Tax and Finance Operate

A bank’s support functions have many similarities, but each is unique in its own important way. Tax, finance, risk and compliance all demand constant rigor, high levels of accuracy, and a winning combination of talent and technology. 

At the same time, banks have to fight to keep pace with increasingly complex regulation and governance requirements, coupled with the acceleration of technology and a highly fluid workforce. Banks’ investment – both in time and money – in acquiring advanced technology and talent to run their support functions efficiently is relentless.

This continuous effort to keep up has led to support functions sitting firmly in the crosshairs of cost management. As a result, banking leaders who are seeking new ways to reduce the cost pressure of their support functions are increasingly turning to external service providers to help carry the load.

Managed services can lift the requirements of non-core but critical activities, such as tax and finance, and is an alternative way for banks to increase operational resilience while curbing costs. Crucially, it gives banks the freedom to grow and perform.

The pace of change affecting tax and finance functions, which has only been increased by the impact of COVID-19, means banks cannot afford to postpone transforming these functions if they want to boost operational resilience and create greater value for their organizations. An EY survey highlighted that 73% of respondents said they are more likely than not to co-source some critical activities in the next 24 months to add value, reduce risk and decrease cost.

Recently, one global bank decided to collaborate with the EY organization to improve the performance of its tax and finance function, to pursue greater value in the bank’s front-end operation.

From the outset, the EY teams understood that for their relationship with the bank to work, it needed to clearly outline how managed services could not only reduce the cost pressure of the tax and finance functions but do so in a way that would improve the bank’s risk profile, transparency and governance model.

Trust between both parties has been fundamental to this ongoing collaboration, especially since the outbreak of COVID-19. The unforeseen impact of the pandemic has accentuated the need for a strong virtual working relationship with the bank, to help enable stable business continuity planning for the months ahead.

There are two main stages to any managed services operation: transition and transformation. Transition requires a large amount of trust between the client and the managed service provider because it is the stage during which the client gives the provider access to their financial data. According to John Thomopoulos, EY Global Banking & Capital Markets Tax Leader, “If a bank is going to turn around and hand you their most sensitive information, they have to trust you. So, the fundamentals of client services are essential.”

In the case of the EY organization and the bank, the transition phase first involved an assessment of the bank’s existing state of operations – how its tax and finance function operated in-house, and how core elements of the function could feasibly transition across to EY teams as part of a managed service.

Once this stage was complete, the EY teams started to work on transferring the bank’s financial data to EY’s secure, technology-enabled environment. This involved cleaning the data, restructuring it and presenting it in a format whereby the bank could use it many times for a variety of different purposes.

The benefit of leveraging EY technology

The transition to a managed services approaches also opened up the ability to drive ongoing and multidimensional cost savings.

First, the bank benefits from the EY organization’s significant ongoing investment in advanced technology. This not only makes the bank’s data more accessible and enables more opportunities to identify insights and drive value for the bank, but also reduces the need for the bank itself to invest in developing – and maintaining – its own tools. Generally, this type of long-term investment and maintenance of technology is difficult for banks to manage and can be avoided through managed services.

Second, a managed services approach removes the bank’s requirement to offer frequent technology training for its employees in tax and finance functions, which can be costly. Instead, the EY team commits to training and upskilling the bank’s employees in a secure, regulatory-compliant environment during the transformation phase.

Risk dispersal and data protection

Another benefit of managed services lies in how they can improve the risk profile of a bank’s tax and finance function. For banks, the cost of risk failure can be severe – from a reputational hit with customers to financial penalties from a regulator, or even being shut down entirely, depending on the severity of the issue and the legislation of the affected market.

A huge part of this risk profile concerns banks’ data. Although facilitating secure remote access is one way to curb risk exposure, being able to manipulate large data volumes to produce relevant output presents an altogether different type of risk. With many bank employees having to work from home during the COVID-19 pandemic, banks confronted challenges giving people access to the right technology, while maintaining the security of customers’ data when accessed remotely, and bandwidth issues.

One of the most important processes the EY team had in place before its engagement with the bank was a technology-enabled approach to managed services. In the world of COVID-19, this not only provides the bank with greater efficiencies and risk management benefits but enables the creation of a resilient managed services environment to withstand the unanticipated challenges of a sudden move to distance working.