According to estimates by Accenture, investment banks that use utilities can achieve cost savings across the enterprise of up to $50 million annually by adopting solutions for reference data alone. But participants can achieve even greater cost efficiencies, without weakening their competitive position, by acknowledging that utilities can effectively and efficiently perform certain core functions.

The emergence of utilities

The concept of shared utilities is not new and has been applied in different industries with great success. A utility in this context is an entity created by a variety of industry participants including service companies to create efficiencies by collectively performing a set of non-differentiating functions that are similar across different companies.

Also the concept of using utilities in Capital Markets is not a new one. Over the years, investment banks have supported the creation of utilities or shared platforms in selected domains but, until now, core securities processing capabilities have been excluded. The post-financial crisis cost pressures have served to highlight the opportunities for utilities to reduce costs, achieve standardization of processes, mutualize future change and increase service quality in these core processing domains.

Benefits of adopting utilities

The potential benefits of utility creation are without question. By embracing utility usage, banks can:

  • Minimize duplication of effort across industry participants.
  • Shift resources from utility scope areas to areas of greater value.
  • Enhance cost savings by ensuring economies of scale.
  • Adopt best practices and industry standards.
  • Improve data quality
  • Improve reporting to regulators.
  • Focus on the control and governance functions required to meet the regulatory requirements of the firm’s activity.

Utilities can potentially offer the next meaningful opportunity for banks to cut costs significantly while improving service quality, and to create standards around which the industry and regulators can coordinate. Regulatory burdens are continually on the rise, data volumes and management costs are continuously increasing, and banks need to find a mechanism that enables them to achieve cost reductions and efficiencies at a time when targets focus on returns rather than revenue.

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