The future product control model The future product control model

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.

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

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

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.

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.

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.

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.

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.

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