SmartStream
A smart eye on expenses
Brokerage, clearing and execution expenses can carve deeply into a bank’s profits but they can be difficult to consolidate, monitor and manage. SmartStream has changed that with its Fees and Expense Management solution, and the manager of that business line, Bharat Malesha, explains how that is an increasingly important element in the company’s product suite and, in particular, its managed services offering.
A
s a bank, doing business incurs many costs, but some have typically been harder to consolidate and manage than others. The financial services industry incurs a multibillion-dollar global spend on variable expenses, but transaction fees – constituting brokerage clearing and execution (BC&E) costs – have often flown under the radar, leading to banks missing the opportunity to measure and optimise their spend. Now, however, there is no reason for those costs to be managed in any way that falls short of optimal. Through the Fees and Expense Management solution from SmartStream, many leading banks have shone a light on their BC&E costs, enabling them to realise considerable savings through effective cost management strategies, and vastly improved accounting and invoice control.
“Our core focus is on providing the ability to maintain client profitability, and increasing both transparency and operational efficiency,” says Malesha. “The transparency we provide across all custody and clearing processes in which a business is engaged enables us to identify the optimal solutions, which is only possible when you have complete and accurate data to analyse a bank’s spending.” SmartStream’s TLM Fees and Expense Management solution can drive savings to the bottom line and enhance profitability through the strategic management of variable expenses, thanks to the implementation of end-to-end automated processes to accurately assess costs across high volumes of transactional information.
The result is near real-time reporting on daily volumes and expense levels to allow trading desks to, for example, maximise the impact of existing fee caps and volume tier discounts. Furthermore, the solution delivers transparent and granular data to regulators when orders are executed. For cost management and compliance, it is a major leap forward.
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“In part through automation, in part through the transparency we deliver on BC&E costs, we can deliver a 2–3% saving annually,” says Malesha. “If a bank is spending $100m each year on those costs, that could add up to a saving of $15m over five years. BC&E costs could, in some instances, be the second-biggest cost item for a bank, so they make a big dent in the P&L calculation.”
A member of the managed services family
The need to explore every avenue to maintain or increase profitability has become more acute in recent years. Regulators now have a keener eye on how fees are constituted and banks have to meet increasingly stringent capital requirements. Add to that thinner margins on transactions and an increasingly competitive market, and there is a clear opportunity for third parties such as SmartStream to help banks optimise their execution processes and identify the potential for expense efficiency and cost control.
“The drive towards managed services has come partly through an overall improvement of the technology infrastructure in recent years, not least the security of cloud-hosting infrastructure like Microsoft Azure and Amazon Web Services.”
The ability for banks to achieve this internally is hampered to a large degree. They are often weighed down by incomplete manual processes, which result in inconsistencies and delays in the gathering of
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