September 2023

Video: What is an exceptions management focus and is this compatible with T+1?

Video transcript

If we think about the way that a lot of organisations have built their operating models, they put a lot of time, effort and focus into what you would call in the industry is STP or straight-through-processing.

What that effectively means is they try and make sure that that processing journey excuse me of a trade from booking right the way through to settlement is as frictionless or kind of low touch as possible.

That’s never the case for every transaction.

So there will always be exceptions in there that break that STP model and traditional operating models are really designed to focus on picking up those exceptions and solving them.

So it’s very much driven from a position of: I try and get to 90 or 95% throughput of that flow, and I deal with the 5% and it’s that 5% that drives controls.

It’s that 5% that drives work workload for people.

It’s that 5% that typically drives how many people you need and the different kind of parts of the world that they may well sit in to perform that process.

So kind of big picture that really is, I would say, the traditional way that a lot of operating models have kind of worked.

If I overlay that model with effectively what’s happening, which is I’m going to reduce half of the time window that I’ve currently got, you really got two options in that model.

Option one is effectively you double the team sizes. So everybody who is involved in that process, you times that number by two to compensate for the fact that you’ve got a shorter time window.

That’s quite hard to do, quite expensive to do, not particularly kind of scalable process.

But actually that would be part one.

The second part of this is actually to start examining that process and trying to remove friction from it.

But you can really assume that a lot of those obvious exception points have been solved or gone after before.

So clearly, if you know where some of those exception drivers are, you would kind of typically go after them and fix them proactively.

You know, you wouldn’t necessarily just sit there and wait and see.

But obviously, coming back to the earlier example, just doubling your head count or doubling your resources to deal with those exceptions is clearly not going to be a sustainable or scalable model in a world where some large custodians may well have 20 or 30,000 people in their operations, kind of middle and back office functions, clearly you’re not going to double those sort of team sizes.

So that’s really one of the big challenges that that traditional operating model will see or some of the stress points it’s going to create for it as you start to move into this kind of shortened settlement window.