The financial services sector has been through many changes, regulatory and otherwise, in recent years. Financial institutions must navigate the strong winds of regulations, digital disruption, cost reduction programs, and market uncertainties—all while accelerating innovation in order to meet customer, shareholder, and compliance expectations.
In November, Anaplan brought together the leaders of more than 20 large European financial institutions for an Innovation Day in London to discuss these challenges and how technology plays a significant role in helping solving them.
During the event, representatives from NMG, Voiant, PwC, Deloitte, and Lionpoint Group demonstrated via industry-specific use cases how the Anaplan’s platform helps financial institutions achieve these goals. The major driver for the discussion centered around how to achieve faster, more agile, and more automated modeling, forecasting, and scenario planning processes through technology innovation in banking, insurance, and investment management.
Regulations and their effects on business planning
Due to the application of the Solvency II directive, business planning is shifting heavily. Plans are no longer based just on profit and loss, but also driven by the balance sheet and capital position. In this market climate, strategic capital planning becomes more essential and business planning should be in line with the FLAOR (Forward-Looking Assessment of Own Risks) methodology of Solvency II.
“Forward-looking capabilities and insights in capital generation are becoming increasingly important for insurers,” said Marco Van Ackooij, partner at Deloitte. With this in mind, Deloitte developed its Anaplan FLAOR model to provide projection and scenario modeling capabilities for the Solvency II balance sheet, including own funds, SCR, individual risk components, and P&L. The model embeds a robust FLAOR process in business planning, providing reliable figures and insightful analyses on the movement of assets and liabilities, changes in individual risk components, own funds, and capital needs.
In the investment banking world, regulators are requiring increased transparency surrounding compensation rules. Deteriorating cost-income ratios are driving cost-cutting initiatives on compensation; however, attracting, retaining, and rewarding talented professionals still remains key to a bank’s success. As banks need more agility and flexibility to comply with regulations, apps such as Anaplan’s Compensation Planning and Modeling for Banking help solve these technology challenges by reducing operational risks.
Similarly, the private capital market is facing immense pressure from regulators (and investors) to provide greater transparency, as well as more auditable processes. This means moving away from old solutions like spreadsheets, said Lionpoint Group Executive Director Nick Moore. “The overuse of spreadsheets is a key pain point in this financial services segment and has become a top priority for fund and asset managers to eradicate.” Lionpoint presented the recently launched Leveraged Buy-Out app allowing private equity firms to make better investment decisions.
But banks aren’t the only ones subject to new rules—finance and risk in insurance must also comply with a slew of regulatory requirements. To address this, Anaplan consulting partner NMG presented an “Actuarial Modeling for Insurance” app, which enables organizations to project the income statement and financial and solvency position of an insurance company based on various statistical methods. The app also allows users to run stress tests to compare the organization’s capital position against regulatory requirements. “The projection model blends the financial and actuarial assumptions to achieve an internally consistent view of the business plan across the business,” explained Matthew Maguire, partner at NMG.
The discussion also touched upon transfer pricing, a common concern for multinational banks, insurers, asset managers, and other financial services firms. Transfer pricing has become a very hot topic recently as tax authorities, regulators, and internal stakeholders are asking more questions today than before. However, according to Peter Barlow, tax director at PwC, “Many groups still execute these complex processes using manual spreadsheets. As a result, processes are inefficient, lack transparency, and do not tell a coherent story.” PwC addressed this issue by developing a transfer pricing model in Anaplan. Financial institutions can use the model to manage transfer pricing with a high degree of auditability and repeatability, as well as forecast and review to reconcile the statutory and management views in order to significantly reduce compliance risks.
Across the board, financial services teams are increasingly involved in more collaborative modeling and forecasting to overcome challenges in the market—and this includes the need for greater data transparency and granularity, along with forward-looking capabilities for finance, risk, regulatory, tax, human resources, sales, and many other functions. Anaplan’s fast-growing network of subject-matter expert partners demonstrates our strong commitment to the industry, and we will continue to work closely with partners to help our financial services customers solve the modeling, forecasting, and scenario planning challenges throughout their organizations.