It’s time to give the middle office its due.

This much-overlooked function of financial services—which supports the front office with resources drawn from finance, accounting, and IT—bears enormous responsibility. Middle office personnel are on the front lines of regulation, standards, and compliance. They’re also the ones who must keep revenue producers within defined parameters of risk, even as they enable the most advantageous deals they can.

What lies in store for the middle office? Recently, Deloitte surveyed more than 200 financial services executives about technology, transformation, and talent in the industry. Their responses had some interesting implications for the future of middle-office processes.

Automation

First of all, more than two-thirds felt that technology innovation will play a key role in industry change.

The innovations most relevant to the middle office include several financial infrastructure technologies that are under development. Digital identity offers a real-time and trusted means of identifying true legal persons. Smart contracts, also called software-automated transactions, capture obligations among financial institutions so that appropriate actions are automatically executed. Another is blockchain, which provides a safe way for parties to electronically transfer assets to one another without relying on trusted intermediaries.

An application that’s been in the spotlight lately is regtech, or regulation technology. Regtech refers to software applications that help financial institutions meet an increasingly complex array of oversight commitments. More than automate existing processes, regtech can help regulated institutions increase the speed and fidelity of compliance while bringing greater transparency and stability.

Regulation

Regulation was on the minds of our survey respondents as well. Among them, 57 percent believed risk and compliance would be one of the top three business areas most affected by industry changes within the next five years.

That might seem counterintuitive. After a decade of intense scrutiny by regulators globally, firms seem to be sensing some stabilization. At the same time, however, a trend toward financial regionalization has sprung up. Diverging regulatory priorities are leading to the development of financial services models that are custom-built to local conditions. As a result, industry players are forging distinct paths in different regions of the world.

Financial regionalization will mean cultivating locally competitive advantages and integrating with local economies. Overcoming this inefficiency will require risk management, regulatory compliance, quant analytics, and other middle-office teams to work together in an integrated way—and always in alignment with strategy.

Talent

Given these changes, it’s no surprise that almost 70 percent of our survey respondents said an understanding of regulation and risk is the number-one skill needed for success. They also reported that the capacity to anticipate change and evolving trends was important, with more than half saying this was a skill their firms would need.

These sentiments point to a middle office that requires more diverse capabilities than ever. People still have to know analytics and financial modeling in order to carry out risk quantification, portfolio management, and other traditional processes. But now, they also need a deep understanding of local markets and public policy—and they need to be able to connect these insights with their analyses to support strategic decision-making.

As if all that weren’t challenging enough, middle-office staff may also have to get used to a new kind of coworker—artificial intelligence (AI). Already, firms are starting to explore robotic process automation (RPA) algorithms to execute work on existing systems. Just over the horizon are machine-learning algorithms that can, among other things, interpret government regulations.

To find out more about the topic, read our Swiss perspective of the report: Beyond Fintech - Eight forces that are shofting the competitive landscape.

Bob Contri - Global Financial Services Industry Leader, New York

Bob Contri is DTTL’s Global Financial Services Industry Leader, with responsibility for overseeing Deloitte Global’s four financial services sectors: Banking & Securities, Insurance, Investment Management, and Real Estate. He is charged with setting the overall strategic direction and go-to-market strategy for the practice, including helping financial services clients to respond to the myriad regulatory, growth, technology, and innovation challenges present in today’s competitive marketplace.

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Sven Probst - Financial Services and Banking Lead, Zurich

Sven leads the Financial Services and Banking practice in Switzerland. Having started his career as a banker he has been providing external advice and assurance services to the industry for over 20 years. Sven has a broad range of experience and expertise covering governance and control, regulatory challenges, investigations, payments and sanctions, project management, IT and Cyber risk. In his previous life he has also been the CEO of an IT services provider.

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Simon Walpole - Insurance Lead, Zurich

Simon leads the Insurance practice in Switzerland. He is an Actuary by background, and has been with Deloitte or Bacon & Woodrow, an actuarial advisory firm which joined Deloitte, for over 20 years. Simon has worked extensively in Europe, in particular in Switzerland, Germany, France and the UK, and worked between 2002 and 2016 in Asia from Deloitte’s Hong Kong office. He is an expert in life insurance financial reporting, valuation and M&A, and has experience in product development, underwriting, actuarial modelling and pricing analytics. He is part of Deloitte’s global actuarial executive team and leads the firm’s actuarial IFRS17 proposition.

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