Accenture - 10 Challenges For Investment Banks in 2011 PDF

OUTER
2011
Top 10 Challenges
for Investment Banks 2011
Top 10 Challenges
Top 10 Challenges
for Investment Banks
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Top 10 Challenges
Introduction
Navigating Through
Uncertainty
With leverage no longer an easy option
to drive returns on equity, and
proprietary trading now seen as risky by
both regulators and shareholders alike,
investment banks are faced with the
difficult task of identifying new ways to
propel their returns on equity back to
something close to pre-crisis levels. In
such an uncertain operating
environment, assessing risk, making the
most of existing revenues, and
capitalising on new opportunities have
never been more important.
Introduction: Navigating Through uncertainty
Figure 1: Real GDP Growth (% growth

year-on-year)
US
EU
Emerging & Developing economies
10
8
6
4
2
0
-2
-4
-6
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: IMF, World Economic Outlook Database, April 2010
Focusing on the future:

Investment banks are increasingly operating in a volatile,
resource constrained and highly regulated environment.
Rigorous focus on strategic and operational priorities
provides the key to high performance.
The world economy is emerging from its
most severe recession in over 50 years.
And the mid-term prognosis is still far
from rosy. Recoveries from creditinduced recessions take time. Often
twice as long, in fact, as recoveries from
recessions sparked by interest rates
hiked to contain inflation.
Signs of real structural strength are in
short supply. In the US, although
recovery is underway, underlying
fundamentals remain relatively weak.
The governments stimulus package has
not delivered as significant a boost as
had been hoped. Meanwhile, in Europe,
the likelihood of any sustained
recovery from the worst downturn in 30
years remains at best uncertain. For
the moment, bank lending continues to
be constrained by new regulation such
as Basel III, as much as by now cautious
bankers just when it is needed most.
While banks managed to dramatically

improve productivity over the past two
years, a new wave of banking
innovation and revenue generation has
yet to arrive. The most encouraging
signs of growth are in the emerging
markets highlighted by the IMF for
their exciting catch-up growth
potential. In many of these markets,
escalating levels of wealth point to
accelerating demand for financial
services and products an exciting
opportunity for investment banks,
provided they can tailor their offerings
to suit local requirements.
Introduction: Navigating Through Uncertainty
No surprise that investment banks are

still scrambling to adjust to the realities
of this new normal. In a straitened
operating environment where the only
certainty is increased regulation,
pre-crisis returns on equity (RoE) of,
on average, 20 percent look extremely
optimistic.
As banks seek to identify (and exploit)
every revenue opportunity, they need
to ensure a rigorous focus on strategic
and operational priorities. If they do
not, they risk undertaking a series of
broad-based transformations that
achieve little other than squandering
precious resources and dulling
competitive edge.
To help achieve the focus that we
believe is essential to high
performance, Accenture has developed
a list of the top ten challenges facing
investment banks today. Although
these may not apply to all with equal
weight, each represents a major
concern (and source of opportunity)
for the industry going into 2011
and beyond.
Fundamental macro trends
As they face up to the challenges that
lie ahead, investment banks need to
keep the following six macro trends
front of mind. Each of them, we
believe, will play a crucial role in
shaping the future operating
environment:
1.Demographic challenges
Widely reported, most developed
economies are struggling to come to
terms with seismic demographic
challenges. To varying degrees, these
are set to transform the way people
live and work. Life cycle savings
and ageing populations point to the
need to save in developed economies,
making asset management an
increasingly vital source of revenue
growth for investment banks.
2.Emerging markets growth
Economies experiencing rapid growth,
combined with little well established
competition, offer exciting
opportunities for investment
banks. But the risks, and operational
challenges, of expansion into these
new geographies are still being
potentially underestimated.
3.Technology commoditisation
Technology has repeatedly
demonstrated its ability to
commoditise banking offerings
particularly in non-relationship based,
low value added areas. With
commoditisation increasingly
dominating flow businesses, clearsighted strategic decision-making is
vital. Banks must either make the
substantial investments in straightthrough processing capabilities
needed to achieve economies of scale,
or concentrate on areas such as
advisory, that cannot be
commoditised.
4. Ultimate value to investors

Investment banks have to concentrate
on services and offerings where they
deliver value to their clients, not just
margins to themselves. This makes it
essential for banks to develop deep,
real-time insights into the risk/reward
balance of their products and services.
Investment banking three themes

for the future
With these macro trends in mind, we
have divided the challenges facing
investment banks into three broad
themes:
Responding to regulation
Of course, banks must still take risks
to achieve their targeted RoE, but
they must now do so through a
complex (and still evolving)
regulatory framework. Beyond
question, responding to the postcrisis wave of regulation presents a
major compliance challenge for all
investment banks although new
opportunities will be created from the
market dislocation that is already
underway. From now on, robust risk
management will be a crucial
demonstration of intent to regulators,
as well as allowing banks to shape
regulation and protect shareholder
value. If one lesson can be taken
away from the crisis, it must be that
previous risk governance models were
largely inadequate to shield
investment banks from the onslaught
of systemic turmoil. Going forward,
therefore, banks must commit to
adopting and embedding a culture of
managing risk throughout the
organisation (particularly in the
front office).
5. Re-evaluation of capital
Savings deposits may be the most
desired form of capital, undemanding
and sticky, but those attributes also
make it rare and likely to become rarer.
Investors have many more choices on
where to place their capital and the
amount placed in savings has been one
of the slowest growing of all areas for
over a decade. With this in mind,
investment banks need to re-evaluate
capitals importance in any service of
product and charge accordingly.
6. Resource constraints
Mounting resource constraints point to
gradually rising input costs becoming a
universal backdrop to all business and
banking activity. With oil approaching
peak output, and basic commodity costs
responding to wide demands of
emerging markets, a reordering of
economic priorities looks to be the likely
result. Sustainability is now on the
agenda (as a serious business issue)
across all business sectors and
investment banks must overcome their
institutional cynicism and follow suit
(as well as capitalise on the
opportunities presented).
Driving the client agenda

With proprietary trading operations
being limited by regulators and
questioned by shareholders, the
importance of building (and
maintaining) a successful client
franchise is now critical to the
bottom line. So too is the need to
drive greater efficiencies from
existing revenues. From now on,
banks must focus on providing
integrated client services to attract
and retain client business, as well as
developing the deep analytical insight
needed to monitor and maximise
client returns, and undertaking
realistic assessments of the costs and
benefits of the services that they
provide. As figure 2 shows, the results
of this discipline will allow them to
pinpoint where to invest to achieve
economies of scale, and where to aim
for high-touch differentiation.
Lastly, now more than ever, by taking
sustainability seriously, they
have an opportunity to regain trust
(amongst clients and throughout
wider society), while delivering
returns to their core business through
responsible business practices.
Figure 2: Effective Targeting of Client Offerings
Access
to Core
clients
Access to Capital &

Select Investments
Access to Analysts
Broker reports
Electronic Trading - Direct Market Access
Client Coverage (%)
Source: Accenture Research
High Touch
Banks can find new revenue through effectively

segmenting clients and determining where value is delivered
Realistic assessment of cost and benefits of services need
to be undertaken
Result indicates where to invest to achieve
economics of scale and where to aim for high
touch distinction
Services may well be denied even where marginal
costs are low in order to privide distinction
Objective is not to focus on top 20% to the exclusion of all
else, but to be aware of costs and benefits of eack client
Low Touch
Marginal Value of Provision
Value of Client
Preparing for the new normal

Whilst banks must remain resolutely
focused on the many challenges
of today, they also need to keep an
eye on tomorrow. That way, they
can ensure they are positioned to
take advantage of the next wave of
growth instead of having to react
to it. The banks that successfully
capitalise on future strategic
opportunities will possess acute
strategic insight, be early adopters of
emerging technologies and, critically,
be able to make measured
assessments of tomorrows key
battlegrounds and their chances of
success in each of them.
Unknown unknowns may be
proliferating in todays operating
environment. But one basic fact
remains there are still really only
three ways to make money in
investment banking: take risks, grow
revenues and control costs. This years
report explains why we think banks can
and should keep each of these truisms
in mind albeit, inside a wrapper of
customer centricity, operational
flexibility and risk awareness.
Pinpointing the core challenges
In such a competitive marketplace,
investment banks must move swiftly to
plan and execute optimal responses to
the complex challenges they face. To
help them, Accenture has used its
research, industry expertise and client
insight to pinpoint and examine what
we believe to be the ten key challenges
currently confronting the industry. We
have surveyed over 2000 of our capital
markets professionals across the globe,
and over 200 senior clients, to
determine the Top 10 Challenges for
Investment Banks 2011:
Responding to regulation
1 Responding to the regulatory
tsunami
2 Dealing with OTC derivatives reform
3 Embedding effective risk
management
Driving the client agenda
4 Refocusing on client needs
5 Maximising client profitability
6 Taking sustainability seriously
7 Delivering valuable transformation
Preparing for the next horizon
8 Harnessing innovative technologies
9 Engaging effectively in emerging
markets
10 Picking the right battles.
In this paper, we explore each of the
Top 10 Challenges in detail. For each
one, we describe the background and
context, as well as providing specific
examples of the challenges faced by
many investment banks today and the
reasons why these will be front-of-mind
issues for 2011 and beyond. We also
provide Accentures perspective based
on our research, experience and
insight in the market. Finally, we show
how our proven services and solutions
have already delivered benefits to
clients, helping them to overcome these
challenges in a real world context.
Accenture Experts
Dean Jayson
Senior Executive, London
dean.l.jayson@accenture.com
+44 20 7844 8295
+44 79 5841 4692
Ryan Westmacott
London
ryan.m.westmacott@accenture.com
+44 20 7844 5259
+44 78 1030 4031
James Sproule
London
james.r.sproule@accenture.com
+44 20 7844 3387
+44 78 6680 8366
Introduction: Navigating Through uncertainty
Responding to the
Regulatory Tsunami
Dealing with OTC

Derivatives Reform
Embedding Effective
Risk Management
Refocusing on Client
Needs
Maximising Client
Profitability
Taking Sustainability
Seriously
Delivering Valuable
Transformation
Harnessing Innovative
Technologies
Engaging Effectively in
Emerging Markets
10
Picking the Right Battles
Top 10 Challenges
Responding to the
Regulatory Tsunami
Fears in the financial services sector
of a drastic increase in regulation at
a national and supra-national level
have been realised. With so much
game-changing oversight being
introduced, it is increasingly difficult
for investment banks to ensure
complete compliance while
continuing to make money in an
uncertain market.
Challenge 1: Responding to the Regulatory Tsunami
The recent financial crisis has resulted in

a plethora of governmental and regulatory
actions. As the financial markets begin to
stabilize, governments are now seeking
to develop an improved regulatory
environment.
Shearman & Sterling LLP
And there is little prospect of a more

joined up approach being adopted for
the foreseeable future. In the hope that
they can prevent a similar crisis from
happening again, the tangled web of
regulators and supervisors across the
UK, Europe and the US have all been
introducing significant changes to their
regulations. And in the face of ongoing
economic volatility, national
governments are likely to continue to
plough their own furrows as they strive
to garner political support through new
regulatory initiatives, instead of
focusing on a more systemic approach.
Beyond question, fears in the financial
services sector of a drastic increase in
regulation have been realised, with
ongoing scrutiny of both strategic and
more technical, low-level requirements.
The non-exhaustive list in figure 1 gives
an indication of the range of regulations
currently being implemented around
the world.
Background
Radical (and often uncoordinated) overhauls

of financial sector regulation
Shifting from light touch regulation towards a more intrusive focus
on both strategic and low-level technical requirements
As the dust has settled on the financial
crisis, it is clear that politicians and
regulators are keen to make up for their
perceived lapses in control in previous
years. However, notwithstanding
commitments made at the G20
Financial Summit in April 2009, for a
unified approach, national changes in
financial services regulation since
then have been uncoordinated, often
even contradictory.
Figure 1: Global regulatory landscape

Regulatory landscape
Market changes
European
Supervision
Authority
Rating Agency
Regulation
Financial Stability
Board
Hedge Fund Regulation
FSA / BoE
Too
connected
to fail
Increased
Liquidity
reserves
OTC Derivative
Central Clearing
Exchange
Trading
Securitisation
Treatment
Enhanced Capital
Requirements
Volcker Rule
Risk reporting
and disclosures
Living Wills /
Orderly Liquidation
Banking Requirements
Remuneration
There has been a pronounced shift

away from light touch regulation
(considered adequate pre-crisis),
towards a much more intrusive role
for regulators. Dodd-Frank, Basel III,
Capital Requirements Directives 2 and 3
and OTC derivative clearing regulations
on both sides of the Atlantic, all
examples of this stance, are each game
changers in their own right.
However these are layered with other
ongoing developments including
increased risk and reporting
requirements, stringent oversight of
remuneration and far-reaching changes
in the shadow banking sector. The
combined effect of this onslaught is
difficult to digest and, because
regulations are in continual flux, hard to
plan for with any certainty.
At a high level, bank CEOs and CFOs will have

to develop effective relationship-based links with
the regulators
Key challenges
Reassuring regulators while continuing to

satisfy shareholder expectations
There are strong indications that in the
future, regulators will move away from
deep dive transaction-level audits
towards a more macro approach. This
will be geared to gauging the resilience
(or otherwise) of banks strategic risk
and control frameworks. In the UK, the
abolition of the existing tripartite
regime between the FSA, Bank of
England and HM Treasury (effectively
scrapping the FSA) is symptomatic of
this trend.
So what challenges does this shift
create for investment banks? At a high
level, bank CEOs and CFOs will have to
develop effective relationship-based
links with the regulators. This looks
inevitable and there is already evidence
that some banks are becoming more
proactive in this respect. These new
relationships see bank CEOs
communicating their in-depth
understanding of existing front-to-back
infrastructures and processes, as well as
whatever plans have been developed to
address weaknesses from both tactical
and strategic perspectives.
The writing is on the wall. With little

warning and at short notice, C-suite
bank leaders will increasingly have to
be equipped to provide macro-level
assurances on the state of their risk
and control environments. Inevitably,
therefore, the compliance director
(who will need to support this
relationship-based approach) will
become increasingly influential.
At a more granular level, the key
regulations are set to have a major
impact on the business operations and
behaviours of investment banks
worldwide. In the current economic
climate, it is already hard enough for
financial services firms to remain
profitable, without the added burden
of market changes, costly regulatory
programmes and further restraints on
their business models. In fact, an
Accenture poll of 101 financial industry
executives found that nearly half
(49 percent) thought their profits
would decline as a result of the
Dodd-Frank Acti.
The recent Basel III proposals, although

less onerous than originally expected,
demonstrate how deeply the new
regulations will be felt (see figure 2).
The agreement sets a new Core Tier One
ratio of 4.5 per cent, more than double
the current 2 per cent, plus a new
capital conservation buffer of a further
2.5 per cent, so the rule sets an effective
floor of 7 per cent. Further to this, there
is likely to be local variation as national
regulators determine countercyclical
capital requirements and additional
requirements for systemically-important
institutions. However as with all of
these announcements, the devil is in the
detail and along with the increased
ratios, the Basel committee has also
tightened up the rules around what
can be used as core tier one capital.
This has the potential to cause serious
pain as banks are forced to shrink their
balance sheets and assess the future
viability of business lines with high
capital consumption. We will see
increased levels of retained earnings,
and even capital-raising, to ensure
sufficient capital buffers, all of which
suggests a challenging proposition for
investors (and employees) as dividends
and compensation packages
are squeezed.
The scale of organisational challenges

should not be underestimated. The
combined effect of this new regulation
will require significantly enhanced
business and product transparency.
Costly overhauls and upgrades of existing
infrastructures will be unavoidable.
Additionally, clear control functions,
effective risk management and welldefined processes and procedures will be
important not just to have, but to
continually maintain and improve.
Accenture predicts that the industry will
spend between $3 billion and $5 billion
over the next three years to implement
The Dodd-Frank Wall Street Reform and
Consumer Protection Act aloneiii, and a
recent survey of financial services
executives across the US revealed that 70
percent believed that proposed regulation
would increase costs.
What impact on your company do you anticipate as a result of proposed regulation?
40%
Will weaken competive position
27%
Will stengthen competitive position
48%
Will decrease profitability
31%
Will increase profitability
11%
Will decrease costs
70%
Will increase costs

Will have great impact on long term business
strategies
61%
Source: Accenture researchiv
Tier-One Ratio
Core Tier 1 Ratio
Various hurdles stand in the way of

achieving these goals. As far as
satisfying the regulators is concerned,
poor data, limited understanding of
processes and lack of senior
management sponsorship are common
issues in most investment banks. As a
direct result, regulatory change takes
much longer than it should. It also
consumes far more costs and resources
than would otherwise be necessary.
8.5-11%
8.5%
0-2.5%
0-2.5%
2.5%
2.5%
4.5%
2.5%
2.5%
4.5%
4.5%
2%
Current
Basel II
Regime
Increase to
Core Tier-One
Source: Basel Committeeii
Capital
Conservation
Buffer
Countercyclical
Capital Buffer
Proposed
Basel III
Regime
Core Tier1 =7%
4%
It is clear that there will be winners and

losers as banks emerge into the new
world of regulation. The winners will be
those banks who have been able to view
the changes in a strategic way,
understanding how their business
models need to change, either in terms
of divesting or closing business, or
through regulatory arbitrage across
geographies.
Figure 3: Expected impact of proposed financial services regulation
Figure 2: Building up to Basel III
6%
With so many high-profile regulatory

changes hitting the banks, there is an
enormous amount of pressure on them
to manage these developments as
quickly and effectively as possible. As if
this was not challenging enough, they
must do this while satisfying increased
demands for the creation and delivery
of robust shareholder value.
Our perspective
Enabling a continuous cycle of risk and

control enhancement
Figure 4: Regulation-related costs over three years

Discipline
Data
Finance
Risk
Operations
Technology
Total
Costs (US$m)
90
230
260
200
120
900
Source: Accenture research
FTE (per year)

90
280
360
290
115
1135
Regulatory change is notoriously

difficult for investment banks to
implement. In large part, this is because
the timescales are immovable
something that banks find extremely
difficult to work with. In fact, the only
variable that banks can change is the
budget available for regulatory projects.
And in our experience, throwing money
at the problem is commonplace, with
projects often running at least two to
three times over budget.
According to our estimates, over the
past three years an average bank will
have spent up to $900 million on
regulatory change-related programmes,
as well as tying up huge numbers of
resources. With such large numbers at
stake (see figure 4), poor delivery can be
very costly indeed.
The problem is the current wave of regulation is

bringing several regulatory programmes of this scale
together at the same time.
History has shown us that

implementing a single regulatory
change, such as MiFID and Basel II, has
caused major problems for
implementation, with many banks still
struggling to integrate the changes into
their existing systems. Successful
responses to these regulations were
those that tackled the challenges
through a strategic and co-ordinated
response that embedded the changes
within both business and operating
models, rather than implementing
short-term tactical solutions to
the regulations.
The problem is that the current wave of
regulation is bringing several regulatory
programmes of this scale together at
the same time. More than ever, banks
need to ensure that they fully
understand the new regulations and the
effect on their business.
Based on Accentures extensive

experience in implementing large-scale
regulatory change programmes, we
have developed a framework for
translating and mapping regulatory
change requirements to improved
system architecture and process
changes. By using this approach, banks
can ensure that they are driving
through their implementations as
efficiently and effectively as possible.
With a delivery methodology specifically
designed for strategic regulatory and
operational implementation across
financial services organisations, we
enable banks to create, develop and
deploy new governance structures, risk
and control frameworks and processes
for ongoing monitoring and
effectiveness assessments. As well as
satisfying regulators demands for
ongoing oversight, these structures and
processes inject discipline and rigour
into the change process.
The objective is not just to make the
required changes on time and within
budget, but also to do so strategically.
That way, it will be easier to manage
further regulatory change as part of
a continuous cycle of risk and control
enhancement.
The objective is not

just to make the required
changes on time and within
budget, but also to do
so strategically.
Additionally, the bank needed to

increase its Regulatory Capital
Reporting capability to achieve daily
reporting for multiple asset types (from
an existing monthly reporting basis).
Using Accenture Target Operating Model
design and Basel II Regulatory Capital
assets, the Accenture team identified
the key objectives of this project:
In practice
Developing a single operating model view

for regulatory capital reporting
A major European investment bank
urgently needed to develop a common
operating model view across multiple
areas of the enterprise, including Risk,
Finance and Technology, as well as
putting in place and delivering a multiyear strategy and plan for delivering on
that model.
There were two principal drivers for this
project. First, having evolved over time,
the banks Basel II Regulatory Capital
Reporting environment (spanning
technology, data, process and
organisation) was fragmented, with
multiple tactical systems, parallel
processes, data issues and control gaps.
The net effect was unnecessary
production pressure and significant
regulatory risk.
Achieve a common Target Operating

Model design (encompassing Risk and
Finance systems, data process and
governance) to simplify and
consolidate the reporting process,
enabling a daily reporting capability
Bundle aspects of the Target
Operating Model design into logical
projects and agree the prioritisation
and plan for project delivery
Secure long-term funding approval
for change and deliver projects.
Accenture supported the bank by
facilitating workshops and deep-dive
analysis geared to achieving a common
Target Operating Model design across
multiple stakeholders each with their
own business priorities. As a result, the
team achieved a single and agreed
delivery prioritisation schedule and plan
spanning a number of years, as well as
securing senior buy-in and funding
and implementing a multi-year
delivery programme.
By using the proprietary Accenture
assets, the team was able to successfully
implement numerous technology and
process change projects, including:
Migration to a single Regulatory
Capital platform and reporting
process redesign
Delivery of multiple risk system
enhancements
Migration to daily reporting process
across multiple asset classes
Mechanisms put in place to identify
and remediate regulatory
compliance gaps.
Accenture experts
To discuss any of the ideas presented in
this paper please contact:
Chris Thompson
Senior Executive, New York
chris.e.thompson@accenture.com
+1 917 452 4986
+1 917 378 1409
Peter McCloskey
London
peter.mccloskey@accenture.com
+44 20 3335 0876
+44 77 4079 9130
iSource: Accenture
(US Financial Regulatory Reform: Cost or Opportunity?,

June 2010)
iiSource: Basel Committee Press Release
(BIS, September 2010). Note = capital ratios refer to
proposed ratios as of 1 January 2019, and are subject to
phase-in arrangements. Proposals are draft and are
subject to ratification by national authorities.
iiiSource: Accenture
(US Financial Regulatory Reform: Cost or Opportunity?,
June 2010)
ivSource: Accenture
(US Financial Services Regulation Survey, June 2010).
N=102 (33% C-suite, 20% VP/SVP/EVP, 24% MD/Director,
24% Senior Manager/Manager)
Samantha Regan
New York
samantha.regan@accenture.com
+1 917 452 5500
+1 404 790 7378
Top 10 Challenges
Dealing with OTC

Derivatives Reform
Banks are seeking to develop cohesive
responses to ongoing OTC derivatives
reform in the US and Europe. Although
the combined impact of these reforms
is still unknown, it is clear that the
industry landscape will be significantly
transformed.
We will see derivatives moved through
clearing houses [and] traded
on exchanges.
Senator Chris Dodd, April 2010
Challenge 2: Dealing with OTC Derivatives Reform
The Wall Street reform bill will for the

first time bring comprehensive regulation
to the over-the-counter derivatives
marketplace.
Gary Gensler, Chairman, Commodity Futures Trading Commissioni
Background
Reforming the maligned derivatives industry

Although the end-state of the OTC derivatives market following
this major regulatory thrust is still unclear, there is no questioning the
commitment to major reforms on both sides of the Atlantic
Accounting for 90 percent of the global
US$605 trillionii derivatives market, the
over-the-counter (OTC) derivatives
market was widely viewed as a catalyst
of the financial crisis. Light on both risk
mitigation and risk management, it is
blamed for facilitating the build-up
of excessive exposures, as well as
operational inefficiencies, complexity
and an overall lack of market
transparency.
In July 2010, President Obama signed

into law the Dodd-Frank Wall Street
Reform & Consumer Protection Act.
This introduced an extensive set of new
regulations that focuses on both
reducing counterparty risk and
increasing transparency. The Act
mandates the establishment of a new
regulatory structure, limits on
proprietary trading and the reshaping
of regulation on swaps trading
(including the spin-off of certain swaps
trading operations into separately
capitalised businesses). Amongst other
consequences, the Act may have a
negative impact on capital efficiency,
as well as significantly reshaping banks
operating models to ensure greater
market transparency and reporting.
The Act is extensive in its scope, though

the focus of this discussion is around
the ongoing shift of bilateral and
uncollateralised transactions towards
regulated markets and central
counterparty (CCP) clearing. This move
seeks to lower systemic risk in the OTC
derivatives market. However, while the
Obama Administration is clearly
applying pressure on Wall Street, and
encouraging similar action from the
European Commission, it is still too early
to evaluate the exact impact of this
concerted effort to reform the OTC
derivatives market on investment banks.
What is clear, however, is that the

combined effect of these major reforms
will significantly transform the industry
landscape. The challenge for investment
banks is one of staying ahead of the
regulatory curve as it continues to
evolve. The focus throughout this
transitional phase and beyond must be
on ensuring agile decision-making
processes. These will be key in enabling
rapid responses and gaining competitive
advantage in a fast-evolving
marketplace.
Figure 1: The regulatory outlook for OTC derivatives
Regulation
Implications
Central Clearing
Financial Companies to centrally clear swaps

(grandfathering of existing swaps)
Exception: Non-financial companies
(end-users) exempt
Liquidity demand of high initial margin

Daily variance margin
Cash form of margin
Exchange Trading
All standardised swaps to be exchange-traded,

where an exchange/ASEF exists
Exception: Non-financial companies
(end-users) exempt
Inability to customise (important for hedging)

Standardisation of swaps
Increasing volumes
Swaps
Push-Out
Certain swaps trading operations to be

transferred into separately-capitalised
non-bank entities
Exception: Hedging own risk, IRS, FX, and some
metals (gold, silver, etc.)
US only
Majority of market is exempt from requirement
(IRS=72%, FX=8%)
Capital Requirements
Conservative requirements for dealers and

major swap participants for cleared swaps
Higher capital requirements for dealers on
OTC positions
Increasing trading costs

Increased focus on efficient capital allocation
Margin Requirements
Stringent initial margin requirements with

clearing houses
Further daily variance margins
Minimum margin requirements under debate
for OTC
Tightening spreads
Daily margin calls
Higher OTC trade costs
Post-Trade Reporting
Real time price and volume reporting

(T+1 for OTC)
Existing swaps also to be reported
Overseen by CFTC/SEC in US and new
ESMA/ESRB in EU
Price transparency
Standardisation of swaps
Reporting infrastructure implications
Sources: Deutsche Bank, Shearman & Sterling LLP, Accenture analysis
US
EU
In executing their chosen market

strategy, we believe banks immediate
efforts should be focused on External
Positioning and Internal Strengthening:
External Positioning
The priority here is to develop a focused
business response to the fundamental
market change brought about by the
Dodd-Frank Act. The consequences of
the Act are still to be fully understood
within the industry, though the need to
clear OTC derivatives through central
counterparties (CCPs) indicates that this
topic alone will demand strategic
thinking at the C-suite level of
investment banks.
Key challenges
Strengthening the core to execute

market strategy
These regulatory developments place
extreme and far-reaching challenges on
investment banks (see figure 3). Already
struggling to address wider financial
sector reforms, the priority for banks
must be one of determining a viable
strategic response to the shifting
regulatory environment for OTC
derivatives, and understanding the
internal transformation across people,
process and technology required to
bring this to life.
Figure 2: Revenue opportunity presented by the shift of OTC derivatives
to clearing through CCPs
Client trading
revenue
Agency
commission
Revenue
opportunity
Execution only
service provider
Full service
provider
Clearing
commission
Interest
income
Clearing only
service provider
Note: Illustrative only. Relative shares of revenue source will vary by Investment Bank.
The scale of work involved in shaping

banks market responses should not be
under-estimated. Accenture Research
suggests up to 65 percent of industry
OTC derivatives could be eligible for CCP
clearing by 2013iii. Given this significant
scope of trades that could be eligible
for CCP clearing and as greater market
transparency drives compression of
margins, banks must be prepared for a
decline in the revenues generated on
a per trade basis. The upside for
investment banks will be the significant
increases in trade volumes driven by the
shift of OTC derivatives to clearing
through CCPs and the likely mid-term
consolidation amongst clearing houses.
The industry experience of the
electronification of exchange-traded
derivatives in the early 2000s serves to
corroborate this hypothesis;
commoditisation following
electronification led to volume growth
of over 400 percent from 2000 to 2010,
whilst average spreads felliv.
The main challenge for investment

banks is one of developing a client
offering that protects existing revenue
bases whilst capitalising on new market
opportunities driven by this evolving
regulatory landscape. The first challenge
that banks face, then, is to determine
their strategic response.
Strategically, banks are deciding

between two key responses to the
market changes: whether to develop
clearing capabilities or outsource this
service to third party providers.
Building clearing capabilities opens up
the market opportunities of offering a
full service to clients across both
execution and clearing, or acting purely
as a clearing broker for those clients
that opt to execute their trades with
other market players. This latter
response seeks to capitalise on the
market dislocation and the creation of
what is effectively a new market for
derivatives clearing services. These
services include clearing access, crossmargining, multi-asset risk
management, and client reporting. For
those banks unwilling to develop these
capabilities, outsourcing the clearing
process to a third party provides a
viable option to staying in the market
whilst stopping short of investing in
capabilities that will deliver a full
service to clients.
Regardless of the strategic response
adopted, the revenue opportunity from
the shift of OTC derivatives to clearing
through CCPs is significant
(see figure 2).
Internal strengthening
Investment banks must ensure a rapid
response to developments being driven
by regulators (including greater use of
electronic execution, mandatory use of
CCPs for all eligible products,
registration of all trades in central data
depositories and enhanced risk
management). Particular areas for
attention include:
Upgrading ageing and inflexible
legacy applications to increase system
capacity that will enable growth
under a new market infrastructure
Understanding the complex change
in operations needed to address the
shift of various asset classes onto
exchanges and electronic trading
venues for subsequent clearance
and settlement of CCPs
Challenge
Challenge
2: Dealing
2: Dealing
with OTC
withDerivatives
OTC Derivatives
ReformReform
Figure 3: Summary of challenges facing investment banks

Function
Challenge
Impact
Front-office Systems
Integrate with new market models

as they evolve and with downstream
applications
More change whilst BAU (Business

As Usual) continues to add complexity
Trade Capture/Booking
Multiple affirmation & matching

system connectivity
Uncertainty around which trade venues,

matching venues and affirmation
platforms and clearing houses to support
Pricing & Valuations
Use in-house derived prices for

valuations or EOD (End of Day)
exchange prices (exchange arbitrage)
Different exchanges will close at

different prices though a standardised
approach across the bank must
be implemented
Margin Calculation & Collateral
Listed products vs OTC who

will reconcile the collateral calls
and margins?
Process split between Prime Brokerage

and OTC
Client Reporting
CCP model increases collateral activity

and valuations
Strain on legacy processes as trade

volumes increase and clearing specific
information is required, including trade
level detail to align with CCP reporting
Settlements
Multiple clearing house methodologies
New processes and controls need to be

designed and integrated
Product Control
Clear handoffs between Product Control

& Finance required
New processes and controls need to

be designed and integrated
Legal
Differing legal frameworks in

different jurisdictions
Increased complexity in client

onboarding
Credit Risk Management
Managing all the moving parts new

collateral types, ISDA agreements,
individually-negotiated Netting rules
Co-ordinated effort required to leverage

inflexible legacy applications
Default management
Will banks be forced to cover Variation

Margin for clients who declare
bankruptcy?
Balance sheet reporting
Controllers need to clearly define

reporting flows for Agency vs Principal
trades, as this has a direct impact on
upstream business and technology
processes
Risk finance integration
How will banks update their models and

ensure that market risk is integrated at
the point of execution for OTC client
cleared trades?
Confirmations and Documentation
BAU or new process
Modification of existing controls and

processes required to preserve straight
through processing
Fees and Billings
New reconciliation requirement
One size fits all approach isnt viable

flexible rules & tables, legacy
applications
Processing
New ways of working required

New internal front-to-back processes,
controls and hand-offs to be understood,
documented and signed off
Finance & Accounting
Our perspective
Market opportunity abounds,

but diligence in managing operational
complexity will be essential
Accenture is currently working with
seven of the top ten global investment
banks on business change projects
driven by the shift of OTC derivatives to
clearing through CCPs. Based on our
experience, we believe that:
New market opportunities are
available and must be seized.
As the buy side is forced to clear OTC
trades through CCPs, new revenue
opportunities will be generated from
clearing commissions and margin
interest. The increased securitisation
of trades is also set to drive up both
liquidity and trade volumes.
Accenture estimates that the market
for derivatives clearing services across
Credit, Rates and FX could be worth
US$10 billion by 2013v
To capture this prize, banks will

have to successfully manage
complex operational change.
A first step for some may be to
conduct a cost-benefit analysis to
ensure the projected volume of their
derivatives business makes
investment worthwhile. Assuming
compliance does make sound
economic sense, the key to
competitive advantage will lie in
successfully building scalable
solutions for electronic execution and
cross-asset clearing processes around
trade capture, collateral and netting
Winning outcomes will hinge on banks
adopting and embedding strategic
responses (rather than pursuing tactical
approaches that vary by asset class).
Such strategic responses will include
delivery against a global cross-asset
vision that focuses on improving client
access to services and the development
of a scalable set of capabilities that
support all existing and future
electronic trading venues, affirmation
platforms, CCPs and other key market
infrastructure players. In particular, the
following capabilities will be essential:
Scalable Trade Capture and

Processing & IT Infrastructure
Securing connectivity to market-wide
tools that enable optimum trade capture
across products and increased
automation in core trade processing
engines to improve efficiency will be a
key requirement. This infrastructure will
provide the foundation on which banks
can industrialise their offering to
manage the high volumes that will
ultimately generate scale economies in
the clearing and trading of OTC
derivatives on exchange.
Global cross-asset risk policy
Banks must develop an intra-day risk
monitoring capability that ensures
proactive management of banks
exposures to individual clients and CCPs.
Identification of exposure limits in line
with banks own policies and regulatory
mandates will be fundamental, as will
the use of consistent methodologies to
measure risk exposure across asset
classes.
Global cross-asset collateral

management
Optimised collateral management across
OTC and CCP clearing, with crossproduct netting leveraged wherever
possible, will be a key facet of the client
proposition. Banks will effectively need
to develop a consolidated ledger to
report and control both the collateral
placed by clients, and in turn the
collateral placed by banks with the CCPs.
Optimised balance sheet and
risk-weighted asset (RWA) usage
and funding
Optimised balance sheet and RWA usage
will inform banks allocation of scarce
resources to the most profitable client
relationships. Producing detailed, clientlevel management reporting will ensure
ongoing diligence in these allocation
decisions and the subsequent refreshing
of banks client portfolio as appropriate.
Accenture worked with the client to

define a robust strategic response that
was geared to achieving three primary
objectives:
Articulating and quantifying the
client value proposition and business
opportunities arising from the shift
of OTC derivatives to clearing
through CCPs
Defining the new Target Operating
Model and the changes to people,
process and technology that would
enable this
Defining a transformation roadmap
of projects needed to execute the
business strategy
In practice
Seizing the opportunities from OTC-CCP

Fuelled by escalating regulatory
pressure, widespread uptake of CCP
clearing for OTC-traded products is
expected by 2013. To seize the
opportunities flowing from this
paradigm shift, a global investment
bank plans to expand its franchise
through its leading Exchange-Traded
Derivatives (ETD) and FX businesses into
Rates and Credit.
The programme helped drive the client

towards its vision of becoming a
leading provider in this space through
four key areas or work:
1 Client value proposition: The bank
was able to define its market
differentiator to prospective clients,
ensuring it could win new business
that supported its growth objectives
across asset classes
2 Revenue model: The bank understood
the size of the prize across each
main asset class, and could therefore
calibrate its go-to-market approach
accordingly to fully exploit the
available opportunity
3 Target Operating Model: The bank
could develop a new way of working
that would provide the foundation
for its operations and growth under
the industry shift brought about by
OTC derivatives reform
4 Transformation roadmap: The bank
could mobilise a multi-year change
programme to deliver its target
capabilities
Accenture experts
Dean Jayson
dean.l.jayson@accenture.com
+44 20 7844 8295
+44 79 5841 4692
Anastassia Khomenko
Paris
anastassia.khomenko@accenture.com
+33 1 53 23 61 85
+33 6 32 27 08 90
Ben Shorten
London
benjamin.j.shorten@accenture.com
+44 20 7844 7212
+44 77 3661 0252
i Source: Financial Times, 11 August 2010

ii Sources: Bank for International Settlements (December
2009), Quarterly Review

iii Source: Accenture research
iv Source: Bank of International Settlements (September
2010), Quarterly Review

v Source: BIS, DTCC, Euromoney, Accenture research.
Assumes product CCP eligibility by 2013 of 90% for
credit, 70% for rates, 15% for FX.
Top 10 Challenges
Embedding Effective
Risk Management
Regulatory demands for enhanced risk
management are now a fact of life for
investment banks. However, instead
of adopting reactive approaches to
these demands, more fundamental
reappraisals of enterprise risk
management (ERM) are needed. Until
joined-up ERM cultures are embedded
throughout the organisation, the
business value that can and should be
generated from substantial risk-related
investments will not be realised.
Challenge 3: Embedding Effective Risk Management
The best enterprise risk management

practice is to have business managers,
profit centres, business unit heads and
functional heads really assuming full
responsibility and accountability for the
risks they take.
Axel Lehmann, Chief Risk Officer, Zurich Financial Servicesi
Background
Moving towards true enterprise-wide risk

management awareness
Although multiple tools have been developed to address identified risks,
these are still far from integrated.
One inevitable consequence of the
financial crisis, and the regulatory
deluge that ensued in its wake, has been
a complete reappraisal of risk
management. As well as playing a vital
performance-related role, risk
management is acknowledged to play
an essential part in vouchsafing banks
wider role in society.
However, while most investment banks

now recognise risk as a major feature
on board-level agendas, only the most
mature amongst them have truly
embedded a culture of risk management
throughout their organisation.
As a result, although multiple tools have
been created to address identified
risks, these are far from integrated.
This is supported by independent
research:
According to a recent Economist
Intelligence Unit reportii, only
13 percent of respondents believe
their organisation to be very
effective at instilling broad-based
risk awareness.
This is at odds with management
thinking outside the industry, where
60 percent of companies see
embedded ERM as the critical
objective of any risk management
programmeiii.
Accentures recent survey of financial

services firms found that the
primary strategic planned response to
regulatory change was to further
tighten risk management processes
across the enterprise. See figure 1
The reality is that most investment
banks continue to see risk management
as a process for managing management
or worse, managing regulators.
This ignores the clear benefits that flow
from enterprise-wide risk management
cultures, both in terms of improved
business decision-making and as the
foundation for strategic agility and
commercial success.
For as long as top-down approaches to risk management fail

to connect with bottom-up tools development programmes,
risk management will fail to deliver the level of protection
(and business benefit) that it can and should provide.
For as long as top-down approaches to

risk management fail to connect with
bottom-up tools development
programmes, risk management will fail
to deliver the level of protection (and
business benefit) that it can and should
provide.
However, while investment banks are
only too aware of the disconnect
between front-office risk management
and back-office risk control, the
challenges that must be overcome on
the road to joined-up, enterprise-wide
risk management are substantial.
Figure 1: Expected strategic responses to proposed regulatory reforms

Tighten risk management
Implement cost reductions
Change pricing structure
Focus more on core competencies
Launch new product or service lines
Enter new market or customer segments
Implement change management program
Divest business or geographic units
Decrease Headcount
Merge or acquire other companies
Launch new business or geographic units
Increase headcount
Shut down product or service lines
Relocate headquarters or business unit locations
No strategic change
Other
54%
44%
39%
31%
29%
28%
26%
25%
24%
21%
20%
18%
16%
10%
5%
1%
0%
10%
Source: Accenture (US Financial Services Regulation Survey, June 2010).
20%
30%
40%
50%
60%
While each of these is significant,

because the tone of an organisations
risk management culture is set at the
top, senior management sponsorship
and board-level commitment should be
viewed as the foundation for any
successfully embedded ERM
programme. Board buy-in establishes
priorities, sanctions resource allocation
and, crucially, is a key factor in building
the appropriate top-down approach.
Key challenges
Weak integration across risk-related data,

reporting and analytics
In other words, top-down impetus is

vital. So is bottom-up implementation.
However, all too often poor data, weak
reporting and inadequate analytics
obstruct the quality and flow of risk
management information needed by
professionals throughout the
organisation and particularly at midlevel, the stratum where day-to-day
activities are most likely to be exposing
the business to risk.
Multiple challenges confront banks

efforts to embed enterprise-wide risk
management cultures. Individually and
combined, these have undermined the
success of many initiatives to date.
So although investment banks are

continuously reacting to new regulatory
demands, their responses are seldom
grounded in integrated, enterprise-wide
risk management behaviours.
AONs Global ERM Survey 2010

identifies four high-level challenges:
Lack of skills necessary to embed
ERM (according to 34 percent
of respondents)
Lack of senior management
sponsorship (31 percent
of respondents)
Lack of any clear implementation
plan (28 percent of respondents)
Failure to communicate the case for
change (27 percent of respondents)
Beyond the behavioural level, challenges

abound in the storage, management
and analysis of data. Specifically, how
can investment banks meet the
requirements of the various consumers
of risk management information in their
organisation? This means confronting
a number of issues, including:
Board buy-in establishes priorities, sanctions

resource allocation and, crucially, is a key factor in building
the appropriate top-down approach.
Talent fighting off competition from

other banks and/or regulators for
highly-skilled, but limited resources
(including analytics experts)
Consolidation integrating systems
architectures that are still
fragmented along traditional silo, risk
and business lines
Quality building accountability for
data quality throughout the
organisation so that end data, when
used, can be completely trusted
Structure constructing appropriate
feedback loops for controlling
risktaking behaviours, including
compensation-linked incentives.
Last, but certainly not least, the impact

of substantial and ongoing regulatory
change will reduce firms profitability
while consuming costs and other scarce
resources (in Accentures 2010 risk
survey, 70% of respondents expected an
increase in costs, 48% expected a
decrease in profitability). The challenge
here is to balance the requirements of
regulatory compliance with the wider
transformation needed to embed risk
management at all levels while
minimising long-term cost impacts.
Figure 2: Impact of regulation on profitability
Increase: 31%
Figure 3: Impact of regulation on costs
Increase:
Decrease: 48%
35%
30%
Decrease:
11%
56%
60%
32%
70%
50%
24%
25%
21%
40%
20%
20%
20%
10%
5%
30%
14%
15%
12%
6%
2%
2%
0%
10%
2%
9%
2%
0%
0%
Increase Increase
11-20%
more
than 20%
Increase
1-10%
No
impact
Decrease Decrease Decrease

11-20% more
1-10%
than 20%
Source: Accenture (US Financial Services Regulation Survey, June 2010).
FF
Increase
Increase Increase No impact Decrease Decrease Decrease
1-10% 11 - 20% more than
more than 11 -20% 1-10%
20%
20%
Source: Accenture (US Financial Services Regulation Survey, June 2010)
FF
Challenge
Challenge
3: Embedding
3: Embedding
Effective
Effective
RiskRisk
Management
Management
The traditional view of risk

management as policeman
or second line of defence
must be continually
challenged.
Our perspective
Truly mature ERM demands a proactive

approach from the organisation.
As investment banks move towards
embedding enterprise-wide risk
management, Accenture believes their
approach must embrace Culture &
Performance, Risk Functions and
Leading Practice.
Culture & Performance
The traditional view of risk management
as policeman or second line of
defence must be continually
challenged. The objective must be to
replace this outdated view with deep
enterprise-wide collaboration and
feedback loops that reinforce proactive
discussion and implementation.
The following stand out:
Collaboration decision-makers
across the business must have
access to appropriate risk metrics so
that risk management can be
included in all decisions
Internal controls rather than
resenting the constraining effect of
risk management programmes, it is
important that managers must
recognise these as enablers of
business objectives
Individual and organisational goals
ensuring that individuals needs
are aligned with the wider needs of
the business, especially through
compensation structures
Performance measures defining
pragmatic measures that
acknowledge risk taking and problem
prevention, balancing future goals
with an effective early-warning
system.
Risk Functions
The Risk departments traditional
functions data gathering, reporting
and analysis must be subjected to
constant review. This should focus
on a number of priority areas:
Organisation high performing
investment banks continually strive to
break down silos between mid and
back office
Data gathering to ensure that all
parts of the organisation receive a
single version of the truth, data
acquisition must be standardised
and simplified (without losing
the flexibility needed to reflect
business changes)
Reporting uncluttered with
irrelevant detail, reports should
enable effective business decisions,
while being available rapidly enough
to support trading and management
decisions
Common analytics able to learn
from unexpected and/or extreme
events, the models used must be
updated accordingly and subjected
to continuous stress-testing (calling
for closer integration with front
office risk management systems
and processes)
Strategy risk must be aligned with
other key management decisionmaking and corporate governance
processes (particularly with CFO and
CEO-level processes).
Embedding leading practice

We know that truly embedded ERM
moves from a reactive approach to
a more mature and proactive
configuration. Accenture regularly
assists organisations in evolving from
the former state (where risks are simply
identified as hazards that interrupt
routine operations) to the latter
(where more sophisticated threats
and opportunities can be identified).
Based on this experience, we can point
to the following as hallmarks of
organisations with an advanced and
deeply embedded understanding of risk:
Constantly scanning for shifts in
market/stakeholder expectations,
regulatory developments and new
models of leading practice
Continuously assessing the robustness
and integrity of their risk profile
Accurately measuring whether their
risk management actions are
actually reducing exposures
Using post-implementation reviews to
show whether or not lessons are
being learned and integrated into risk
profiles, especially after extreme
or unexpected events.
Accenture regularly assists

organisations in evolving
from the former state
(where risks are simply
identified as hazards that
interrupt routine operations)
to the latter (where more
sophisticated threats and
opportunities can be
identified).
As well as benchmarking the status of

their current ERM capability, this tool
allowed the bank to identify the gaps
between its As-Is and To-Be target
maturity levels) and supported the
creation of the roadmap needed to
achieve the key objectives.
In practice
Enabling sound, risk-based decision-making

To facilitate this process, the team
used Accentures Risk Management
Maturity Model (see below). This tool
helps organisations assess the
maturityof their ERM capabilities
overall, and across the five key areas
crucial to enabling sound, risk-based
decision-making Organisation &
Governance,Process, Analytics,
Reporting and Data Management.
In common with many of its peers, risk

and compliance functions in this
leading global bank were run as silos,
fragmented under each business line.
And at a more fundamental level,
technology infrastructures were
fragmented across Credit Risk, Market
Risk, Finance and Treasury.
Struggling with losses of over US$60
billion related to subprime lending,
management recognised that the
current operating model was
fundamentally flawed. Accenture was
asked to develop a new risk
management operating model,
integrating previously siloed functions
into an enterprise-wide capability.
Risk Management Framework

Key Components for Risk Based Decision Making
Organization /
Governance
Enables
Working with the board down, the

Accenture team introduced
industrialised real-time reporting,
aiming to equip decision-makers with
relevant metrics that could be trusted to
provide accurate insights.
More broadly, the Accenture team

championed deeper awareness of risk
culture throughout the bank, developing
performance-linked long-term metrics
to incentivise behaviours. To ensure
sustainable and fully-integrated ERM
transformation, the team embedded
the performance management process
within the change management function.
Risk management
process
Risk analytics
Performance Management
Risk Culture
Systems and Technology
Regulatory Compliance
Reporting
Information Mgt /
Data Governance
Accenture experts
Steve Culp
steven.r.culp@accenture.com
+44 20 7844 4855
+44 77 7581 8701
Ashley Davies
London
ashley.davies@accenture.com
+44 20 7844 0058
+44 77 6850 5950
Takis Sironis
London
takis.sironis@accenture.com
+44 20 3335 0457
+44 77 4094 9497
iThe Economist Intelligence Unit, Rebuilding Trust:
Next steps for risk management in financial services, 2010

ii The Economist Intelligence Unit, Rebuilding Trust:
Next steps for risk management in financial services, 2010

iii Aon Global Enterprise Risk Management Survey 2010
Top 10 Challenges
Refocusing on
Client Needs
Driven by shareholder demands and
regulatory pressure, investment banks
are going back to basics shifting the
emphasis from complex product
innovation towards increased client
intimacy. The priority now is to better
align service offerings with clients
needs a significant challenge for the
majority of banks that have neglected
client service-based investments in
recent years.
Our first priority is and always has been to

serve our clients interests.
Goldman Sachsi
Challenge 4: Refocusing on Client Needs
Background
Banks that can truly understand and

meet client needs will stand out from
their competitors
Post-crisis, a number of trends are driving leading investment banks
to refocus on client relationships
In the years leading up to the financial
crisis, investment banks moved away
from their historical role as
intermediaries, concentrating instead on
developing complex products and taking
on risk through proprietary trading
activity. Now, however, spurred by
shareholder demands, regulatory
pressure and a transformed competitive
landscape, banks are refocusing on
client relationships. Major drivers
behind this trend include:
A renewed long-term focus on

agency business over proprietary
trading (fuelled by the need to de-risk
and repair balance sheets, and in
response to regulatory developments)
Key client segments increasingly
value trusted relationships over the
continued innovation and
proliferation of complex products.
Reduced buy-side willingness to trade
complex high-margin products has
forced investment banks to refocus
on some of their more commoditised
offerings (e.g. execution of exchangetraded securities). With little
product/service differentiation in
these areas, banks have an
opportunity to seize competitive
advantage through superior
client service.
The rise in multi-asset trading,
the attractiveness of emerging
markets and the proliferation of
electronic trading platforms are
driving clients' demands for banks to
deliver an integrated service offering
spanning regions, products and
channels. The varied needs of
different client segments (institutions
versus hedge funds, for example) only
make this a greater challenge.
Key challenges
Investment banks need to integrate their

client strategy across regions, business units
and channels
In recent years, most investment banks
have neglected investments in their
client service offerings. As a result,
many of them are struggling to develop
greater client intimacy by better
aligning service offerings with
client needs.
Based on our experience, we see banks
facing systemic difficulties in four major
areas:
Client Strategy
Many investment banks lack an
integrated client strategy spanning
regions, business units and products.
Hampered by siloed departmental
structures, they are struggling to meet
mounting client demands for uniform
service levels across geographies and
product segments. Additionally, because
few banks have a deep understanding of
client profitability, most of them are
unable to assess their clients true value
to the bank meaning that they
continue to over-serve and under-value,
as well as failing to manage the long
tail of unprofitable clients.
This strategy shortfall extends to

channel considerations. Unlike their
counterparts in the retail-banking
sector, many investment banks have yet
to develop cohesive channel
management strategies that integrate
voice, face-to-face, electronic and selfservice channels. Defining entitlement
and service levels across channels (by
client segment and priority) are critical
in ensuring clients service expectations
are met profitably.
Many investment banks also still lack a
consistent and complete set of metrics
for managing the sales organisation.
Without this there is a lack of common
and truly effective incentives to
promote client focus and greater levels
of cross-selling.
Client service delivery

processes need to be
sufficiently adaptable so
that exceptions can be
accommodated for highvalue clients, whilst ensuring
that the majority of clients
can be processed (eg.
onboarded) and serviced
efficiently.
Client Service Delivery Model

Servicing clients is no longer just about
sales. Instead, it increasingly means
providing a seamless front-to-back and
cross-product service. Sales teams in
many banks are, however, not well
equipped to facilitate this. This is
because investment banks still view
client service delivery as a discrete set of
processes, rather than considering the
end-to-end service proposition across
all stages of the client life-cycle (from
client prospect to client exit).
Client service delivery processes need to
be sufficiently adaptable so that
exceptions can be accommodated for
high-value clients, whilst ensuring that
the majority of clients can be processed
(e.g. onboarded) and serviced efficiently.
Client Insight and Relationship
Management
Sales mentalities focused on pushing
product present a significant barrier to
understanding client needs. In
particular, this can mean that client
issues are not properly understood at an
institutional level, with no mechanism
in place for identifying and validating
client needs. Client insight is also
limited by the fact that banks often fail
to sufficiently institutionalise their
client insight, with client relationships
often owned by individual sales staff
who can be easily lost to competitors.
A limited understanding of client needs
and their service history across markets
and products limits the ability to target
advisory services and cross-sell
additional products. Cross-selling is also
often hampered by salespeople having
insufficient knowledge across products
and asset classes, and lacking the
incentives to develop it.
Integrated technology support has a key

role to play in supporting relationshipbased client insights, enabling data
capture across the various client touch
points and powering sophisticated
analytical capabilities. However,
solutions such as CRM tools are still
sometimes seen as inhibitors rather
than sales enablers, despite such
systems offering potential beyond
contact and call-sheet management.
Leading CRM platforms provide rich
client management information,
supporting sales/trading team
collaboration and issuing actionable
client alerts based on market
developments.
At many banks CRM remains
insufficiently integrated with other
systems (trade data, onboarding, etc.)
and common desktop applications
(Outlook, Excel, etc.). This limits the
ability to automate the tracking of sales
interactions, a fundamental requirement
for building client insight and tracking
whether service delivery is aligned with
strategic priorities.
Additional challenges arise from
usability and system performance
issues, both of which continue to
present significant barriers to CRM
adoption at investment banks.
Salespeople have come to expect these
tools to match the simplicity and
customisability of Web 2.0 applications
(e.g. social networking platforms),
whereas few custom-built CRM
applications match this capability.
Our perspective
Embedding top-down commitment to the

new strategy
The client strategy, often

best led by a Head of Client
who is not product aligned,
must mesh priority client
segments with overarching
product and channel
strategies.
Developing an integrated
client strategy
Only an ambitious client strategy that
covers the banks regions, client
segments and product areas can deliver
on the crucial objectives of integrated
and consistent service delivery, deeper
client insights and improved client
penetration. Any drive towards this goal
must start at the top with committed
senior-level engagement. At large
banking groups, consideration should be
given to whether or not to extend the
investment bank client strategy to
group level. But any decision to do so
must not be taken lightly even leading
banks have struggled for years to make
this work effectively.
The client strategy, often best led by a
Head of Client who is not product
aligned, must mesh priority client
segments with overarching product and
channel strategies. This approach needs
to consider access levels to advisory
services, and other premium services
by segment.
Flexibility is key. The integrated client

strategy should not inhibit a degree of
local adaptation, nor should it prevent
product desks from developing their
own client prioritisation criteria. Instead,
the strategy should provide an
overarching framework, creating a
common purpose while enabling
individual product areas to maximise
their own revenue potential.
Aligning the client service

delivery model
If they are to better meet client needs,
banks must re-evaluate their front-,
middle- and back-office processes. As
things stand, many have already made
good progress in tailoring client-facing
front-office processes to different client
segments (e.g. meeting hedge funds
cross-product requirements). But
because too many middle- and backoffice processes are one size fits all,
they are unable to meet the needs of
particular types of client.
Banks should also consider the overall
client experience across all aspects of
service delivery and all stages of the
client lifecycle. Only a delivery model
that spans and integrates all these
elements will attain outstanding levels
of client service. See figure 1
Figure 1: Effective client service is about much more than sales a wide range
of supporting functions and sales enablers must be considered
Strategic Marketing and Sales

Selling
Function
Flow Product
and Channel Sales
Structured Product and

Channel Sales
Research and Advisory

Services
Service Delivery Management
Service Delivery
Service
Delivery
Trading
CreditControl
Operations
Compliance
Client
Enablement
Client Onboarding / Maintenance
Culture, Incentive and Reward
Client Data and Document Management
Information Acquisition and Analytics
Developing deeper client insight

Investment banks have to understand
the evolving needs of client segments
and those of individual clients. Recent
experience shows what can happen if
they do not. For example, many banks
were too reactive in recognising the
rising trend of hedge funds using
multiple prime brokers to reduce their
single counterparty risk, which caused
some players to lose market share.
Leading banks are not only able to
anticipate such trends, but also have
concrete client insight and data to
inform their response and monitor
developments in their clients activities.
Customer Relationship Management
(CRM) tools are a vital element in
providing the front office with access to
such client insight. Rich client
management information is required at
every stage of the client lifecycle, and
at every stage of the sales process.
Leading CRM platforms, whether
inhouse developed, or customised
vendor suites (e.g. Salesforce.com,
Microsoft Dynamics, Oracle CRM)
aggregate client data across multiple
data sources to provide a rich single
view of the customer. Increasingly,
the same tools are being used across
the front office and support functions
such as Credit Risk and Operations who
can review client profiles using a
custom view. It is hugely useful for staff
working in these areas to be able to see
the same data on, for example, a clients
onboarding status or assigned
prioritisation segment. Work processes
become less fragmented, duplication
of effort is avoided and a more
seamless customer experience ensues.
Developing a high performance CRM capability is much more

than a technology challenge.
For the front office to directly benefit

from CRM and to drive broad adoption,
it is important that these systems
provide functionality such as:
Automated tracking of client
interactions across all channels
(voice, email, chat, etc.) through
back-end integration. Client profiles
that are developed over time can be
mined for trends and shared across
the organisation
Allowing salespeople to manage
a client project across structuring
and trading by collaborating on
a single platform
The ability to manage and service
clients directly from within a single
application (e.g. to distribute research
content directly to a client when
viewing their client profile)
Reporting and other management
information that provides salespeople
with insights into how they are
spending their time and how this
corresponds with actual sales/trades
Increasingly, sophisticated analytics are

being used to give salespeople greater
insight, helping them respond more
rapidly to changes in client needs,
identify cross-selling opportunities
and match trade ideas with customers.
Developing a high performance CRM
capability is much more than a
technology challenge. Such tools will
only deliver success when they are
aligned with a clear and embedded
client strategy within a culture that
strongly encourages adoption and an
incentive system that rewards it. Senior
management buy-in, with a strong
mandate that all client contacts must be
tracked electronically, is vitally
important to ensure the necessary
momentum is sustained.
In practice
Enabling enterprise-wide client insight

This global investment bank lacked a
client strategy that clearly articulated
how its service proposition would adapt
to meet evolving client needs. Having
conducted extensive interviews with
senior global management and some of
the banks key clients, Accenture built
on these insights to develop an
integrated client strategy, including
prioritised objectives and metrics and
a target operating model, before
undertaking detailed process
engineering and enhancement.
Core to this project was the
development and implementation of a
new technology architecture for crossproduct CRM. To achieve this, Accenture
undertook in-depth evaluations of
vendor and custom-build technology
options to support integrated CRM
capabilities. Having canvassed detailed
requirements, the team designed and
implemented the CRM platform
supporting a 4,000-plus user-base.
Accenture also took responsibility for
managing the global deployment of this
solution, as well as coordinating all
user training.
Benefits delivered
As well as enabling the bank to segment its
client base and vastly improve its
understanding of clients cross-product
requirements, this project also meant that
the banks change portfolio could be
mapped against a refreshed target
operating model.
Additional benefits included increased
understanding of client profitability and
through the new CRM platform seamless
integration between distribution and
communications channels. Because this
platform delivered a simpler (but more
powerful) user experience, aligned with
analyst/salesperson workflow, it also
significantly lowered barriers to CRM
adoption across the organisation.
Accenture experts
James Woodhouse
james.woodhouse@accenture.com
+44 20 7844 4415
+44 78 3623 3985
Cathinka Wahlstrom
cathinka.e.wahlstrom@accenture.com
+1 917 452 5897
+1 917 414 1055
Robin Martin
London
robin.martin@accenture.com
+44 20 7844 6464
+44 77 3914 2895
iSource: Goldman Sachs, Annual Report 2009
Top 10 Challenges
Maximising Client
Profitability
Facing reduced leverage and with
proprietary trading revenues in decline,
investment banks are refocusing on
client business. In this environment,
increased client profitability will prove
crucial to achieving pre-crisis levels of
profitability.
Regulatory changes could significantly
lower investment bank profitability.
J.P.Morgani
...tiering customers by profitability

would give us a deeper understanding of
their requirements and help us to actively
manage our client base.
Standard Bankii
Challenge 5: Maximising Client Profitability
Background
Investment banks will increasingly depend

on client business to generate profits
There is mounting pressure on leverage and proprietary trading
two of the principal pre-crisis drivers of profitability
Increasingly today, banks are focusing
on client portfolio optimisation. This is
because, with reduced leverage and
proprietary trading in decline, client
business represents an attractive source
of future profitability.
Figure 1: Selected banks leverage ratios

2500%
Average Leverage
2000%
Top 5 Average Leverage
1500%
1000%
500%
0%
2000
2001
2002
2003
Source: Bloomberg, Accenture researchiv
2004
2005
2006
2007
2008
2009
2010
Reduced leverage
While banks will continue to use
leverage, the higher cost of debt means
that leverage rates will inevitably fall.
This will make it harder for them to
maintain their historic return on assets.
A reduction in leverage from 95 percent
of capital to 66 percent, for example,
could reduce average return on equity
(ROE) from approximately 15 percent to
10 percentiii. Figure 1 below illustrates
the continuing trend of deleveraging in
the industry as banks return to a stable
long-term average leverage ratios, and
begin to face the challenge of restoring
pre-crisis revenues in the absence of
this leverage.
Loss of proprietary trading revenues

Part of the recently enacted Dodd-Frank
Act, signed into law by President Obama
in July 2010, the Volcker Rule sounded
a death knell for proprietary trading by
investment banks. Of course, these are
early days. There is continuing
ambiguity around the precise definition
of proprietary trading (excluding, as it
does, market-making activities, riskmitigating activities and activities on
behalf of customers). Furthermore,
potential opportunities for regulatory
arbitrage have been created by the
exclusion of foreign trading (outside
of the US) by non-US banking entities.
But despite current uncertainty over
the substance of regulation, banks that
generate a significant proportion of
revenues from proprietary trading can
be certain that they will face significant
challenges to these revenue streams.
A number of banks including
Goldman Sachs and J.P. Morgan
have already announced the closure
or reorganisation of their proprietary
trading desks in response. Indeed,
Accenture estimates that between
US$2.5 billion and US$12 billion of

proprietary trading revenues are at risk
across the five largest US investment
banks as a result of the Volcker Rulev.
The impact of the regulation on foreign
banks operating in the US is not yet
clear, but could be even wider than
initially expected.
In sum, headwinds from regulation
and market forces are challenging two
key drivers of profitability from the
pre-crisis era. This is leaving banks with
a stark choice: either accept a future
of reduced earnings, or approach
client business with renewed focus
on understanding (and maximising)
client profitability.
Key challenges
Most banks have only limited understanding

of client value
Improved client profitability will be key
to replacing those revenues previously
derived from high leverage ratios and
lucrative proprietary trading desks.
Clearly therefore, a key challenge facing
investment banks is that of how to
increase client revenues whilst reducing
client cost-to-serve.
The challenge is considerable. Accenture

analysis of a sample of three leading
investment banks showed that:
20 to 50 percent of clients in those
organisations were unprofitable;
10 percent of clients generate over
80 percent of revenues, on average;
very significant variations in client
profitability exist between desks.
Figure 2: Illustrative Client Revenue Segments
Cumulative Client Revenues
High value; generate >80% net revenues
Low value; generate <20% net revenues
Erode
value;
revenues
below
breakeven
threshold*
Erode
value;
revenues
below
breakeven
threshold*
# Clients
*Breakeven threshold to be determined based on core costs

of annual KYC and credit check
The causes of these inter-desk variations

typically differ from bank to bank. That
said, differences in client types
(corporate vs institutional), desk-level
client data sophistication and
technology maturity are all common
explanations. Each points to an urgent
need for tailored client servicing
requirements by desk. It should,
however, be noted that where clients are
trading cross-asset, client profitability
should be viewed holistically, at an
enterprise level.
The long tail of unprofitable clients (see
Figure 2) presents some tough questions
to management. Can these profiteroding clients be transformed into
valuable relationships? Or should they
be terminated in a way that maintains
brand value and reputation?
At the same time, the fact that most

banks rely on a small proportion of their
clients for the majority of their revenues
gives real cause for concern. As clients
can easily be lost in such a competitive
environment, banks should be
mitigating this risk by developing a
broader and more diversified client base
in tandem with more effective client
retention strategies.
As they move to address these issues,
banks are hampered by the lack of any
holistic approach to client relationship
management. Because sales are
rewarded according to revenues (sales
credit) and not profitability, the typical
view is that any client is a good client.
Additionally, clients have, until now,
been given little incentive to
concentrate their share of wallet with
fewer sell-side providers.
Of course, many banks have attempted

to address the issue of client
profitability over the years. But success
has been limited. Only a few such
programmes have resulted in any
ingrained understanding of client value
or, crucially, of the data architecture and
management information (MI) needed
to support this on an ongoing basis.
Based on Accentures experience, we
believe that a successful outcome
hinges on banks recognising (and
addressing) two key implementation
challenges from the outset:
Hazy management view of client
base. Very few banks have the
detailed MI needed to understand
their client base. Even fewer have a
data architecture capable of mapping
trade-level client costs to revenues.
This lack of insight into client
portfolios must be addressed before
any optimisation can begin.
Stakeholder scepticism. Because
previous attempts to address this
issue have failed, resistance to
change is a major issue. Key
stakeholders (particularly in Sales)
have not historically been
incentivised to consider client
profitability or client value, making
them sceptical of client profitability
data especially where it diverges
from the sales credit data on which
their remuneration is typically based.
They will also have concerns over

top-down approaches to client
portfolio optimisation that ignore
more diffuse aspects of client value
(such as flow generated from highvolume clients and managing client
prospects). Because any successful
attempt to address client portfolio
issues must first secure buy-in from
Sales, the solution must explicitly
address these concerns.
As clients can easily be lost

in such a competitive
environment, banks should
be mitigating this risk by
developing a broader and
more diversified client base
in tandem with more
effective client retention
strategies.
Accenture experience has shown the single greatest

obstacle to success in optimising client portfolios is a lack
of senior sponsorship from Sales and Trading
Our perspective
Banks must combine tactical and long-term

solutions to maximise client profitability
Client-Specific Costs
e.g. Attributed
Sales costs
Trade-Level Client
Costs
e.g. Operations, IT,
Finance costs
Universal Client Costs

e.g. KYC, credit check
Client-Specific Costs
e.g. Minimum Sales
margin
High
Consensus on cost allocation
Phase 1: Tactical
In the short-term banks should focus on
achieving stakeholder sponsorship and
proving the case as the foundation for
a more comprehensive strategic
solution. Accenture experience has
shown the single greatest obstacle to
success in optimising client portfolios is
a lack of senior sponsorship from Sales
and Trading.
Clearly, data is key here without
detailed trade-level cost data, a true
view of client profitability is hard to
assemble. But management needs to be
pragmatic throughout this phase.
See Figure 3
Low
Data complexity
High
Figure 3: Client Cost Matrix
Given the profound challenges facing

banks in this critical area, Accenture
proposes a two-phased solution for
maximising client profitability. The first
Tactical phase is geared to securing
stakeholder buy-in and proving the
case. This provides the foundation for
the second Strategic phase which
establishes a detailed client
segmentation structure, supported by
robust client data, reporting and
governance frameworks.
Low
This dataset can be used to raise a

number of questions with Sales,
providing them with an opportunity to
rectify unprofitable relationships with
light-touch actions:
Pragmatism in this context means

beginning with simple data that is
commonly agreed upon by stakeholders
across the business. We propose a
simple methodology that combines
widely accepted client costs (Universal
Client Costs in Figure 3) and maps these
against revenues. KYC (Know Your
Client), credit check and other
indisputable client costs are combined
to determine a minimum breakeven
point that can provide a revenue
threshold from which to identify
known unprofitable clients. Before any
discussion of revenues, we recommend
gaining consensus on this breakeven
point; rarely will senior stakeholders
dispute these costs, and once they are
mapped against revenues there can be
little room for disagreement.
1 Identify erroneous costs e.g. clients

who are supposed to be e-execution
only and are calling up Sales
and Research
2 Discuss high volume yet unprofitable
clients with Sales. Are there pricing
tactics that can be taken forward
rather terminating relationships?
3 Identify marginal clients who may
be pricing with the bank but not
transacting, and identify
opportunities to improve revenue
capture
Once there is common agreement on
a set of unprofitable clients, the first
battle has been won, and this sets the
stage for developing a wider-reaching
segmentation programme.
Phase 2: Strategic
In the long term, banks should have in
place a robust approach to client
profitability that incorporates focus on
Total Client Value (TCV), rather than just
revenues. This focus must permeate the
entire organisation from
management, to Sales and Trading and
support functions.
In practical terms, this means extending
Phase 1 into a sustainable client
segmentation programme. Using the
minimum breakeven methodology,
revenue thresholds should be agreed
(and reviewed on an ongoing basis) with
varying levels of service, and therefore
cost, at each level. These thresholds
should remain the basis for determining
segments which, at their most basic,
should correspond to those highlighted
in Figure 4.
Figure 4: Identifying baseline segments

Illustrative
Revenue Band
Response
Proposed Action
> US$100k
Protect &
Grow
Focus on protecting and growing relationships

with the most valuable clients. Premium offerings
include higher sales/client ratios, increased
solution-driven sales, and full access to research
materials.
US$50-100k
Industrialise
Focus on minimising the cost-to-serve of this

low-revenue client base. Initiatives include
restricting access to high-cost Sales staff,
referring client queries to a low-cost service
centre. Restriction of trading to e-channels
for eligible products. Restricted access to
research materials.
< US$50k
Offboard
If client remains in this segment for two

consecutive years, the relationship should be put
into a dormant state (credit checks and KYC
allowed to lapse, uncompetitive pricing, no
proactive Sales contact).
High-value
Low-value
Unprofitable
The benefits delivered by adopting a

holistic, strategic approach to client
segmentation include:
1 Client costs reduced: Client cost-toserve can be substantially reduced
because costly clients at the bottom
of the value chain are removed
(reducing credit check, KYC, sales and
other enterprise costs), and the cost
base of low-value clients is minimised
through industrialisation. Lower cost
channels are mandated, replacing the
need for expensive salespeople for
this segment.
2 Client revenues increased: Because
higher revenues carry the promise of
better service, clients are incentivised
to move up the value chain. Sales
can positively market to clients the
advantages of consolidating their
broker relationships so the bank
achieves a greater share of wallet,
and the client achieves improved
service.
3 Refocus on profitability: Internally,

banks will benefit from an enterprise
focus on profitability rather than just
revenues. Sales can now be
incentivised to deliver against
profitability targets rather than sales
credit, and management can benefit
from significantly enhanced insights
into client portfolios, which can aid
decision-making and ensure a laser
focus on value creation.
A number of considerations arise from
the proposal to segment clients. We
have recommended solutions for these
in Figure 5.
Figure 5: Recommended Solutions
Challenge
Solution
Salespeople will be incentivised to propose their clients

in higher value segments to ensure the best service for
their clients, and potentially secure higher sales
credits/remuneration for themselves.
The approach to managing client prospects needs to be addressed in a holistic

fashion, to avoid the distorting effects of incentivisation. Revenue targets for the year
need to be agreed and monitored, and Sales staff remunerated not only on sales credit
achieved, but also on meeting pre-agreed sales targets. Senior Sales
management should sign off the assignment of clients to segments.
Managing
Exceptions
In determining client profitability, a number of cases

for exceptions are likely to emerge. For instance,
a client may be unprofitable at the investment bank
level, but have a highly profitable relationship with the
corporate banking division that may justify maintaining
relationships.
A comprehensive exception methodology needs to be developed as part of the governance

for client segmentation. Prior to offboarding clients, a number of mandatory checks
should be performed to confirm that there is no profitable relationship with another
business line or client entity that could be jeopardised.
A robust methodology should be in place, providing clear guidance on how to approach
such exceptions.
Incentivising
Clients
Banks may question the reputational benefits

(and costs) of client segmentation, particularly when
competitors may be less sophisticated and operate
without segmentation. It is therefore important to be
aware of the carrot as well as the stick for clients.
Clients should be made aware of the client offerings at each segment level, including
an articulation of the benefits of consolidating broker spend and moving up the segment
ladder. The offboarding process should be kept confidential, and should be executed using
the soft-boarding approach outlined above to avoid any negative impact on clients.
Whilst boosting top-line revenues by incentivising

increased client share-of-wallet, there is a risk that
banks do not complete the process by realising cost
savings from offboarding and industrialisation.
As part of the offboarding process, exact targets for cost reduction must be identified
and delivered upon. For example, if KYC and credit check costs are identified as a key cost
saving from offboarding unprofitable clients, then actual savings must be realised in these
departments to deliver the overall profitability benefits. Similarly, industrialisation
programmes for the low-value segment will require a reorganisation of Sales staff to
deliver tangible cost savings.
Sales
Incentivisation
Realising Cost
Savings
The project was then able to use this

threshold to determine the proportion
of the client base likely to be
unprofitable (with revenues under this
threshold for two consecutive years),
and thereby identify the optimisation
opportunity. As part of this study, the
team developed an Access tool to
consolidate revenue extracts from
multiple desks, regions and systems and
combine this with cost thresholds to
provide concise management reports,
enabling critical management decisions
In practice
Client profitability assessment and

strategic portfolio optimisation roadmap
A global investment bank engaged
Accenture to help it understand client
profitability, recommend quick-win
solutions and develop a roadmap for the
strategic optimisation of its client base
to enhance profitability across asset
classes. Although this client had a
limited understanding of its client base,
management believed that the bank was
serving a large tranche of unprofitable
and low-value clients.
The Accenture team initially focused on
investigating the current state of client
profitability, developing a light-touch
methodology that would be readily
accepted by sceptical Sales and Trading
stakeholders. This involved agreeing a
minimum acceptable breakeven point
for a profitable client based on known
client costs of annual KYC, credit check
and attributed sales costs.
Having identified the opportunity and

socialised the findings with key
stakeholders in the business, a proposal
for client portfolio segmentation was
prepared, including recommendations
around the client service offerings for
each segment. The project team
prepared a roadmap for delivering this
segmentation and presented the client
with a robust business case for
the investment.
Benefits delivered
Accenture presented the client with
a clear view of its client portfolio across
asset classes, and a reusable tool for
consolidating client revenues and costs
across desks and systems. The analysis
confirmed managements hypothesis
concerning the large tranche of
unprofitable clients, and went on to
quantify the optimisation opportunity.
The project team prepared a robust
proposal and roadmap for client
segmentation, along with a business
case for carrying the project through
to delivery and realisation of client
profitability enhancement.
Accenture experts
Joakim Mellander
joakim.mellander@accenture.com
+1 917 452 2267
+1 917 539 9266
Thomas Syrett
Paris
thomas.syrett@accenture.com
+33 1 56 52 71 20
+33 6 83 66 03 80
iSource: JP Morgan research note
iiSource: City Fios:
http://www.cityfios.com/pdfs/City_Fios_Standard_Bank_
Case_Study.pdf
iiiSource: Accenture Research, June 2009
ivSelected Banks = HSBC, Bank of America, JPMorgan,
Citi, BNP Paribas, ING, Goldman Sachs, UBS, Socit
Gnrale, Deutsche Bank, Barclays, Credit Suisse, Credit
Agricole, Morgan Stanley, Merrill Lynch, RBS, Standard
Chartered, RBC, Bank of Montreal, Bank of Nova Scotia,
CIBC, BBVA, Unicredit; Top 5 Banks = Goldman Sachs,
UBS, Morgan Stanley, BNP Paribas, Merrill Lynch). Note:
Merrill Lynch figures are to 31 December 2008 and are
incorporated into Bank of America figures thereafter.
vSource: Deutsche Bank, company filings and
presentations, Accenture analysis; sum of revenues at
risk at BAC, JPMC, GS, MS, Citi assuming range of 2-10%
2009 core trading revenues derived from proprietary
trading.
Ronan OKelly
London
ronan.okelly@accenture.com
+44 20 7844 0155
+44 79 4671 2749
Top 10 Challenges
Taking Sustainability
Seriously
Although investment banks direct
environmental footprint may be
minimal, their ability to influence the
economywide footprint is unparalleled.
Aside from the direct reputational
benefits; advances in technology,
increasing environmental regulation
and, most importantly, customer
demand, all mean that there is now
a risk-adjusted, profitable business case
for taking sustainability seriously.
Challenge 6: Taking Sustainability Seriously
The business case for J.P.Morgan to

address sustainability is that doing so will
lead to both improved profitability and
responsible corporate citizenship.
If there were no climate change issue, no
sustainability concerns and no natural
resource constraints, it would still make
perfect sense to use resources most
efficiently.
Jim Fuschetti, Managing Director of J.P.Morgans Office of Environmental Affairs
Background
Investment banks have an unprecedented

opportunity to finance, and thereby influence,
sustainable behaviours by businesses
and consumers
Properly addressed, sustainability plays a vital role in building
and protecting long-term business value
For an investment bank, sustainability

means the ability to combine social,
environmental and economic results to
make a positive impact both on the
organisations own future and on
that of the world in a way that builds
shareholder value and trust in
the organisation.
There is an enormous opportunity for

doing so. Estimates vary of the capital
required to fund the roll-out of low
carbon technology, however the Green
Investment Bank Commission estimates
an amount of 550 billion could be
required for investment in supply chains
and infrastructure in order to meet UK
climate change and renewable energy
targets between now and 2020i.
Globally, The Stern Report valued the
level of investment to address climate
change at 1% of global GDP. Recent
analysis finds investments equivalent to
approximately 2% of GDPii,iii. At US$44
billion in Europe, this is significantly
short of the US$329 billion level of
investments implied from the 2% GDP
investment targetiv. Investment banks
have a significant opportunity to bridge
this widening investment
carbon chasm.
Despite financial services being one of

the worlds least carbon-intensive
industries, banks manage over US$16
trillionv of investable assets globally.
That gives them a unique opportunity to
provide new financial products and
meet the demand of businesses and
consumers from the transition to the
low carbon economy.
Because banking is such a diverse

sector, any strategic approach to
sustainability will vary according to
individual banks. But definitions aside,
sustainability for investment banks is
fundamentally about delivering the
right products and services to the right
customers, in the right way and at the
right time. It is very important not to
confuse the idea of being in
business, with the ideal of being an
environmentalist. Banks are
intermediaries and within this
role, have the opportunity to craft
solutions that meet client needs. Those
that do this stand to reap substantial
business and reputational benefits.
Sustainability must focus on strategic

imperatives: growing new business,
optimising and protecting assets,
strengthening the licence to operate
and driving operational efficiency.
Ultimately it is about building trust.
The trust of customers and the trust of
government. Provided this focus is
maintained, investment banks will see
their efforts translate into the creation
and protection of long-term business
value. This is supported almost
unanimously with the findings of the
United Nations Global Compact (UNGC)
and Accenture joint survey which
canvassed the views on sustainability of
over1,000 CEOs globally. 97 percent of
bank CEO respondents consider
sustainability to be very important to
the future success of their business.
Indeed, 80 percent of bank CEOs believe
that the economic downturn has
actually raised the importance
of sustainability as an issue for
top managementvi.
Sustainability is not a new concept for

investment banks. Stewardship was the
founding principle on which the
Quakers helped build Friends Provident
over a century ago. This manifested
itself in their stewardship funds
perhaps one of the origins of the
socially responsible investment
movement. The social investment forum
estimates socially responsible investing
(SRI) in the US now
encompasses an estimated US$2.71
trillion out of US$25.1 trillion
investmentvii, with similar proportions
throughout the UK and Europe.
Fast-forward to todays volatile postcrisis environment, and sustainability
has a crucial role to play providing
investment banks with a lens through
which they can shape their strategy and
operations to regain public trust and
achieve tangible business outcomes.
It is very important not to

confuse the idea of being in
business, with the ideal of
being an environmentalist
Sustainability is not a separate department and it

must not be perceived as such
Key challenges
Embedding sustainability to achieve tangible outcomes

At a high level, one of the principal
challenges for investment banks is to
find ways of addressing, and
overcoming, continuing deep-rooted
institutional cynicism around this issue.
Our experience shows that the best way
to approach this is by appointing a
senior-level owner of sustainability for
the organisation. But that is only the
first step. Too frequently, where this has
been done, we find that the front
office remains largely unaware of any
such initiatives.
The next challenge therefore is to
ensure that awareness of this
commitment is consistently
communicated throughout the business.
Sustainability is not a separate
department and it must not be
perceived as such.
Although there is no one-size-fits-all

approach, the best way of ensuring
organisation-wide buy-in (and an end
to cynicism) will be to identify which
sustainability drivers will impact the
business and, more specifically, what
actions can be taken to create tangible
and quantifiable outcomes.
These outcomes can be summarised

as follows:
Strengthening the licence
to operate
Rebuilding trust sustainability,
properly embedded, can provide the
foundation for regaining and building
the trust of key stakeholders
(investors, consumers, governments
and regulators).
Increasing and protecting revenues
Unlocking new business opportunities
identifying products and
services that support the transition to
the low carbon economy, with the
ability to deliver revenues at the same
or lower risk than alternatives.
Optimising and protecting assets
Managing environmental and social
risk exposure translating
environmental and social risk
exposure into credit and market risk
to guide business/investment
decisions.
Driving operational efficiency
Streamlining operations identifying
how best to streamline the banks
operations, from stripping out
redundant processes through to
ensuring energy efficiency across
the organisation.
Figure 1: Investment Bank sustainability drivers and tangible outcomes

Sustainability
Strengthening the licence to operate

Rebuilding Trust
Research of Dutch investors showed that trust within an listed company can increase the probability of investors buying a
companies stock by 50 percent and raises the share of wealth invested in stocks by 3.4 percentage points vii
Increasing & protecting

revenues
Optimising & Protecting

assets
Driving environmental
efficiency
Unlocking Business
Opportunities
Managing environmental and

social risk exposure
Streamlining Operations
Financing required transition to low

carbon economy from 2011 2020 for
UK: is estimated at 550 billion viii
The equity market is beginning to

react with studies showing carbon
efficiency has a meaningful
relationship to asset multiples across
companies in carbon intensive
industries ix
Accenture estimates combined

initiatives in Smart Buildings, Smart
Logistics and Green IT can remove
between 1 - 2 percent from the cost
bases of most investment banks x
Most importantly,
sustainability is a key lever
in building trust with
customers and government
Our perspective
The imperative to act on sustainability

has shifted from a moral obligation to a
robust business case
The United Nations Global Compact
(UNGC) Accenture CEO study of nearly
1,000 respondents globally canvassed
C-suite views on sustainability, as
previously highlighted. CEOs were
questioned why there was ongoing
support for sustainability despite the
difficult economic conditions. One
reason given for the growing support is
that during such a time of hardship,
businesses have been forced to examine
closely how their sustainability
activity delivers core business value
measured in terms such as cost
reduction and revenue growth.
A second reason for the growing
commitment to sustainability is cited as
an increasing demand for sustainable
products and services.
This is supported by wider market

statistics. Investments in rolling out low
carbon technologies (including
renewables and energy efficient
infrastructure) have witnessed steady
growth in the past five years, reaching
US$40.2 billion globally for 2009, and
were resilient through the economic
downturn, down only 5 percent on the
record in 2008 of US$42 billionviii.
These findings underline the fact that
far from being a marketing exercise,
sustainability has an increasing business
impact either through demonstrable
increases in revenue, proven cost
reductions and/or quantifiable societal
benefits. Most importantly,
sustainability is a key lever in building
trust with customers and government.
By understanding and quantifying the
scale of these impacts (for their own
organisations and/or for their
customers) banks will come closer to
embedding this mindset within the
organisation and realising the
risk-adjusted business opportunities
that it creates.
(i) Strengthening the licence
to operate
The 2010 Edelman Trust Barometer saw
trust in banks plummet globally. In
the US, banking moved from the 3rd
most trusted to the 3rd least trusted
industry (of 14)ix. This has recovered
significantly from 2009, as banks have
taken action like removing underperforming management, restricting pay
and repaying bailout loans. These are,
however, somewhat automatic reactions
to the financial crisis. The industry now
needs to have a clear direction for how
to build and retain trust now and in
the future.
The UNGC Accenture CEO study found

that 72% of CEOs cite brand, trust
and reputation as one of the top three
factors driving them to take action on
sustainability issues.x
Looking ahead, further regulation will
create a vicious circle, where
responsibility and innovation will not be
supported, and bankers will spend
more time finding loopholes which
will necessitate further regulation. In
this environment, although no
guarantee of success, a strong
reputation will provide banks with a
fundamental licence to operate. This
provides strong incentives for ethical
behaviour across the industry, with a
view to embedding responsibility and
self-regulation.
HSBC provides an example of what this

can mean in practice. Outgoing
executive chairman, Stephen Green,
vigorously re-enforced the banks public
commitment to be a leading brand in
sustainability and this objective remains
core to its strategic aims. HSBCs
success in rebuilding public trust saw it
surge up Fortunes Global 500
Accountability Rating reaching third
place in 2008, up from 43rd place
in 2006.
(ii) Increasing and protecting

revenues
A recently completed Accenture study
forecasts the levels of finance required
in the EU25 alone that will be required
from 2011 to 2020 to finance the
transition to a low carbon economyxii,
expected to be an order of magnitude
greater than the than that of the
internet and telecom revolutions of the
1990s. Similarly, the Green Investment
Bank Commission estimates an amount
of 550 billion could be required for
investment in supply chains and
infrastructure in order to meet UK
climate change and renewable energy
targets between now and 2020xiv.
A significant amount of this capital
invested will be funded through the
banking system. The opportunity for
investment banks is enormous when
thought of at a global scale. As an
example of the instruments required
for the purchase of low carbon assets

banks could provide bond issuance,
integrated project finance,
asset-secured debt and loans, unsecured
loans and/or asset leases.
This level of investment is expected to
enable CO2e emission savings that will
bring the EUs 2020 emissions on track
to meet its targeted 20 percent carbon
emissions reduction by 2020.
Additionally, cost savings from the
reduction in energy consumption and
emissions are forecast. Outside the low
carbon technology sector, Deutsche
Bank estimates that water infrastructure
globally will require up to US$22 trillion
of investment up to 2030xv.
These assets have traditionally been

funded from the public purse; however
with governments under significant
pressure to reduce sovereign debt, the
funding burden will be transferred to
the private sector. As these technologies
mature and stable government policy is
implemented, all these investments
will be in businesses and infrastructure
that are secured by assets, with cash
flows that will provide an expected
return that can be risk adjusted (similar
to the alternative investments made by
investment banks today). There is no
such thing as green investment, there is
only investment.
(iii) Optimising and protecting assets

Some investment banks have already
launched significant programmes
focused on valuation correlation for
carbon intensive sectors. Goldman
Sachs GS Sustain initiative is one such
initiative. Providing an objective,
quantifiable framework linking the
impacts of structural trends in the
global economy, society and
environment on global industries to
investment conclusions on a sector-bysector basisxvi, this recognises the shift
in environmental and social pressures,
as well as the expectations of investors
on companies to address these issues
and report on their performance.
More broadly, banks face substantial

social and environmental risks in the
management of their loan and
investment portfolios. And while the
tools needed to help manage and
quantify this risk are not there yet, they
are definitely on the way. Guidelines
such as the Equator Principles and UN
Principles for Responsible Investment
have now secured mainstream
acceptance. And while much work
remains to define how these are applied,
both frameworks provide a set of
protocols for incorporating
sustainability issues into funding
decisions.
Investors are also focusing on material
issues of sustainability, in particular
climate change especially since some
estimates suggest that as much as
40 percent of some companies EBITDA
could be at risk from emerging
carbon constraintsxvii. Investors worth
US$65 trillion in assets under
management have demanded greater
disclosure of carbon emissions
performance through the Carbon
Disclosure Project (CDP)xviii, who collect,
distribute and motivate companies to
take action to prevent dangerous
climate change.
(iv) Driving environmental efficiency

Finally (and perhaps most relevant in
the current economic climate),
sustainability can provide valuable
enterprise-wide focus for rapid and
sustained cost management.
From working with clients in parallel
industries, and taking into account
investment bank cost bases, Accenture
estimates that combined initiatives in
Smart Buildings, Smart Logistics and
Green IT can remove between 1-2
percent from the cost bases of most
investment banksxix. It is of course
essential that banks do not jeopardise
their ability to operate and respond to
clients through reduction in operating
capacity. This is about removing low
level inefficiencies in the business.
Getting this right will support
building trust and maintaining the
licence to operate.
To sum up, far from being a marketing
exercise, sustainability has an
increasing and demonstrable business
impact. Indeed, it stands out as a vital
component in building and protecting
long-term trust and business value. As
such, instead of treating sustainability
initiatives as nice to haves,
disconnected from their core business,
investment banks are starting to view
them as tangible, risk-adjusted business
opportunities.
Accenture conducted a study that

highlights the capital required to
support the transition to the low carbon
economy. A robust model was built that
identifies the technologies that will be
implemented and their corresponding
financing requirements. This is further
supplemented by the financing
instruments required to channel
funding to both the developers and
purchasers of low carbon technology.
In addition the study quantified the
emissions reductions and amount of
cost savings that result from the
roll-out of the low carbon economy.
In practice
Accenture report with a global financial

institution quantifying the role of banking in
the transition to a low carbon economy
Figure 2: Financing initiatives that are expected to be employed to channel
funding to enable the roll out of low carbon technology.
Carbon reduction
potential
Strong commercial potential

(market demand & banking capabilities alignment)
Benefits to the client and Accenture

This seminal report demonstrates
leadership in facilitating the transition
to the low carbon economy. Key
stakeholders can be quickly and easily
engaged to understand the level of
financing required and the emission
reduction potential from the roll-out
of the low carbon technologies
identified. Additionally there is a deep
understanding of the barriers in the
provision of funding for the roll-out
of this low carbon technology, and
more importantly, an understanding
of how these financing barriers can
be overcome. Figure 2 highlights some
of the outputs on the model and
highlights the financing initiatives that
are expected to channel the funding
required to accelerate roll out of low
carbon technology as part of the
transition to the low carbon economy.
High
110%
List of considered financing initiatives
9
8
Applicable market potential for C&I bank
14
3
73%
Medium
10
13
4
15
11
12
5
6
Low
35%
Low
20%
Medium
70%
High
120%
Public Markets
8 Green bonds - Low carbon labelled bonds available to
wide range of investors and eligible for tax benefits
10 LCT ETF & Index - Financial exposure products to Low
Carbon Technology debt / equity
Direct capital provision
7 Energy Efficiency Lease - Energy cost-savings used to
calculate repayment of LCT lease and loans
3 Tax-equity/debt schemes - for direct investments in
large scale renewables infrastructure
9 VentureCapital Investment arm - LCT tailored venture
capital funds (owned by banks) supported by
matched & capped government funding
Advisory services
2 LCT Sector Research - Dedicated & customized
Investment banking and research services for
LCT sector
15 LCT IPO Services - Dedicated M&A and IPO servicers
for companies in the low carbon technology sector
Asset & Wealth Management
1 Tax-credit LCT investments - Low carbon technology
dedicated debt / equity investments qualifying for
capital gain tax credits
i Green Investment Bank Commission report, available at
http://www.climatechangecapital.com/news-andevents/press-releases/green-investment-bankcommission-report-ccc-e3g-joint-announcement.aspx
ii Accenture analysis, based on capital requirements
presented in GIBC
iii "Cost of tackling global climate change has doubled,
warns Stern", The Guardian, June 2008
iv Bloomberg New Energy Finance
v New York Times, June 2010
vi United Nations Global Compact (UNGC) Accenture CEO
Survey, July 2010
vii Social Investment Forum, available at
http://www.socialinvest.org/resources/sriguide/srifacts.cfm
viii Bloomberg New Energy Finance
ix 2010 Edelman Trust Barometer, available at
http://www.edelman.com/trust/2010/
x United Nations Global Compact (UNGC) Accenture CEO
Survey, July 2010
xi Fortune Global 500 Accountability Rating
xii Accenture analysis
xiii Accenture analysis
xiv Green Investment Bank Commission report, available
at http://www.climatechangecapital.com/news-andevents/press-releases/green-investment-bankcommission-report-ccc-e3g-joint-announcement.aspx
xv WBCSD Vision 2050 report available at
http://www.wbcsd.org/Plugins/DocSearch/details.asp?Doc
TypeId=33&ObjectId=Mzc0MDE
xvi GS Sustain: Goldman Sachs Change is coming:
A framework for climate change a defining issue of
the 21st century May 2009
xvii GS Sustain: Goldman Sachs Change is coming:
A framework for climate change a defining issue of
the 21st century May 2009
xviii CDP 2010 Global 500 Report available at
https://www.cdproject.net/CDPResults/CDP-2010SP500.pdf
xix Accenture experience and analysis
Accenture experts
Peter Lacy
peter.lacy@accenture.com
+44 20 7844 3427
+44 75 0010 2928
Shaun Richardson
London
shaun.a.richardson@accenture.com
+44 20 7844 4982
+44 79 1033 0933
Justin Keeble
London
justin.keeble@accenture.com
+44 20 3335 0682
+44 78 1800 1688
Top 10 Challenges
Delivering Valuable
Transformation
In the wake of the financial crisis,
investment banks are undertaking
large-scale programmes to deliver
transformational benefits and build
market share. Additional impetus for
these initiatives comes from ongoing
regulatory reform, with further impacts
looming in both the EU and US.
However, the results to date are mixed,
with much duplication of effort,
conflicts between initiatives and
wasted resources.
Challenge 7: Delivering Valuable Transformation
You can have the best vision in the world,

but if you cant put it into effect, you are
wasting your time. Success in business is
25% strategy, but 75% execution.
Accenture
Background
Most investment banks have mixed

track records where large-scale change
programmes are concerned
According to Accenture research,
leading investment banks each spent an
average of US$570 million on
transformational change the bank
initiatives during 2010. The same
investment profile is predicted for 2011,
indicating that changes promised
during the crisis have not been
delivered. Furthermore, some banks are
still awaiting tangible benefits from
the investment they have committed
to date.
There have been and continue to be

multiple motivations for these
transformation programmes, including:
Emerging market growth:
Achieving business growth ambitions
in emerging markets
Post-merger integration:
Realising the benefits from bringing
the capabilities of multiple businesses
together
Cross-asset views and services:
Developing consolidated client level,
cross-asset records to support
portfolio optimisation and to focus
on client needs
Cross-asset distribution:
Enabling cross-asset distribution from
global markets divisions to banks
private, corporate or retail banking
customers
Enhance risk management:
Strengthening risk monitoring
infrastructures in response to broader
and more intricate regulatory
demands
With an increasing focus on their cost base as well as the

expectation to deliver on promises made in tougher times,
there are multiple challenges that banks must face and
overcome to accomplish their aims
Finance transformation: Improving
control and performance within
product control and general finance
One Bank initiatives:
Standardising products, services,
technology and processes across the
bank, on a global scale
Post-crisis regulatory change:
Responding to the regulatory
tsunami, highlighted by OTC
Derivatives market reform and
Basel III
However, wherever the motivations for

change programmes originate within
banks, current investment profiles
suggest banks ambitions to realise their
stated benefits within the required
timeframes exceed their ability to
deliver. With an increasing focus on
their cost base as well as the
expectation to deliver on promises made
in tougher times, there are multiple
challenges that banks must face and
overcome to accomplish
their aims.
This broad sweep of factors may be

broadly framed across two dimensions;
those incentivised by increasing
revenues or decreasing operational
costs, and those caused by regulatory
pressure.
Figure 1: Transformational programme drivers
Post -merger
integration
Emerging market
growth
Cross - asset views

and services
Benefit Delivery
Revenue
Cross -asset
distribution
Enhanced risk
management
Finance
transf ormation
Cost
Post-crisis
regulatory change
One Bank
initiatives
Low
High
Regulatory Pressure
Few bank transformation programmes have achieved

acceptable returns on investment.
Key challenges
Satisfying the regulators while continuing to

satisfy shareholder expectations
The investment banking industry is in
flux, with ongoing change a fact of life
for all participants. In this environment,
the overriding challenge for banks is to
stay abreast of developments and
implement co-ordinated change
programmes that comply with
regulation and, wherever possible, boost
performance.
Few bank transformation programmes

have achieved acceptable returns on
investment. Objectives for these efforts
are typically overly complex, with
benefits poorly defined and difficult to
measure. To improve the performance
of future programmes, banks will need
to address some or all of the following
challenges:
Leadership and Governance
Programme sponsors are clear though
lower level responsibilities for
project delivery and task completion
are not uniformly appreciated
Ownership of project activities,
including functional contacts, IT leads
and business SMEs are not
consistently understood
There is often a lack of ongoing
prioritisation of project activities or
change requests by the business
Change managers fail to engage with
broader programme objectives
A lack of drive to meet timescales in
some areas, with delivery dates
missed
Benefits Realisation
An absence of clarity around how
projects deliver business impact
beyond being broadly valuable
Uncertainty as to whether long term
business requirements are being
comprehensively met
Unclear linkage of architecture
workshop activities to business
projects and how requirements are
feeding into IT, who are often already
working on their future state
architecture
Delivery Focus
A reliance on a small number of
individuals for SME input who do not
have sufficient capacity to complete
all requested tasks and may not
even be the person closest to the
issues at hand
Unclear product scope that hampers
high level objective setting and
development of the ultimate solution
Misalignment around objectives

between project stakeholders can
drive a perception of slow delivery,
which may not reflect actual
progress
Project lists defined in the initial
strategy phase not being tested on an
ongoing basis, preventing uniform
agreement on the programmes
priorities
Uncertainty around which individuals
should be consulted for
requirements input and SME insight
Departmental and Regional Silos
Business functions and regions are
involved in projects to varying
degrees and inconsistently
Change initiatives are often launched
at departmental level with no
overarching framework for
coordinated delivery
Some projects are not making
sufficient progress due to a lack of
engagement with key SMEs and
business functions
Methodology
Programmes not having the flexibility
to accommodate developments in
a rapidly changing business and / or
regulatory environment
Project individuals are not sure what
artefacts are required and by when
Different projects employ different
communication tools
Not all projects have documented,
formalised, signed off and
communicated objectives, approach
and scope
For change programmes to

realise their objectives and
deliver business benefits,
business-led, empowered
leadership is essential
Continuous and intensive

communication ensures that the
stakeholders proceed to the next
commitment level and ultimately
maintain full commitment to the
programme. Poorly executed
communications remain the number
one cause of transformation failure.
Before a specific audience group is
convinced by a change, it will go
through different stages, as shown in
Figure 2. For each commitment stage,
there are different outcomes possible,
i.e., progression to the next stage
or regression to a negative
commitment level.
Our perspective
Strong business-led project management is

essential to effective change programmes
Subsequently, portfolio-based
management ensures stringent
oversight on the value for money
delivered by the project and provides
the ability to take aggressive corrective
action when problems occur.
The checklist for a successful
transformation programme should
comprise the following actions:
Portfolio-based investment
management of the project should
deliver the best results. This requires a
portfolio manager to allocate funds out
to projects based on delivery of interim
milestones, rather than a more
traditional approach of allocating entire
budgets at the start of the financial
year. This approach will lead to regular
draw down of funding during the year,
predicated on demonstrating that
tangible progress has been made.
Figure 2: Stakeholder commitment
COMMITMENT
Acceptance and personal
ownership of the change
Co
mm
i
For change programmes to realise their

objectives and deliver business
benefits, business-led, empowered
leadership is essential. Programmes
unable to secure this run a high risk
of failure - even where there is full
commitment and involvement from
middle management, authority to
drive through large scale change will
be lacking.
Level of Commitment
cat
Edu
Inform
BUY IN
Buy into the goals of
the change journey
UNDERSTANDING
Understanding of the nature
AWARENESS
High-level awareness and intent of the change
of the content and content
of ther channel journey
Negative Perception
Confusion
Time & Effort
Source: D. Conner Managing at the speed of change (1993)
Resistance
Change
Aborted
Senior and visible business

sponsorship; business sponsors must
remain engaged throughout the
lifecycle of the project to maintain
effective business prioritisation
against other projects competing for
scarce resources
Development and circulation of a
business benefits roadmap (building
on the high level roadmap from the
initial strategy phase), based on
detailed requirements to ensure
transformation objectives and
benefits are measurable and easily
understood by all
Identification of quick wins and early
benefits helps to gather and
sustain momentum
Clearly defined accountability for
delivery, including performance
objectives aligned with bonuses and
pay that reflect successful
transformation outcomes
Staff retention schemes for key
project members, as appropriate, as
the employment market recovers
Embedded flexibility in the
transformation programme to
withstand a rapidly evolving
regulatory and business landscape
Cross-departmental steering
committees and forums to ensure
senior management have visibility of
all initiatives and can therefore
recognise potential duplications,
conflicts or synergies
Integration of all geographies and
business lines involved in the
planning and business case
generation to enhance buy-in and
commitment
An appreciation of local complexities
from legal, tax and compliance
standpoints. One size fits all will not
always deliver a valuable outcome.
Provided the change framework and supporting systems are

in place, banks will be able to adapt these as necessary to
ensure rapid responses and seize first-mover advantage
Initiating transformational change in

such a volatile environment is
challenging. For those leading these
programmes, it is important to
emphasise that change should be
delivered incrementally, rather
than through a big bang approach.
As well as helping to secure enterprisewide acceptance, phased
implementation allows for ongoing
flexibility. Such flexibility is particularly
essential when the mid-term regulatory
outlook remains unpredictable. Provided
the change framework and supporting
systems are in place, banks will be able
to adapt these as necessary to
ensure rapid responses and seize firstmover advantage.
Finally, banks should actively seek out
ways in which direct business benefits
can be derived from any changes that
have to be made, whether for
regulatory reasons, or through
operational restructurings and
reorganisations.
In practice
Driving through a focused business

case for change
A global investment bank needed a new
front-office operating model to help
it defend and grow market share
through globalisation and business
harmonisation. The intended
transformation was designed to deliver
US$200 million of benefits over
three years through revenue protection
and reductions in cost and
operational losses.
The bank asked Accenture to help it to
define the strategic vision for this
initiative and deliver a new Target
Operating Model. With senior business
sponsorship from the global front office
COO and CFO, the project team
began by convening a series of
workshops with key stakeholders across
the business to identify current
constraints and develop an overall
strategic vision, providing the
foundation for the planned
transformation.
Guided by the strategy and current state

understanding, the team developed the
Target Operating Model to deliver the
programmes objectives, and a robust
business case needed to secure funding
and measure benefits realisation during
transformation. At every stage,
representatives from the principal
global centres were invited to provide
input to ensure regional buy-in and full
visibility of local complexities.
Governance structures, communications
plans and benefits tracking
frameworks were put in place and
a programme office set up to project
manage prioritised initiatives. An
incremental delivery approach was
followed, providing flexibility and the
opportunity to deliver quick wins.
This approach was designed to build
momentum by realising benefits
throughout the programme lifecycle
rather than in a big bang style at the
end. Transformation objectives were
prioritised to form programme
initiatives, which were assigned
measurable benefits and owners
accountable for their delivery.
The initiatives were designed to
conclude within 12 months to tie in
with the bonus cycle.
Benefits delivered
On completion, the bank benefited from
improved client service and sales
effectiveness at a global level, as well as
reductions in cost, operational risk
and complexity. Above all, the delivery
approach allowed the bank to achieve
its strategic objective within 12 months,
delivering a return on investment in
excess of the business case baseline.
Accenture experts
Laurie McGraw
laurie.a.mcgraw@accenture.com
+1 267 216 1313
+1 917 687 7237
Suresh Kanwar
suresh.kanwar@accenture.com
+44 20 7844 8177
+44 77 7551 7627
Rob Deakin
London
rob.m.deakin@accenture.com
+44 20 7844 1191
+44 79 8057 5954
Top 10 Challenges
Harnessing Innovative
Technologies
Although innovative technologies
create exciting opportunities for
accelerating speed, efficiency and
profits, the challenge for investment
bank CIOs is increasingly: How can we
leverage maximum value from our new
technology investments by harnessing
them for the benefit of the whole
business?
Challenge 8: Harnessing Innovative Technologies
Cloud computing... is building serious

momentum on Wall Street
Wall Street & Technologyi
Background
Harnessing new technologies for the benefit

of the entire enterprise
Industry leaders are using new technologies to enable
interdependent business functions, from front-to-back trade
processing to enterprise risk management.
Investment banks rely on advanced
technologies in the front office to
enable high-speed, high-frequency
trading. Until now, the upfront benefits
from this activity have been so
enormous that the complexity and
inefficiency of post-trade processes and
systems have often been overlooked.
By concurrently enabling
interdependent business functions, such
as risk management, settlement and
financial reporting, these technologies
are transforming the way organisations
think, react and operate.
There are a number of reasons for
this trend:
That is changing fast. The highest

performing investment banks are now
using their front-office technologies in
bold, innovative ways as a source of
competitive advantage for the whole
business.
Management is demanding
integrated, proactive technology
infrastructures that can anticipate
the impact of new market and
regulatory developments
CIOs are under mounting pressure to
get a return on their massive
investments in technology by using
these assets to drive down costs, as
well as driving up revenues
(traditionally the principal focus for
front-office technologies)
This increasing emphasis on ROI
means CIOs need to develop flexible
IT assets that, by adapting to business
change, can appreciate in value
over time.
Advanced elastic path optical networking, deployed in

virtualized networks, is being used to settle trades across
borders, regions and global market centres
We see the industry leaders adopting a

portfolio approach to their technology
investments demanding the best
possible return from them, both as
standalone assets and as part of an
integrated capability.
These organisations are leveraging
pioneering technologies to powerful
effect, creating a renewable source
of business benefit from new toolkits
comprised of flexible architectures,
virtual networks and genetic
programming.
These new technologies, historically

sewn into front-office applications, are
now being harnessed for the benefit of
the middle and back office, and on a
larger scale, to drive the global
infrastructure in various innovative
ways, including:
Thinking machine algorithms,
underpinned by morphic
architectures, are being used to bring
risk management into the front
office, enabling pre-trade analytical
decision-making
Advanced elastic path optical
networking, deployed in virtualized
networks, is being used to settle
trades across borders, regions and
global market centres
Cloud computing, combined with
multi-core graphics processing units,
is being used to reduce the surging
cost of adding new hardware to cope
with geometrical increases in
data volumes.
The CIO has a tough remit: boosting the profitability of the

application portfolio by melding revenue-driving technologies
with those that are designed to reduce costs.
Key challenges
Doing more and doing it more profitably

Investment bank CIOs are struggling to
cost-effectively build and maintain
applications that can provide both
compute and data intensive processing.
The difference between the two refers
to the timeframes within which data
is processed. The first type involves
using large amounts of computer
processing cycles to act on data at
different times during a trading day;
the second type involves processing
data continuously throughout the day;
for example:
compute-intensive processing is
applied to macro stress-test an entire
set of client portfolios in one day, and
data-intensive processing is applied
to analysing pre-trade data many
times per second with as little latency
as possible.
While the trading systems architects

are wrestling with these intensity
challenges on a functional level, the
enterprise architects are combating
escalating data management
requirements across the bank,
attempting to drive scale efficiencies
from mature technology investments.
In other words, the CIO has a tough
remit: boosting the profitability of the
application portfolio by melding
revenue-driving technologies with those
that are designed to reduce costs.
Or to put it another way, as well as
being expected to do more with less, the
investment bank CIO must also start to
demonstrate a return on existing and
new technology investments.
The crux lies in effectively integrating new front-office

technologies with systems across the rest of the organisation
to transform business efficiency, effectiveness and insight
while dramatically driving down the costs of complex
technology renewal.
In todays environment, investment
banks must continue to use emerging
technologies in a much more
convergent manner to drive
improvements in pre-trade analytics,
enterprise risk management and
aggregate trading profits.
Our perspective
Successfully leveraging a portfolio

approach to technology investments
Figure 1: Emerging Technologies for Risk Management

Sources
Data Management
Storage
Data Servicing Provisioning
Valuation
Risk Assessment
Federated / Multi Channel

Dynamic Risk Portal
Processing Cubes
CMS
EMS
Risk Management
CEP
Reference Data
Reporting
Analytics
Clearing
Finance Factory
Web
Trades
Security Master
High Speed Messaging >>
Position
E - mail
High Speed Messaging >>
Counterparty Data
Service Supply
Chain Governor
Reporting
Network
Web
E - mail
Reporting
Network
Source: Accenture
The crux lies in effectively integrating

new front-office technologies with
systems across the rest of the
organisation to transform business
efficiency, effectiveness and insight,
while dramatically driving down the
costs of complex technology renewal.
This will provide vital functions (Risk
Management, for example) with the
processing power and flexibility they
need to analyse vast quantities of
enterprise-wide data and the agility
they need to adapt to business and/or
regulatory change.
Once they start to use technologies

in a convergent manner, investment
banks will be able to generate a single
version of the truth, a vital resource for
enhanced internal efficiency and for
external competitive advantage.
Crucially, by following this approach,
bank CIOs will be able to analyse their
technology portfolios, before rapidly,
flexibly, and cost effectively making
whatever adjustments are needed to
drive maximum value. That way, they
will consistently demonstrate ROI from
their technology investments, as well
as helping the organisation to work
harder, smarter and more efficiently.
Provided the following building-blocks

are used, we envision a future-state
architecture that amplifies the
historically point benefits of these
technologies to the span of the
entire enterprise:
The foundation for these

applications must be rooted in
flexible, morphic computational
architectures
The methods used to develop,
deliver and maintain these assets
should respond well to a complex,
adaptive environment where
hardware, software and
networking are becoming more
fluid and interwoven
The assets must be continuously
monitored to assess their ongoing
contribution to business value.
The traditional Value-at-Risk (VaR)

calculations had used Monte Carlo
methods to determine probability
distribution and confidence intervals.
However, in order to calculate VaR on
the most exotic derivatives (e.g.
Himalayan options), the group needed
to execute Monte Carlo (for VaR) on
top of further Monte Carlo simulations
(for instrument pricing). The number
and complexity of calculations had
become computationally prohibitive,
even when the latest technologies
(including grid computing and in
memory data caching/fabrics) were
employed. See Figure 2.
In practice
Integrating the power of analytics in the

cloud with Monte Carlo simulations
A leading investment bank required an
elegant solution to a very challenging
(and commonplace) problem. How to
price and value increasingly complex
portfolios rapidly, accurately and cost
effectively?
Activies
Model Changes to
reduce compute time
Accenture was asked to solve three

variables:
Create a working prototype of an
advanced valuation methodology that
replaces nested Monte Carlos with
a unique solution
Prove that the new method achieves
VaR calculations with the same
statistical confidence
Develop a Point of View on how
emerging technologies can be
employed to drive a quantum leap in
computational efficiency for
risk analytics.
Figure 2: Model selection for optimal performance
Model selection for

optimal performance
Historical
Volatility
Market, Liquidity/
Counterparty Reports
VaR
Sample Size
Stochastic Volatility
Reports
Parameter Tuning
Portfolio VaR
Monte Carlo
Heston
Implied Volatility
Risk Matrices
Sample Size
Derman & Kani

Counterparty Credit
Market Data
Hardle
Sampling Rate
Liquidity
Dupire
Reports
Pricing Models
Interpolation methods
Bootstrapping
Merton
P&L
1-factor
2-factor
Calibration Parameters
3-factor
Focus Areas
Heath, Jarrow Morton
Benchmark Rates
Parameter Tuning
Interpolation Methods
Source: Accenture.
The Accenture team used a newlydeveloped proprietary solution,

MonteCloudo, a software library that
integrates the effectively limitless power
of cloud computing with
Monte Carlo simulation. Handling all
cloud-related technical aspects of the
project (from provisioning and
management to result collection and
visualisation) MonteCloudo enabled the
client to focus on modelling and
parameter setting, hugely accelerating
the speed and effectiveness of the
simulation. See Figure 3
As a result, the Accenture team
delivered a working prototype for
pricing complex derivatives over
multiple states and time horizons.
Because it harnesses the power of cloud
computing, MonteCloudo enables the
bank to switch computing capacity
on and off as needed. Instead of
demanding further investment in
expensive technology hardware, this
compute-intensive project used
analytics in the cloud to get
the results it needed, quickly and
cost effectively.
The benefits were clear-cut, spanning:

End-user productivity fast and
accurate decisions
Low entrance barrier to cloud no
need to know about cloud
implementations
High Performance dynamic
resource allocation and load
balancing.
Figure 3: Option Pricing Case Study

Option Pricing Engine
European option
GARCH model for stochastic volatility
Two random variables: W t and Y t
The maths?? Symbols
Case study for correctness check
Option name: Marks & Spencer

Type: Call option
Option price: $63.500
Result of calculation: $63.389
10,000 time intervals
Run the simulation until the expected error is
lower than 0.5% of the estimated option price
(w/ 99% confidence)
Source: Accenture
Name of option
Option type
Strike Price ()
Start Date
Expriry Date
Interest rate
Marks & Spencer

Call Option
130
15/11/00
29/12/00
6
0.133542407
0.43208172
2.271729357
Accenture experts
Lloyd Altman
lloyd.altman@accenture.com
+1 917 452 0004
+1 917 514 1655
Kristina Klapper
Senior Executive, Frankfurt
kristina.klapper@accenture.com
+49 61 73 94 67306
+49 17 55 76 7306
iWall Street & Technology, 2 December 2009
Scott Reed
New York
scott.reed@accenture.com
+1 917 452 0020
+1 516 655 4121
Top 10 Challenges
Engaging Effectively
in Emerging Markets
Many investment banks and their
clients - have identified emerging
markets as a key part of their strategy
to grow revenues in the future. To make
the most of these opportunities, banks
must identify targets that go further
than just those experiencing rapid
growth, to identify sustainable
opportunities for the long term,
including, but not limited to talent
availability, infrastructure investment,
regulatory environments and
competitor concentration.
Pinpointing the requirements needed
for successful, sustainable and
profitable entry, and then incorporating
these objectives into a truly global
operating model will determine
future success.
Challenge 9: Engaging Effectively in Emerging Markets
The future belongs to the

emerging markets.
Euromoneyi
As emerging markets move out of

poverty, then double and double again
their GDP, they have the real potential
to drive growth and revenues for
investment banks. These opportunities
are in direct contrast to developed
markets, weighed down by economic
uncertainty and stifled by intense
competition; emerging markets are
identified as a key component of banks
future growth strategies.
Background
The quest for superior returns

Seeking opportunities for revenue growth, many investment banks
have sought, or are actively seeking, to build offices and branches in a
wide range of emerging markets.
Prior to the financial crisis, investment
banks typically achieved returns on
equity of 20 percent or higher. Now,
they are struggling to generate returns
of 15 percent in the post-crisis
operating environment. In a world
where leverage is going to be held to
more conservative levels and proprietary
trading more limited, banks are
naturally seeking growing economies
where their services will be in demand,
and that usually means targeting
emerging markets.
Figure 1: Emerging Market GDP per capita growth
US$ per capita
25,000
GDP per capita 2007A
GDP per capita 2007A
20,000
15,000
10,000
5,000
Source: IMF, World Economic Outlook Database (April 2009), Accenture analysis
e
in
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Vi
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d
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Uk
Tu
ka
ail
Th
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an
ia
ric
ss
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So
ut
Af
Ru
ex
ia
lys
re
Ko
ala
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In
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Ch
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Looking ahead to 2011, the

attractiveness of these markets can only
grow. Banks have aggressive growth
targets in place for boosting returns on
equity targets that simply cannot be
met solely through operations in mature
markets. At a higher level, global
economic growth will be concentrated
in emerging markets, where the middle
classes are now bigger than the
consumer base in developed markets.
In India alone, the middle class
(already 180 million strong) is forecast
to grow by 10 percent each year. With
increasing amounts of income available
to invest, these consumers will drive
higher demand for financial services,
both as individuals and through the
demands they place on companies,
which will be meeting their consumer
demands. The result is new business
opportunities for banks across multiple
sectors.
The priority for banks now is to ensure
that their global strategies fully
incorporate opportunities presented by
emerging markets, while providing the
flexibility needed for newly established
operations in these markets to
generate returns on investment.
Key challenges
Developing relevant, coordinated offerings

Where their emerging market strategies
are concerned, most investment
banks have reached base camp. But very
few have progressed much further
and only a handful have deployed an
integrated emerging market strategy.
As they seek to take advantage of these
new opportunities, banks will face a
number of strategic, operational and
cultural challenges:
Given the high (and growing) level of regulation surrounding

the banking industry, an invitation from the host government
is critical in order to mitigate and correctly ascertain cost and
resource issues.
1. Rigorous target market selection

Target markets must be subjected to
rigorous competitive and cost benefit
analysis, with clear milestones in place
for progress review and close
management of ongoing business
development. Indeed, whilst GDP
growth is an important economic
indicator, it rarely correlates with the
attractiveness of a market for
investment banks and it should only
be taken into consideration along
with the availability of talent, ongoing
infrastructure investment, government
policy regarding foreign investment and
the ability to translate global strengths
locally, in order to identify successful
targets which can and should lead to
focus on some unexpected countries.
2. Market-relevant products
Banks must invest in researching and
developing market-relevant products
that mesh precisely with client
demand both new local clients and
current clients expanding
internationally. These will inevitably
differ (often dramatically) from
developed world products. Service
levels may need to be much higher,
for example, with face-to-face
interaction often an essential
consideration.
3. Integrated operating models

Emerging market offices and branches
must be properly integrated into the
business, not run with bespoke
operating models (which can lead to
greater risk, higher costs and reduced
oversight by senior management).
The infrastructure supporting the
emerging markets business must be
continuously checked to limit nonstandard systems and tools.
4. Regulatory awareness
Careful strategic planning will be
needed as regulatory requirements in
particular markets vary hugely, and
may be subject to rapid change.
Given the high (and growing) level
of regulation surrounding the
banking industry, an invitation from
the host government is critical in
order to mitigate and correctly
ascertain cost and resource issues.
Companies often need to go to multiple markets to find what

they need, be it talent, capital or technology.
Our perspective
Setting the stage for successful growth stories

Evidence from our research
demonstrates that high performance
banks distinguish themselves with a
globalization strategy that is conceived
and executed in a new and consistently
different way. They discover new
fulcrums of growth, cost efficiency and
risk management, develop them and
work them into the fabric of their
businesses. Across all dimensions,
high-performance banks are guided by
three central maxims:
Create geographic options

High-performance banks proactively
and continually explore new geographic
sources of value. They constantly look
outward, sensing their business
environment (and that of their clients)
and making focused choices about
where to compete and whom to engage.
No two markets are the same.
Companies often need to go to multiple
markets to find what they need, be it
talent, capital or technology.
Lessons from high performers:
Reach out to potential clients in
overseas markets with new business
models, channels and infrastructure
investment that unlock otherwise
latent demand.
Source talent wherever it may exist
geographically, as well as from
sectors of the population that may
have been overlooked previously,
such as women and rural workforces.
Identify emerging centres of
excellence in different technologies,
products and processes around
the world.
Build resource input security via term
contracts, upstream acquisitions
and investment in diversified
geographical sources to minimize
cost fluctuations.
Improve access to capital and
diversify risk by updating knowledge,
relationships and financing models
to reflect the new map of global
investment flows.
Be authentically local
Although searching for value in
emerging markets is a cross border task,
unlocking that value is a local exercise.
As tastes, customs, regulationsand
political environmentsdiffer widely;
high performers embed themselves with
full commitment in their chosen local
and regional markets as they execute
their strategies.
Identify critical local differences in
client preferences and usage and, in
response, tailor products and services
to new client segments.
Develop and mould local talent for
today and tomorrow by investing
across the skills spectrum.
Embed innovation activities into local
research and development and
consumer environment, working in
tandem with industry peers
and policymakers.
Optimize resources strategy under
differing economic, cultural and
regulatory constraints across markets
and harness incentive regimes,
such as carbon trading, for current
and new business.
Be willing to draw on a broad suite of
investment models tailored to the
characteristics of different markets.
Create
geographic
options
Be
authentically
local
Network the organization

Acting on knowledge from around the
world and executing company strategy
in multiple locations requires the ability
to transfer people, resources, capital
and know-how to the right places at the
right time. Creating organizations that
are permeable, both internally and
externally, enables flows of people, ideas
and best practices.
Create structured channels to allow
rapid diffusion of ideas and
knowhow across geographic regions.
Build a global backbone of
standardized data, systems and
processes.
Ensure global leadership to cultivate
a global mindset from the top down.
Figure 2: Three maxims for emerging-market growth

New clients
Talent
Innovation
Resource
Sustainability
Capital
Reach out to
potential clients
in overseas markets
with new business
models, channels
and infrastructure
investment that
unlock otherwise
latent demand
Source talent
wherever it may exist
geographically, as
well as from sectors
of the population
that may have been
overlooked
previously such as
women and rural
workforces
Identity emerging
centera of excellence
in different
technologies
products and
processes around
the world
Build resource input

security via team
contracts, upstream
acquisition and
investment in
diversified
geographical sources
Improve access to
capital and diversity
risk by updating
knowledge
relationships and
financing models to
reflect the new map
of global investment
flows
Identity critical local

difference in
clients
preferences and
usage and in
response, tailor
products and
services to new
client segments
Develop and mold

local talent for today
and tomorrow by
investing across the
skills spectrum
Embed innovation
activities into the
local research and
development and
client
environment, working
in tandem with
industry peers and
policymakers
Optimize resources
strategy under
differing economic
cultural and
regulatory
constraints across
materials and harness
incentive regimes,
such as carbon
trading for current
and new business
Be willing to draw
on a broad suite of
investment models
tailored to the
characteristics of
different markets
Create structured channels to allow rapid diffusion of ideas and know across geographic regions
Network the
organisation
Build a global backbone of standardised data, systems and processes

Ensure multi-polar leadership to cultivate a global mindset from the top down
Source: Accenture Institute for High Performance
In practice
Creating a local operation: an exercise in

managing complexity
Our experience shows that it is all too
easy for investment banks to
underestimate the complexities involved
in setting up or expanding securities
operations in an emerging market.
Crucially, they must not expect to apply
the same implementation approach as
in the major developed markets where
they already operate. Also, they should
be aware that the higher complexity of
designing and delivering emerging
markets operating models applies across
the key domains of the business,
operations and IT.
There are four main priorities that
investment banks should focus on to
get their local operation up and running
as efficiently and rapidly as possible,
and to seize the highest available
market share among their target clients
and product segments. These four
priorities are:
1. Realising business opportunities

It is critical to allocate sufficient
financing and resources to maximise the
new unit's chance of success. This
means securing enough investment to
tackle several challenges that affect all
satellite operations, but more especially
those in developing markets. In
particular, it is important to move
quickly and achieve high speed to
market once the opportunity has been
identified, since the first mover will
often corner the lion's share of the local
market. This means it may be better to
launch now with good-enough'
offering, than to wait until the fullyengineered service is ready.
A further key challenge is optimising the
product mix and scope for local
market conditions. In some markets,
product definitions and regulatory
frameworks are different from what is
normal in major hubs a couple of
examples from the Russian market
illustrate this point:
A further key challenge is optimising the product

mix and scope for local market conditions.
FX options are not illegal but are also
not legally enforceable in Russia.
Therefore, although some
international banks have built the
capability to trade FX options locally,
there is no market in FX options
at present
What is referred to as a Repo' in the
Russian market is in fact a
sell/buy back' rather than the single
Repo transaction subject to a
master agreement typical in major
markets - hence different processes
and operational requirements apply.
In other locations, it is the market
dynamics that are distinct. For example,
rates trading in key Asian markets
(e.g. Hong Kong) remains predominantly
voice rather than electronic and so
investing in building a fully automated
electronic bond-trading platform before
market entry may simply result in a
bank missing the boat in terms of
market share. These challenges
underline the importance of investing
in local skills and knowledge to avoid
wasting time and money down
blind alleys.
2. Delivery complexity
While most investment banks are
organised and managed globally on the
basis of relatively segregated product
silos, setting up emerging markets
operations is typically a cross-product
implementation. Therefore,
organisations that are normally highly
effective in delivery and execution
within a product silo often face new
implementation challenges in emerging
markets where far more cross-product
collaboration is required.
Furthermore, the critical importance and
rapid growth of wealth management in
emerging markets raise major questions
about how and how closely to
integrate wealth management services
with investment banking. Investment
banking and wealth management have
different origins and heritages in the
global hubs which have led to largely
separate operational infrastructures.
However, in setting up emerging
markets operations there are
opportunities to address the significant
operational redundancies and
duplications between investment
banking and wealth management
operations (e.g. in securities settlement)
that are common in global hubs.
This requires new ways of thinking
about the operating model to more
effectively share infrastructure between
the investment and private banking
arms of the business. Inevitably,
addressing these issues increases the
complexity of development, testing
and roll-out.
3. Regulatory, legal and market

practice framework
From day one of the project, it is crucial
to focus on developing a full
understanding of local regulatory
requirements, accepted modes of
market behaviour and the legal
environment, and to incorporate these
factors at the design phase rather than
trying to bolt them on later.
This applies especially to new locations
where the bank lacks an existing
presence or experience on the ground.
In these entirely new sites, compliance,
tax, legal, anti moneylaundering (AML)
and other regulatory functions should
be addressed as early as possible. It is
also important to remember that
products based on a similar concept and
designed to fulfil a similar objective in
two different markets may be based on
fundamentally different legal
definitions. Examples might include
financing agreements made under
Shariah law as compared to Western
interest-bearing loans.
4. Technology
Implementing the optimal IT
infrastructure in a satellite operation
involves addressing a wide array of
issues. At first sight it may appear that
the cheapest and easiest approach is
to plug the unit into the bank's global
IT systems, but this may limit the new
operation's flexibility and
responsiveness to customer needs.
For one thing, its systems will need to
meet local demands such as Sunday
trading in the Middle East or use of the
Cyrillic alphabet in Russia that may
not fit easily into the global IT template.
For another, a small satellite operation
may find its IT change requests to the
global hub receive much lower priority
than those submitted by an established
unit in a major developed market.
Such factors mean that traditional
developed market-centric thinking
about IT may not apply, and require
careful consideration of the balance
between using in-house systems
and third-party (possibly specialist
local) vendors.
Challenge
Challenge
1: Responding
9: Engaging
to the
Effectively
regulatory
in Emerging
maelstromMarkets
Accenture experts
iSource: Euromoney
Jos Villar
Senior Executive, Madrid
jose.m.villar@accenture.com
+34 91 546 9229
+34 61 924 9936
Wei Min Chin
Senior Executive, Shanghai
wei.min.chin@accenture.com
+86 212 3053 832
+86 138 1781 0675
Dinesh Sharma
London
dinesh.k.sharma@accenture.com
+44 20 7844 8288
+44 79 0991 5895
Top 10 Challenges
10
Picking the right

battles
Having weathered the financial crisis,
investment banks are seeking to
capitalise on their current positions
and move up the rankings to establish
themselves as market leaders. Aiming
high makes sense strategically but,
by definition, not all banks can be
top-three players. Particularly now,
when resources are limited and time is
tight, the priority is to focus on winning
the right battles.
Challenge 10: Picking the right battles
We're focusing on the markets where we

have a right to win.
Michael Geoghegan, Group CEO, HSBCi
Figure 2: Defining factors in investment

bank high performance
Global Breadth
Evenly distributed revenues across Europe, Americas &
APAC regions
Top 10 players in BRIC, Mexico & Korea
Significant presence in second tier emerging markets
(Eastern Europe, Latin America)
Client Centricity
Clear client strategy based on segmentation
Client aligned Operating Model
Provider of integrated investment bank/ wealth/
asset management clients solutions
Background
In a resource-constrained environment,
banks need to choose where they can
compete and win
Top-three banks outperform across three key metrics global breadth,
client centricity and product depth
Particularly in todays straitened
operating environment, it is surprising
that so many banks are actively aspiring
to top bank status (see figure 1).
Of course, each of the three key metrics
of high performance Global Breadth,
Client Centricity and Product Depth
are as relevant as ever, but banks need
to be selective about where they can
realistically compete and win. Competing
across all three simultaneously can
only result in under-resourcing,
overbudgeting and, perhaps most
damagingly, incomplete execution.
Figure 1: Number of times Top Bank Aspirations mentioned in global press
Global Press Articles
1,000,000
800,000
600,000
400,000
200,000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e
Year
Source: Dow Jones Factiva/ Accenture Research
Product Depth
Recognised consistent strength across
FICC
Equities
M&A
Prime Services
Sustainably profitable in all chosen markets
and products
Two years ago, the banking sector was

in turmoil. Now, with the dust settling
on the financial crisis, investment banks
are seeking to take advantage of
market dislocation to seize market share
and propel themselves up the league
tables. It is not wrong to aim high. In
fact, this is in itself an effective way of
defending current market positioning.
But the priority must be to focus on
winning the right battles across the
three metrics shown in figure 2. That
way, financial strength targets can be
realistically identified and emphatically
achieved. To compete across this
framework represents a valid ambition,
but only a few (very few) players will be
able to achieve it and banks will need to
choose where to compete.
The principal challenge, in such a resource-constrained

environment, is to identify the correct growth strategy across
multiple axes, covering products, clients and geographies.
Depending on their starting point, each

bank will have a number of possible
routes for achieving its strategic goal.
In the example below, the bank is
targeting an ambitious endpoint
(4) of Geographic Client Segment
Expansion into three core regions
Latin America, Asia Pacific and the four
BRIC economies. The challenge is
how best to get there with the resources
available?
This raises a number of broad-based
questions, each of which must be
answered well in advance of any
strategy development:
Key challenges
No shortage of options but where

to focus?
Market dislocation creates exciting
opportunities for seizing market share.
The principal challenge, in such a
resource-constrained environment, is
to identify the correct growth strategy
across multiple axes, covering products,
clients and geographies. No less
demanding for investment banks, once
the chosen growth strategy is underway,
will be effective management of the
organisation-wide transformation
needed to secure results.
External: Ensure the right way to go

to the right markets, in the right order,
at the right time and with the
right clients
Figure 3: Strategic matrix

LATAM / APAC / BRIC
4
Geography
2
5
3
Client Segments
EU / UK / US
Segmented
Comprehensive
Narrow
Products / Services
How do we know where to

focus first?
Which are the principal battles along
the way?
Can we focus on more than
one target?
Whats our optimum route from
current state to target position?
Having addressed these broad strategic
issues, management needs to intensify
its focus on the key external and
internal issues:
Broad
Internal: (a) Determine the right people,

doing the right processes with the right
technology and the right investment
and (b) take steps to ensure that the
banks culture is maintained throughout
the planned transformation.
Our perspective
Being in the right place, at the right time

Weve shown how vital it is for banks to
focus their efforts and resources on
getting results. But what does this mean
in practice? Based on Accenture
research and experience, we know that
high-performance businesses have
remarkable clarity when it comes to
setting their strategic direction. Put
bluntly, they always seem to be in the
right place at the right time.
Figure 4: The building blocks of high performance
Source: Accenture Institute of High Performance
Market Focus
and postitionmaximising
business results
by targeting the
right place at
the right time
Performance
Anatomy-out
executing
through
consistent,
competitive
mindsets
Source: Accenture Institute of High Performance
Distinctive
Capabilitiesdeveloping
offerings that
create a unique
business
When one market matures, theyre ready

with the next big thing; when buying
trends send clients in a different
direction, theyre waiting at the end of
the path; when they acquire new
businesses, they do so wisely and tend
to them well. Add it all up and it means
that high performers excel when it
comes to their market focus and
position the where and how to
compete aspects of business strategy
and one of the three building blocks of
high performance (see figure 4).
By adopting the economic principles of non-cooperative

game theory and applying it to scenario analysis, leading
firms are able to determine the correct actions to be taken.
So how do they do it?

If you were to read management books,
you would probably find a matrix
telling you to balance a measure of
(risk adjusted) profit potential against a
measure of internal capability strength
and to proceed within that framework.
However, this ignores the many
complexities of the real world, where
every decision must be taken in the
context of the economic environment,
and where for each action there is a
reaction of competitors to be foreseen
and interpreted visible and invisible.
How do you decide between growing
share of wallet in your current market
and earning client loyalty against
expanding the client base in emerging
markets? Both have large profit
potential, but to focus on both could be
a costly mistake that few can ill afford
right now.
By adopting the economic principles of

non-cooperative game theory and
applying it to scenario analysis, leading
firms are able to determine the correct
actions to be taken. This approach yields
several significant benefits over
more traditional approaches, where
taking a view based on a snapshot in
time can be misleading:
Realistic understanding and definition
of the context in which the company
operates and wishes to operate in
the future
Identification of all the companys
possible reactions to pursuable
strategies
Consideration of not only win-lose
solutions, but also win-win options
Ability to catch imitation advantages:
being unique is not a prerequisite
for success
Conversion of uncertain situations
into certain ones (or with reliable
probability distributions) throughout
the introduction of rational
hypothesis on players behaviour
Support of an optimal strategic
solution which maximizes the
economic result for the company
An ability to re-visit initial decisions,
easily and quickly with minimal
disruption when environmental
factors inevitably alter.
Each chosen strategic lever will have

different implications on the game
elements and being aware of these
impacts will help identify strategies that
bring about a change of the game to
the companys advantage.
Understanding the importance of
different players is crucial to focusing
on the right games, whilst a clear
understanding of ones own business is
the first step to identifying the correct
strategic change.
Analysis of different scenarios which are
looming ahead leads to evaluation of
payoffs coming from each combination
of actions and reactions, pointing to the
best course of action, given interactions
with other players in a dynamic
environment.
Figure 5 illustrates the theory of

scenario analysis, but often facts are
unclear or ill defined (e.g. OTC
Derivatives regulation) and actions/
reactions are made not only
simultaneously, but before the first
move can be completed
often through public statements rather
than proven execution; making the
reality of scenario analysis significantly
more complex than the theory.
Figure 5: Illustrative three-step game

Payoffs
Timeline
My Bank
moves
Bank X
acts
Government Acts
My Bank: p1A
Bank X: p2A
Same
behaviour
Cut prices My Bank: p1B
Bank X: p2B
Enter
Enter
My Bank: p1C
Bank X: p2C
Bank X
My Bank: p1D
Bank X: p2D
Same
behaviour
Enter
Not Enter
Cut prices
Enter
My Bank: p1F
Bank X: p2F
My Bank
My Bank: p1G
Bank X: p2G
Same
behaviour
Cut prices My Bank: p1H
Enter in
Not Enter
Bank X: p2H
Enter
Bank X
Not Enter
Same
behaviour
Enter
My Bank decides to
enter or not enter
the market
Bank X reacts to MY
Bank strategy, deciding
to enter or not the market
Source: Accenture Research
My Bank: p1E
Bank X: p2E
Government reacts
to banks strategies
deciding its behaviour
My Bank: p1I
Bank X: p2I
My Bank: p1L
Bank X: p2L
My Bank: p1M
Bank X: p2M
Scenarios
1
2
3
4
5
6
7
8
9
10
11
Assignation of a probability
distribution to each option
Payoff valuation for every
Scenario derives from a
specific combination of
action-reaction, through:
forecasting of future
cash flows during the
years if the analysis
discounting back to
present the stream
of future profits
NPV has to be assessed
for the company and for
each of the other player
takes part in the game
Additionally, the approach circumvents

a significant and often overlooked
aspect within strategic decision making
- political buy in within organisations by ensuring engagement across the
organisation, from Trading and Risk to
Legal and Settlement, incorporating all
asset classes and business lines.
In practice
Competitive War Gaming

War gaming is an interactive strategic
gaming approach to develop market
leading strategies, that allows banks
to make the right choices in times of
uncertainty or where hard choices
need to be made due to resource
constraints. It consists of structured,
interactive workshops, enabling access
to the strategic mindset of competitors,
whilst enabling a creative way of
thinking about threats. It allows the
testing of plans, tactics and
unconventional views of the market,
resulting in an emphasis on what
decisions need to be made.
Successful competitive war gaming will

produce five key results:
1 A comprehensive understanding of
the competitive landscape of a
specific franchise, market or
opportunity
2 Understanding of value drivers as
well as own position and
competitiveness of portfolio of assets
3 Determination of successful strategic
plans and bold tactical moves in
a protected environment against
scenarios to be tested, such as
New product/ market launch or
major lifecycle management
measures
Competitors launch of new
(superior) product or market,
additional indications and
incremental product innovation
Planned merger, acquisition or
collaborative deals
Commercial market changes, such
as pricing decline or shift in
market growth (or both)
4 Training of participants in predicting
the behaviour of key competitors
during their daily operations
5 Refined plans and business cases
based on new/improved assumptions
Typical Team Composition
War game simulations are typically run

with five to nine different teams:
1 Home Team
Represents own company - intention
to test certain strategies or tactical
moves
Need to focus on early identification
and execution of dominant strategies
to succeed during war gaming
simulation (and then later in
the marketplace)
Results can sometimes be unpleasant
for home team (e.g. when it is
unveiled that strategy to be tested
has a low probability of being
successful/competitive)
2-5 Competitor Teams
Represent and simulate real
competitors in the marketplace
(i.e. peer group)
Need to leverage competitors assets
and strategic intent
As teams consist of executives from
own company they typically know
more than the market (i.e. strategy of
home team to be tested is understood
in great detail)
1 Market Team
Represent and simulate the reaction
of different customer groups or other
stakeholders (e.g. hedge funds, asset
managers, internal desks, acquisition
targets)
Team will determine how market
reacts on strategic moves from Home
and Competitor teams
of oversight bodies i.e. governments
and regulators
Team will determine political views on
strategic moves from Home and
Competitor teams
1 Regulator/Government Teams
of oversight bodies i.e. governments
and regulators
Team will determine political views on
strategic moves from Home and
Competitor teams
Dependent on relationship strengths,
the team will consist of direct
participation from oversight
organisations
1 Control Teams
Consists of Accenture consultants
simulating outcome of strategic
moves (e.g. market share, profitability,
shareholder value) through a
financial market model specifically
designed for each war
game individually
Success Factors
It is worth bearing in mind that carrying
out competitive war gaming in itself
will not produce sufficient results; there
are four key factors that banks must
pay attention to, to ensure success:
Build creative and engaged teams
with cross-functional participants
(e.g. including Trading, Sales,
Operations, Risk, Compliance, IT,
Legal, Financial Control, with
appropriate cross-asset class
representation)
Embed exercise into overall strategy
development process to create
a menu of tactics to refine strategic
planning and commercial targets
Invest sufficient time prior to the
workshop to conduct sufficient
competitive and market research to
on-board teams in a very
structured way 2-3 weeks before
the exercise
Ensure effective war-gaming postprocessing in order to come up
with clear implications and actions
Figure 6: Typical Competitive War Game Methodology

Competitive war-gaming workshops follow four major methodology steps:
Methodology Steps
Description
Success Factors
1
Setting the landscape
and immerse into role
Market characteristics and

strategic intent of represented
company will drive goals
and tactics
2
Undersatnd scenario and
work out soluation
Feasibility of solution is
required, i.e. do not ignore basic
causeeffect relationships about
market access, cost and profit
React as your company

would enables everyone
to draw correct conclusions
which work in real life
3
Observe how competitors
react, learn and adapt
your strategy
Complexity increases but lets

you proactively pursue your
strategic goal instead of reacting
based on what competitors do
Thorough understanding
of competitors products,
strategies and presence in
the market
4
Decide implications
and develop roadmap
Collect and discuss lessons learned

Translate competitors behavior into
take-aways for own company
Apply insights to tactical product
marketing/commercialization
plan (i.e. refinement)
Successful completion
of previous steps
Ability to apply war gaming
tactics to own product s
strategic plan
Understanding of own
strategic priority and intention
Understanding of key
differentiating factors
Accenture experts
Lupus Maltzahn
lupus.maltzahn@accenture.com
+44 20 7844 8544
+44 77 6887 1919
Ryan Westmacott
London
ryan.m.westmacott@accenture.com
+44 20 7844 5259
+44 78 1030 4031
Ronan OKelly
London
ronan.okelly@accenture.com
+44 20 7844 0155
+44 79 4671 2749
i Michael Geogahan,
Chief Executive, HSBC
(speaking to Cantos, 2nd August 2010)
The Top 10 Challenges series

To help investment banks plan and
execute with success, Accenture has
used its research, industry expertise and
client insight to create a series of
papers detailing the ten key challenges
confronting investment banks as they
enter 2011, of which this paper is one.
The Top 10 Challenges
1 Responding to the regulatory
tsunami
2 Dealing with OTC derivatives reform
3 Embedding effective risk
management
4 Refocusing on client needs
5 Maximising client profitability
6 Taking sustainability seriously
7 Delivering valuable transformation
8 Harnessing innovative technologies
9 Engaging effectively in emerging
markets
10 Picking the right battles


www.accenture.com
OUTER
2011
Top 10 Challenges
Top 10 Challenges
Top 10 Challenges
for Investment Banks

www.accenture.com.

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Accenture is a global management

Introduction: Navigating Through uncertainty

Figure 1: Real GDP Growth (% growth

Source: IMF, World Economic Outlook Database, April 2010

Focusing on the future:

While banks managed to dramatically

Introduction: Navigating Through Uncertainty

No surprise that investment banks are

4. Ultimate value to investors

Investment banking three themes

Driving the client agenda

Figure 2: Effective Targeting of Client Offerings

Access to Capital &

Banks can find new revenue through effectively

Marginal Value of Provision

Preparing for the new normal

Introduction: Navigating Through uncertainty

Dealing with OTC

Picking the Right Battles

Challenge 1: Responding to the Regulatory Tsunami

The recent financial crisis has resulted in

Challenge 1: Responding to the Regulatory Tsunami

And there is little prospect of a more

Radical (and often uncoordinated) overhauls

Figure 1: Global regulatory landscape

Hedge Fund Regulation

Challenge 1: Responding to the Regulatory Tsunami

There has been a pronounced shift

Challenge 1: Responding to the Regulatory Tsunami

At a high level, bank CEOs and CFOs will have

Reassuring regulators while continuing to

The writing is on the wall. With little

Challenge 1: Responding to the Regulatory Tsunami

The recent Basel III proposals, although

The scale of organisational challenges

What impact on your company do you anticipate as a result of proposed regulation?

Will weaken competive position

Will stengthen competitive position

Will decrease profitability

Will increase profitability

Will decrease costs

Will increase costs

Source: Accenture researchiv

Various hurdles stand in the way of

Source: Basel Committeeii

Core Tier1 =7%

It is clear that there will be winners and

Figure 3: Expected impact of proposed financial services regulation

Figure 2: Building up to Basel III

With so many high-profile regulatory

Challenge 1: Responding to the Regulatory Tsunami

Enabling a continuous cycle of risk and

Figure 4: Regulation-related costs over three years

Source: Accenture research

FTE (per year)

Regulatory change is notoriously

Challenge 1: Responding to the Regulatory Tsunami

The problem is the current wave of regulation is

History has shown us that

Based on Accentures extensive

The objective is not

Challenge 1: Responding to the Regulatory Tsunami