Murray Bender: RBC Investor & Treasury Services is pleased to present insights on the future of asset and payment services across the globe. Today’s podcast features Ben Pumfrett, Head of Middle Office Product Management at RBC Investor & Treasury Services, continuing our discussion on the investment book of records, this time focusing on how IBOR and a front-to-back solution can support asset managers. Thanks for joining us, Ben.
Ben Pumfrett: Thanks, Murray. Pleasure to be back.
Murray Bender: Ben, there appear to be a number of slightly different views of the middle office and where IBOR fits. Can you provide a simple definition?
Ben Pumfrett: Yeah. So I think everyone probably has a slightly different definition of middle office or investment operations, and it tends to be that 80/20 rule, with the core certainly agreed, and then each asset manager or client having those specific tasks that sit within their middle office, that be that 20%.
Now, really, for us at RBC I&TS, we’ve really focused on four key modules as the core, with that being the transaction management, so the post-execution trade management of trades, that being matching, instruction down to custodians and that settlement tracking; corporate actions, so providing that golden record of corporate events and distribution of any elections; the investment book of records, which we’ll touch on more today, really being that golden record keeping of asset managers for both cash and security holdings; and then lastly, collateral management, so really maintaining details of those collateral agreements, calculating collateral, and instructing movements within parameters set between ourselves and the clients. Often, with middle office, you also see the client reporting for mandates included and performance within that middle office definition.
Ben Pumfrett: So, I think it’s really a different split between the two. So, from a front-office point of view, it’s really that support for the front office. So, post those executions, it’s really that operational activity, and it’s really the data provision back in for the front office. So, particularly the IBOR is often acting as that golden consolidated record, agnostic to custodian or provider. So, it has that single data point to then feed the middle office with updated data around cash projections, holdings, et cetera, or into the risk element from a collateral perspective or exposure perspective.
From a back-office point of view, it really is into more the oversight. So, providing data and oversight of those back-office providers, recognizing that a lot of asset managers and asset owners have multiple custodian provider relationships. The middle office often sits there providing instructions, receiving data back from those back-office providers, and it really acts as that data point to provide oversight or trade settling on time through reconciliations, et cetera, and providing those key data points back, both from an outsourced perspective but also from an oversight perspective of the operations that remain within the asset manager.
Murray Bender: Based on what you’re seeing in the marketplace, Ben, how is the middle office changing? And what’s driving this change?
Ben Pumfrett: I think, really, the middle office is now seen as a vital component within the asset manager’s architecture and operating model. And that’s really driven a lot by the requirement for data by the front office and from an oversight perspective. Particularly the investment book of records or the middle office is that consolidation of data across all of the asset managers’ holdings, back-office providers, and, ultimately, their book of records.
So being able to provide that data in a more real-time manner into the front office and back to the asset managers is key, and I think that’s really where we’ve seen that drive in terms of IBOR and the middle office to have that; not just complete those processing tasks, but actually then have that data available on a more intra-day basis rather than necessarily weekly KPIs or overnight batches of data. It’s really been driven by that requirement to have transparency to the processes in an operating model and intra-day data availability to take back into the asset manager for them to be able to use.
From an oversight perspective, we’re seeing more and more regulatory push to demonstrate that active oversight of outsource providers. And again, that’s where the middle office is providing another role in being that point of contact and consistent operating model and data provider to allow that oversight activity to be performed on an efficient basis and more on an exception basis.
So, that’s another driver we’ve seen for change, is actually not just being able to provision data, but actually be able to provision data in a consumable way for the asset managers, so they can actually complete their oversight on an exception basis, and their time is spent on resolution, not on identification, of those issues.
Probably the very last point, Murray, is from a middle office point of view, is actually, it’s a vital cog in asset managers’ change execution. So, whether they’re looking to expand product ranges, asset classes, jurisdiction, fund launches, the middle office is playing a vital role in actually driving through the operating model to support that, both with the back-office providers, as well as actually consuming that data back into the front office.
Murray Bender: In discussing the middle office and IBOR, we seem to be hearing a lot about front-to-back solutions. What exactly are they? And why are front-to-back solutions rising in prominence?
Ben Pumfrett: Well, I mean, there certainly has been a large focus over the past few years on this front-to-back solution model, and this really comes as we’ve seen several custodians in the market either partner or purchase front-office OMSs (order management systems). And it’s really about building that integration into the front office, like I mentioned earlier. The driver is really that seamless integration into the OMS so that data flow between back and front office is much more on an intra-day, smooth basis than it being in that sort of batched approach with a delay.
That intra-day flow, particularly for the non-initiated fund manager transaction, so maybe collateral, TA flows, corporate actions—is, how do I get that back into the front-office system as quickly as possible to show the impact so that the investment managers can make the most informed decision. And that particularly around cash and liquidity management as well. So, it’s really that seamless integration.
And technology’s helping with that because we’re seeing technology advance. It’s creating that open architecture technology model that becomes much more of a plug-and-play model into those front-office systems, OMS’s, risk management systems. So, the data integration is easier and simpler, and that data can pass through from the back office, through middle, and to the front in a much more efficient way.
The benefit really is creating that standardized integration through that process, across asset classes allows smoother transition when we’re launching new asset classes, new funds, and ultimately, focusing on just onboarding clients onto those standard platforms.