Expectations around the UK budget, which was last month, have been consistently making headlines for several months now. One area that is expected to be impacted because of the changes announced by Rachel Reeves is market appetite for M&A activity, with Labour’s rhetoric focusing on enhancing growth in the UK economy. This, combined with a reductionary approach to interest rates taken by the Bank of England and other major economies, should make it cheaper to borrow and finance deals. This may explain why, according to a recent survey of more than 100 leading corporate advisors, a majority (59%) expect an increase in M&A activity levels as a result of the changes made in this budget.
This expected spike in deal activity in the UK should have asset managers thinking about more than the potential impacts on their front offices – they need to be thinking about the impact on corporate actions. A change in M&A activity will inevitably ripple through to the back-office desks dealing with corporate actions, causing a corresponding flood of work that needs to be completed, actions that need to be tracked, and a fresh deluge of corresponding data.
The issue that could be exposed as a by-product of this rise in M&A activity is that historically, monitoring corporate actions has been a highly labour-intensive process, costing back-office departments of those holding securities significant time and money.
Part of the issue is simply tracking upcoming corporate actions events, in a reliable and cost-effective way. Generally, firms are not able to rely on automated systems that flag relevant changes to the upcoming corporate actions impacting a portfolio’s securities, which adds a significant amount of manual work – particularly during periods of elevated activity.
However, a large portion of the inefficiencies that are exposed during periods of busy corporate actions activity can be attributed to poor data quality, which is an issue that continues to dog many asset managers and investment banks. It is a particular issue in corporate actions, where firms must complete multiple source comparison, which can lead to exceptions. When market participants are relying on legacy technology systems, exceptions equate to an arduous, labour-intensive processes.
With this in mind, firms need to look for ways to remove fragmentation and ensure that they are taking a standardised approach to interpreting complex data sets. This requires both the ability to rely on good quality, accessible data, and a reduction in the amount of manual work that has to go into the process. Looking ahead, the importance of automation combined with high-quality data cannot be underplayed.
Embracing the correct technology allows firms to improve operational efficiency, evaluate different data sources, and highlight exceptions. By offering good quality data and making it more freely accessible, this ultimately increases workflow efficiency for processing teams and transforms a currently very manual, time consuming and error prone process into a real time on demand one. This feeds through to making all corporate actions activity more manageable, no matter what the levels of M&A in the market are.
Ultimately, the firms that will manage to effectively control the wave of corporate actions expected to flood the back-offices in this post-budget, lower interest rate era will be those that are less reliant on manual processing and embrace automation through modern technology.
By Yogita Mehta, Commercial Product Director – Corporate Actions, Financial Information, Six
