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The future product control model

The future product control model

The future product control model

Approach and Methodology

As part of KPMG’s wider engagements along with the banking finance function benchmarking (BFFB) report, we have performed a detailed peer analysis on the structure of Product Control (PC) functions of various global banks.

Footprint size assessment

The definition of PC varies across the market. Therefore, to provide a comparative with regards to the size of PC functions, we have used the following approaches:

  • For headcount, we have included core PC processes and added Independent Price Verification (IPV) headcount. Headcount covering other activities has been excluded.
  • Total trading assets has been used as a proxy for the overall size of trading operations and activities supported by the PC functions.
  • Level 3 assets have been used as a measure of relative complexity of the trading business.
Footprint size assessment

Dimensions

KPMG’s survey has benchmarked global peers on these 5 parameters:

  • Daily P/L and Month-end Ledger Reconciliation
  • Independent Price Verification (IPV)
  • Location and Sourcing
  • Organisational Construct
  • Business Partnering

Product control benchmark deep-dive

An in-depth analysis for each of the results for the above parameters.

Dimension 1: Daily P/L and Month End Ledger Reconciliation
Dimension 1: Daily P/L and Month End Ledger Reconciliation

Observations

  • Different models exist across banks with regards to daily P/L and month-end processes. The majority of banks have combined these into same team, however some product control functions split daily P/L and month-end processes into distinct teams.
  • In most cases, this split of processes into distinct teams has facilitated offshoring or a separate roll-up outside product control e.g. middle office or financial control.
Dimension 2: Independent Price Verification
Dimension 2: Independent Price Verification

Observations

  • Independent Price Verification (IPV) processes are generally centralised within a single team.
  • Most of these teams report to the Head of Product Control, while others have a reporting line directly to theCFO.
  • IPV teams are responsible for ensuring models are calibrated for valuation and price testing.
Dimension 3: Location strategy
Dimension 3: Location strategy

Observations

  • Activities that are located offshore or nearshore are generally production-type processes, with analysis carried out by onshore resources.
  • Managing shared service sites as single network on a managed service rather than team extension basis.
Dimension 4: Organisational construct
Dimension 4: Organisational construct

Observations

  • Product control functions almost universally operate with a matrix management structure, with both regional and global line roll-ups. This satisfies regional regulatory requirements and business demands.
  • The solid reporting line in this matrix is generally global, which aligns with the structure of the front office.
  • In almost all cases, the management has “double hat” roles, with individuals covering both global and regional roles.
Dimension 5: Business Partnering
Dimension 5: Business Partnering

Observations

  • Over the years, the degree of focus on control vs. business partnering activities within product control has changed with gradual move away from business partnering to focus on control activities.
  • A significant number of product control functions also act as business partners. In others, this function sits separately with a CFO or decision support/MI team.
Evolution of the future Product Control functional model
Evolution of the future Product Control functional model

More activities have moved towards Automation with reduced effort from offshore/nearshore teams

Key principles

  • IPV pulled into a common unit servicing all asset classes and reporting to finance
  • Clear demarcation of business partnering activities in the CFO team vs control activities in PC
  • FSS arranged by process and not under a single organisation
  • Front office and other upstream functions are the owners of data integrity
  • Single P&L and balance sheet system
  • Flexible and saleable systems and tools
  • Reconciliations fully automated with machine learning to manage exceptions
  • Processing, production functions, analysis and commentary all performed through intelligent automation with review functions performed by nearshore/offshore teams
  • No tolerance for a “we’re different” culture