Consulting Practice Area
Front Office (Sales & Trading)
“It is difficult to underestimate the impact of regulations and market developments, such as the demise of LIBOR, on firms in the wake of the Global Financial Crisis and following several well-publicised conduct issues. With critical deadlines fast approaching, the Front Office must grapple with and overcome these challenges to avoid potentially severe consequences. The successful navigation of such challenges can lay the foundation of a long-term competitive advantage, expanding possibilities for top-line growth whilst concurrently mitigating risk.”
With the value of derivatives and loans based on the London Interbank Offered Rate (LIBOR) exceeding USD200trn, the benchmark interest rate is often referred to as the world’s most important number. Due to the sheer size of the impact and activities that are required to be undertaken, the market-led transition to replace LIBOR with an alternative overnight risk-free (RFRs) in 2021 presents an unparalleled challenge to the financial service industry.
Proactive engagement should be actioned in favour of a “wait and see approach”. Challenges facing firms include but are not limited to:
- Vast numbers of price changes occurring in a short-period of time if contracts are left to convert to fall-back provisions following the demise date, including the requirement to revalue legacy positions using new secured / unsecured curves. The economic sensitivity of this will likely be significant.
- The transition to a new rate will inherently change firms’ market risk profiles. This will alter firms’ market risk profiles and in turn require amendments to valuation tools, hedging strategies and product design and innovation.
- A client outreach programme is required to ensure their operational readiness for the transition and provide education on the pipeline of new products.
“The discontinuation of LIBOR should not be considered a remote probability ‘black swan’ event. Firms should treat it as something that will happen and which they must be prepared for. Ensuring that the transition from LIBOR to alternative interest rate benchmarks is orderly and will contribute to financial stability. Misplaced confidence in LIBOR’s survival will do the opposite” (Andrew Bailey, Chief Executive Officer of the Financial Conduct Authority)
In light of recent conduct issues and the responding regulatory response, most notably in the form of the Senior Manager Regime in the UK, financial firms are increasingly concerned with the application of effective controls to mitigate non-financial risks in their Front Offices. With the Three Lines of Defence model now globally adopted in the banking industry as a risk management framework, a growing trend has emerged towards strengthening 1st Line of Defence accountability of the Front Office. In many banks this has culminated in the establishment of Front Office control functions whose remit is to enhance oversight of and consistency.
As experts in the Three Lines of Defence principles with a deep industry knowledge, gained through years of experience operating in 1st and 2nd Line functions, our consultants are positioned to determine the optimal application of the model, with an acute appreciation of the unique characteristics of each clients’ business model. New Link Consulting can also assist firms to take advantage of innovative new technologies, such as Artificial Intelligence (‘AI’), Machine Learning and Robotics, to improve the identification of conduct risk.
What We Do
New Link Consulting’s Front Office Practice is a practitioner-led service comprising of business consultants with a breadth of experience working in Sales & Trading and Front Office change engagements. We offer a breadth of services to the Front Office that enables our clients to improve efficiency, comply with regulations and improve risk management:
- Subject Matter Expertise: Assist organisations with a range of activities requiring Subject Matter Expert support. Including but not limited to model development, model validation and supporting the innovation of new products.
- Impact & Risk Assessment: Help organisations manage the impacts of the LIBOR transition by performing a comprehensive risk assessment.
- Client Outreach: Help clients manage client relationships by conducting proactive outreach and communications programmes.
- Conduct Risk: Help organisations assess and evolve the value and benefits of a strong risk culture and conduct management framework, to ensure alignment with the firm’s business strategy and risk appetite.
- Control Governance: Provide a robust governance framework and develop management information to continuously monitor non-financial risks and control effectiveness.
- Control Remediation: Identify remediation requirements and provide experienced consultants to prioritise and complete necessary remediation activities.
- Technology Review & Implementation: Enable our clients to use AI, Robotics and Machine Learning techniques to harness the potential of the clients’ data to improve Trade Surveillance and detect illicit activities on a predictive and pre-emptive basis.
- Programme & Project Management: New Link Consulting’s blend of practitioner expertise along with deliver and change management skills, enables us to tailor our deliveries to the explicit requirements of our client, enabling a collaborative approach to problem solving and the execution of complex change initiatives in the Front Office.
- Operating Model: Design and implement strategic Target Operating Models (‘TOM’) for business functions and organisations, aligning to industry best practice. Identifying opportunities to create operating efficiencies by focusing on reducing risk, increasing control and optimising efficiency through people, process and technology.
Our Latest Thinking
Established in 2011, our practitioner-led service offering combines deep industry knowledge, gained through years of direct experience, with innovative change management skills.