to standardise products. It's not news to anyone that the financial services world is increasingly globalised – something we are reminded about on an almost daily basis following the onset of the financial crisis, with events in Athens, Berlin and Wall Street sending shockwaves around the globe. The crisis has helped to highlight just how interconnected the world's finance industries are as events in one country impact the way firms operate internationally.
The downturn has also made the market a much tougher place, with all-time high levels of volatility and increased competitiveness. However, in spite of the continued doom and gloom, the global marketplace does open a door to a number of opportunities for firms to overhaul their business models in order to emerge in a prominent position on the global stage. The greatest such opportunity is to increase efficiency – you just need to take a look at governments' drastic attempts to make their finances and functions more economical. For financial firms that operate in multiple markets, tailoring their product offering for each individual geography can be time and cost-intensive and providers appear to be missing out on a big opportunity to roll-out standardised products to a global footprint.
Standardising products for an international audience suggests a need to meet similar financial needs across the globe. How has the global marketplace itself been standardising in recent years?
Rapid economic growth in developing markets over the past decade coupled with the sharp slowdown of developed economies since 2008 has evened out the global playing field. The explosive growth of a new middle class in emerging nations, particularly in the BRICs, means that many more consumers in the developing world now have a similar purchasing power and financial needs as those in more developed markets. If this is the case, then why should those markets not be given similar options when it comes to investment, insurance and pension products etc.? After all we all have similar plans and concerns such as saving for our retirement or insuring our valuable possessions regardless of whereabouts in the world we live.
Therefore, financial products of a similar nature are relevant for a much wider, global audience than in previous years. This highlights the potential that a standardisation of product development holds for firms looking to maximise efficiency and global reach whilst minimising time and cost. Uniform products can be designed and developed with only minor tweaking needed at the point of launch across various markets.
Regulatory compliance is driving ever-stricter guidelines when it comes to developing new products. How have trends in the regulatory space also opened the door to global standardisation?
Regulatory bodies have been quick to recognise the need and potential for a global standardisation of rules and guidelines. Although financial markers will always need rules tailored to their specific conditions, we have recently seen a drive by regulatory authorities such as the UK's Financial Services Authority (FSA) and international equivalents to homogenise their guidelines as much as possible. This trend is being driven partially by similar demands from government's worldwide in light of failings that led up to the financial crisis, but also by a universal recognition to make international compliance more achievable for firms. This is especially the case in Europe where the requirements of the single currency and regulatory drives from the European Union automatically cover a jurisdiction of up to 27 member states. For example, the European Banking Authority (EBA) was set up last year to harmonise banking guidelines across the EU.
Legislation surrounding capital requirements is also having an increasingly international footprint, with Basel III banking standards applicable to most markets and similar moves in the insurance sector, such as Solvency II, being replicated in markets around the world like in Bermuda for instance. Some US legislation such as the Foreign Account Tax Compliance Act (FATCA) also has a global jurisdiction, with all banks regardless of their primary location, required to declare US account holders to the American Internal Revenue Service (IRS) for tax purposes.
With most regions of the world in an economically precarious position, time is very much of the essence and cost savings are a priority for many organisations. How does outsourcing allow firms to take advantage of this opportunity in a time and cost-effective way?
The development of financial products depends heavily on consumer demand and regulatory requirements. As these two influencing factors level out across different markets, providers have a chance to streamline the development of their products, which can then be tweaked to suit individual regions and countries. This is where financial services firms can use an outsourcer to their full advantage. A third party will have the expertise and optimum services in place to standardise the product development process as much as possible, which can amount to serious time and money savings for organisations launching products in different markets.
This is an increasingly important priority as firms look to gain a foothold in emerging nations without compromising their operations in the weaker 'core' markets of Europe and North America. By tapping into the international expertise third parties can offer, organisations can increase the global impact of their products. Outsourcers can also act as a bridgehead to launch these quickly and efficiently on a shared risk model. The financial services sector should embrace the integrated international market as it really is too big an opportunity to miss.
OPAL is an FSA-regulated organisation that specialises in launching own label life, pension and investment products on behalf of major financial services clients such as Prudential, Royal Bank of Scotland, HBOS, Abbey, LV=, HSBC, Investec and Virgin. OPAL is one of the leading third party financial product developers and administrators in the UK financial services sector.
For more information visit www.opal-uk.com