21 Aug 2020

The Importance of Technology and Data in a Merger

Securities Services
Operations and technology need a strong partnership to ensure that they can deliver cost efficiencies and support future growth objectives.


Mergers bring an opportunity to upgrade a firm’s capabilities to the best-in-class technology and servicing. These efforts might have been too expensive or organizationally challenging for a firm to implement without consolidation as a catalyst. Accordingly, it is an opportunity for business units to critically evaluate all of the systems they use to accomplish their core tasks. While high-level evaluation around performance reporting, trading, and customer-facing technologies are often the focus, other back and middle office platforms that handle accounting, billing, regulatory reporting, and information security and governance are often equally in need of modernization efforts.

Consider New Avenues of Automation

It can be challenging to avoid an incumbent retention bias for existing systems, despite the fact that many are not always up to current standards. As firms look toward their future state, it can be helpful to shift this bias by examining where manual touchpoints can be reduced. This analysis is an opportunity to consider new avenues of automation, especially as the joining firms consider how to leverage new amounts of previously unavailable data. These new resources can dramatically increase the return on automation initiatives if they are now scaled across a larger organization.

Firms should also consider which systems support bespoke requests for reporting. Many of these nuances have developed over time as a result of management preferences, regulatory requirements, or oversight for certain asset classes and funds. Ensuring that all systems, processes, and reports are up for evaluation can help eliminate outdated and excessively manual processes from making their way into a leaner consolidated organization. Further, the combined entity may be planning on a new product offering and again, future state considerations should drive systems adoption.

As firms explore adopting new systems and processes, it is critical to define how test environments will be managed and who in each organization owns that responsibility, outlining a risk- mitigation strategy between the two entities and who owns each step across teams. Relatedly, teams should understand the contracts and licenses that each firm has with third-party providers and how those can be transitioned to the new entity. Entitlements, especially around access to critical information and moving information to and from third-party systems, should be addressed both from a need-to-know working level audit, and reinforced by assessment from the executive level.

Drilling Down on Data

Data is part of a firm’s core competitive advantage. Data management is often part of operations and as firms consolidate, understanding the separate entities’ data policies, defining the new joint entity’s data strategy, and managing information through this pre- to post-merger transition are fundamental to success.

Where and how data is collected, stored, and shared has major regulatory implications and can influence where a firm might domicile certain data-related efforts in their new joint entity. Due to local regulations around these issues, not every aspect of data management can be rolled up into a single global strategy. Regulations such as the EU’s General Data Protection Regulation require compliance based on the location of the customers and users, regardless of the firm’s actual location, further complicating data-related regulatory responses. Firms could lose some scale and cost efficiencies as they customize at a local level to address these issues, however, a global governance structure that can work directly with any data aggregators or providers can assist in centralizing and consolidating many aspects of data management.

Asset managers sit on a treasure trove of data that is present in different forms, sourced from multiple points and fragmented across many systems and locations. Firms undergoing a merger will face challenges consolidating, but should view this as an opportunity to review, revise, and plan a strong data strategy and governance model.
Fiona HorsewillGlobal Head of Data, Securities Services, Citi

Data policies and the level of sophistication in how data strategy is approached are likely to differ between the firms, making it important to understand how each respective firm addresses licenses, retention policies, and audit requirements—all of which must be revised and redefined. Senior leadership should consider interim operating procedures around entitlements and data handling, as some users may only manage activities around data migration and will not require long-term access. Transition management teams will also require a clear understanding of who is entitled to historical data and how audit requirements will be satisfied as sources come together to a possible ideal state of a single warehouse or data lake.

Throughout the consolidation firms will want to remain highly attuned to data security, especially as new users are introduced en masse to systems and tools to which they never previously had access. This can create an environment at greater risk of inadvertent data leakage and leadership may consider implementing an interim tool that provides connectivity and visibility into the merging firm, with clear protocols for secure data transfers and management of back-up systems. Where firms have outsourced data management, service providers can assist in leading an evaluation around integrating data systems and governance.

Key Questions to Consider

Technology underpin firms’ operations and a merger can be an opportunity to upgrade systems. Additionally, data is an important asset for firms and getting the most out of the combined entities’ data is a key priority. When approaching technology and data during the consolidation process, here are some three key issues executive leadership should consider:

  1. How can we rationalize and combine legacy systems?
  2. Will we consider technology that sits on top of these systems instead of replacing them?
  3. How will we approach a combined data management strategy?
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