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Transforming Corporate Actions Operations with Innovative Technology

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27 November 2019
Arin Ray

Corporate actions processing has lagged other areas in technology innovation. However, developments in new technology and low-cost operating models offer opportunities for significant improvements.

Applying Intelligent Automation to Improve STP

Several tools and technology—ranging from basic to complex—can be applied to improve automation levels. Simple “vanilla” corporate actions (e.g., dividend payments) constitute the largest share of volume, and are easy to automate; parts of processing steps and client communication can be easily automated using simple rules-based workflow automation and digitalization tools. Automation can be greatly improved by eliminating proprietary standards and adopting the latest industry standards (e.g., ISO 20022). At the next level, application programming interfaces (APIs) can be used to communicate among systems and trigger actions. Developments in new technology such as robotic process automation, artificial intelligence, and machine learning are opening new horizons in the automation journey. These tools can reduce or eliminate the need for manual intervention in several processes and thereby reduce labor costs, chances of errors, and improve STP and productivity rates.

Embracing Cloud To Lower TCO

Capital markets firms are increasingly embracing the cloud. Cloud’s appeal is particularly strong in non-core non-differentiating areas such as market data or reference data, and cloud offers many benefits that are particularly appealing for participants in corporate actions processing. Cloud can lower total cost of ownership (TCO) and simplify implementation and maintenance of solutions compared to the traditional model of on-premise deployment and upfront licensing costs. Most corporate actions solution providers report growing interest and acceptance of their hosted SaaS solutions because of this. As an extension of the SaaS model, we see growing interest and adoption of several other “as a Service” models. Especially in the context of corporate actions processing and similar non-core functions, financial institutions are increasingly looking to outsource complete processes under a Business Process as a Service (BPaaS) basis where not only technology but also business processes are being externalized to expert providers.

Mutualizing Cost and Innovation

The next step in this outsourcing evolution is mutualization and multi-tenancy whereby multiple financial institutions outsource technology and operations to an external provider that provides economies of scale and expertise by using a common pool of resources to drive down unit cost. Banks are particularly interested in mutualizing non-core functions with corporate actions as one of the top areas of consideration. There is a growing realization that it is not optimal for every institution to invest significant resources in conducting non-core functions such as corporate actions, and sharing them among peers under multi-tenancy would be more cost effective. Few banks have the resources and desire to invest in new technologies in non-core functions. On the other hand, technology and managed service providers are better positioned to develop applications of new technology by testing pilots, conducting proofs of concept, and then taking them into production. This provides much cheaper and less risky options for the industry to pursue technology innovation in non-core areas such as corporate actions.

Unlocking the Potential of Blockchain

Blockchain technology has received a lot of attention for its potential to disrupt industry practices in many segments and post-trade processing in general and some functions in corporate actions in particular have seen emergence of uses cases. One such use case is proxy voting, which has traditionally been highly manual and therefore has seen limited participation of shareholders in meetings. Blockchain technology, complemented by digitalization and electronic identity and authentication tools, is being used to automate the proxy meeting process coupled with digitalization. Another area is data management and creation of an announcement repository. Using blockchain, corporate actions data can be captured and stored in a distributed ledger in structured format for use by participating agents in the network.

Time for Action in Corporate Actions

Corporate actions processing has been put on the back burner for too long as financial institutions have been pre-occupied with business and regulatory pressures of the post-crisis era. But the costs and regulatory and reputational risks of erroneous and inefficient processing should not be ignored any more. The good news is that vendor solutions and service offerings have matured in this area, and vendors are offering low-cost best-in-class solutions incorporating new technology and operating models. In the report titled Corporate Actions Processing in the Digital Era: Leveraging Innovative Technology for Improving Efficiency Celent profiles 19 such providers with details on how they are evolving their offerings.