New operational due diligence – Top five things to consider

In recent months, the path of changes has accelerated as the Securities Services industry has experienced, on a large scale, remote due diligence visits (DDVs). What are the key factors to consider for insightful DDVs?

Why due diligence can change

Anyone who has ever taken part in the due diligence process knows that it can be a physical and time consuming exercise for all parties. In our case, we regularly receive visits from clients that we service and conduct extensive due diligence on our network of sub-custodians – so we know what it feels like on both sides of the process!

Over the past months, restrictions on travel and social distancing have accelerated projects to put in place a more sustainable Due Diligence framework for our clients – banks, asset owners and asset managers -.

For instance, we can easily demonstrate remotely certain elements of due diligence such as systems, processes and controls. But other key insights from due diligence on site visits are certainly more challenging. With this in mind, what are the biggest factors that need to be reconsidered ?

1- Embracing technology

The immediate challenge is how we, as a service provider, can facilitate our clients’ due diligence virtually without losing the all-important human touch, factors such as the authenticity of a live conversation rather than a polished pre-recorded voiceover are imperative.

During the last few months, the asset servicing providers quickly moved from planned physical visits to operations centres to using video conferencing platforms to allow clients to engage with subject matter experts and discuss processes and procedures. 

Feedback has been positive from these early interactions, but the loss of the intimacy gained from an in-person visit did not go unnoticed. Which brings me to point 2: technological solutions is all well and good but we must not lose sight of the importance of human interaction.

2- Maintaining the human touch

With onsite operational due diligence, clients are getting to know the people behind the process. We continue to be a relationship driven business. Meeting those responsible for the day-to-day delivery of our service is a fundamental factor in building trust between us.

Whilst technology is going to have a major role in how we go about these meetings in the future, there are also ways in which each of us is going to have to adapt personally. With so much of our communication being non-verbal, and even with video, body-language becomes harder to read. We will have to be ever better at actively listening and drawing out questions to ensure the effectiveness of meetings.

3- Recreating the client experience

At BNP Paribas Securities Services, we have set ourselves a goal to get us as close as possible to replicating the experience of a physical due diligence visit. We are looking to ensure that clients can see people, share screens, and experience system demos. 

Perhaps the biggest challenge has been in recreating the ‘floor tour’ at our BNP Paribas Securities premises. A virtual tour can be easily achieved but it does not allow us to demonstrate the real power of what we do. To address this challenge, we are testing simulated live floor tours that provide a window into our operations centres. This allows our teams to speak live with clients whilst still showcasing the full capabilities of our service delivery. As we move towards a more agile working environment in the future, we will also be able to have other key staff join live from their remote working environment so clients can experience a true feel of how we work on a day-to-day basis.

4- Time to revisit AFME Due Diligence Questionnaire (DDQs)

As discussed during the Virtual Network Forum in July, it is clear that the current situation is going to bring about changes to AFME’s DDQs. Assumptions around Business Continuity Plan (BCP) sites can now look outdated as people are working from home rather than travelling to contingency locations.  Network managers require a change of focus with further questions needed around maintaining systems integrity and information security in a remote environment. AFME has been planning to incorporate further items around operational resilience into its questionnaire.

5- Learn for a greener future

Whilst the regulatory requirement for conducting due diligence on service providers such as BNP Paribas Securities Services will remain, there is perhaps now room for more conversations about how this is carried out in the future. As we start to get used to conducting ‘virtual visits’, attention is shifting towards how this can become part of our ongoing solution.

Virtual due diligence has many advantages – it can be delivered more flexibly, is less costly and avoids travel. There is, and always will be a benefit to physical tours, but perhaps a blended approach may be appropriate. Aside from the time and cost advantages, we should be mindful of the environmental impact of travel too. There is an opportunity here to play a small part in building a more sustainable future, one that we have an obligation as a company, industry and society to take it.

Making the most of new Due Diligence Visits

In a changing world, the post trade industry is testing with success many new ways of working, increasingly digital and more sustainable from an environmental perspective. However each of us will have to keep in mind the tremendous value of true human interactions, especially as due diligence are crucial to build partnerships between the client and its providers. In the future, we expect digital due diligence visits to be combined with physical meetings, enabling more frequent exchanges and quicker reactivity to tackle some topics.

Article initially published in Simon’s LinkedIN account : here