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.
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
- 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
- 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
- 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
- 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
- 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
- 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