29 September 2005
Global pressures increasingly dominant on the financial services agenda
Financial services organisations are becoming increasingly global in their reach and ambitions. With the growth in scale
of global operations comes just not the promise of reward, but a step change in the sophistication of ensuing risks and
Andrew Dinsdale, Chairman of KPMG's Financial Services Group said: "Financial services companies are facing up to the
challenges raised by changes in the broader business environment, the economy, the regulatory framework and the forces
of globalisation. Companies are having to assess the many risks and uncertainties this environment poses against a
continually evolving regulatory background."
"Looking at the broader picture, the balance of economic power is shifting dramatically with the emergence of the high
growth Chinese and Indian economies, and the implication of an increase in demand for Western goods and services. Things
are changing in the developed markets as well with a debate of the merits and growth rates inherent to contrasting
economic models. Further flux is introduced by the consolidation plays within market blocs and pressures within the
capital markets. All this in turn has significant implications for financial services companies and highlights the
continued need for effective risk management, systems and people."
A new edition of the KPMG publication Frontiers in Finance entitled Opportunities in a changing environment highlights
four key areas of focus and offers predictions for the prospects for each:
* Growth and business development - The financial services industry is characterised by fewer, bigger companies.
These 'majors' have been rewarded for their scale and are now arguably too big to fail. Those that have successfully
maintained their returns on capital and P:E ratios have been rewarded by the capital markets through strong share
Mr Dinsdale adds "The 'majors' will continue to expand to the detriment of smaller regional players. They won't have it
all their own way though. Smaller companies will be able to compete effectively by concentrating on specific geographic
or product areas or by specialising in delivering services to specific customer segments."
* Efficiency and cost management - Established offshoring locations will have to move up the value chain as they
become more expensive relative to less developed locations. With this wider range of sourcing options the trends towards
outsourcing will continue to grow.
Mr Dinsdale comments "Despite recent successes in the area of process re-engineering and restructuring there is still
significant scope for further improvements. Very few global companies have made the necessary investment in truly global
business operating models because of the sheer cost involved. However, such investment and shared services between
competitors will become necessary for companies if they wish to compete effectively in an environment of diminishing
* Risk and capital management - Financial services companies will continue to develop more sophisticated tolls and
techniques to manage and mitigate risk while maximizing the return on capital.
Mr Dinsdale notes "Reform will be driven not only by regulatory developments, such as Basel and Solvency II, but by the
recognition that a greater understanding of the business will result in better strategic planning and decision making."
* Governance and reporting - In addition to regulators, shareholders and customers will continue to demand greater
levels of transparency and corporate governance.
Mr Dinsdale remarks "IFRS will provide a new standard of external reporting and there continues to be a desire to get
the standard right first time. It provides a great opportunity for financial organisations to significantly change both
their internal management information and external reporting infrastructure in order to improve the quality of corporate
Frontiers in Finance examines a whole range of specific instances where the changing economic patterns of the global
market are providing financial services companies with challenges and opportunities. Areas looked at in detail include:
* The rush by the private banking sector to build market presence in Asia-Pacific
* The risk-return conundrum for banks in their quest for performance improvements
* The challenges of internet security, and
* How risk management exercises can drive process efficiencies and add business value.