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