Lombard Capital Markets
Ben Cole
05 August 2014
In an increasingly overpopulated market, Lombard Capital Markets is striving to build its client base by doing things a little differently, as Ben Cole reveals
Image: Shutterstock
What can you tell us about Lombard Capital Markets?
Lombard Capital Markets (LCM) was established six years ago with a view to providing small- and medium-sized enterprise consultants with an in depth knowledge of derivatives, prime brokerage, securities finance and global custody to financial institutions. After a decade with J.P. Morgan, I noted that a number of consultants were more generalist, lacking the breadth of knowledge to navigate change within the complex financial environment. As such, LCM was established with a view of addressing this gap and bringing a specialised management consulting expertise to improve the bottom line performance of its clients.
Do you differ to other consultancies? What’s your USP?
The core ethos of LCM is partnership. I truly believe the most fruitful relationships are those where the end client is open-minded and willing to work in partnership. The client has to understand that, to truly benefit from such a relationship, it must apply a similar mindset and partner with a consultancy to ensure its strategic goals are delivered. That’s what really separates ‘wannabe’ consultancies from the real deal. With financial institutions becoming more discerning in terms of who they work with, there is little room for error.
n your website you use the phrase ‘delivering front to finance change’—what does this mean?
Quite often people tend to refer to ‘front to back’ change. The nature of change in today’s complex markets raises the need to consider impacts right the way across the organisation. A front office mandated change may ripple throughout the functional areas, even impacting areas such the general ledger and balance sheet reporting. As such, we prefer the term ‘front to finance’ change as it encapsulates what we do.
What are your key areas of expertise?
LCM is incredibly flexible and agile with the ability to build relationships with our clients, integrating seamlessly into the organisation. We achieve this by applying a combination of company and industry knowledge with core consulting skills. Some organisations are more mature than others in terms of change governance, so LCM is comfortable to dovetail with the existing governance model or, where the need dictates, LCM can implement a new governance structure and guide the client carefully though the change process.
A vast number of our engagements are in respect to operational transformation, ie, reviewing the current state, and defining and implementing a new target operating model. We achieve this by addressing the following needs: (i) service, functions and process; (ii) organisation and governance; (iii) technology; (iv) sourcing and location; (v) performance management; and (vi) people and skill sets.
What are the biggest challenges you see affecting the securities lending and prime brokerage markets?
The industry widely acknowledges that the avalanche of regulation-driven change has been unprecedented in recent years. However, tighter regulation and supervision is here to stay. Most recently prime brokers had to contend with Alternative Investment Fund Managers Directive, which saw them pay attention to the strict liability standard and the provisions regarding discharge of liability. This drove fundamental changes to the prime broker operating model and sub-custody networks. In addition, the UK Financial Conduct Authority has recently announced its new policy statement on the Client Assets Sourcebook, giving firms only six months to prepare for compliance. Consequently, there remains a substantial journey ahead.
Prime brokers are also increasingly under pressure to reconsider business models as risk weighted asset (RWA) and balance sheet rationalisation put pressure on revenue generation. As such, the global trend is moving in favour of central counterparties in light of regulators preferring centrally cleared transactions as opposed to the more costly ‘higher risk’ bilateral arrangements.
In terms of securities lending, the Financial Stability Board’s review of shadow banking looms over the market, especially its minimum haircut policies, which would be especially challenging for prime brokers where haircuts are calculated on a portfolio basis rather than trade by trade.
Basel III and the RWA calculation is one of the more important regulations with the ability to impact the lending markets significantly, especially in respect to indemnification. Everyone in the lending industry is aware that, without indemnification, beneficial owners would withdraw from the market, resulting in an adverse effect on market liquidity.
If you could change one thing about the industry, what would it be?
Stop doing things that aren’t working—LCM has noticed there are a number of inefficient and unprofitable bad habits that financial institutions are reluctant to shake off. It’s very easy to become comfortable with a routine. Success in today’s marketplace requires organisation to recognise these habits and the willingness to make necessary changes.
What is next for LCM?
While LCM is still in its infancy, we have a built a small, strong client base by consistently delivering to our clients’ satisfaction and, because of this, our clients tend to stay with us. Some consultancies have an ebb and flow of clients, however, LCM has created a long-term bond with its clients. We want to develop an even stronger brand to become known as the go to consultancy in the market. We can do this by expanding our activities within our current client base and attracting new clients using the strong references we have built to date.
In addition, LCM has developed mutually beneficial relationships with a number consultancies, though we’d like to expand and develop our strategic alliances with our wider peer group, in order to share best practices to further enhance our clients’ experience. After all, we all share a common customer base.
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