Collateral management as a catalyst for innovation - Tapping into cloud can drive efficiency, reduce cost and risk, says Stuart Connolly

Stuart Connolly

Managers who have embraced the transition to cloud-based collateral management have been rewarded. Their teams are focused on mitigating risk (operational, counterparty credit as well as reputational) and increasing efficiencies. Automation enables them to address exceptions rather than tying up staff with manual processes prone to error or with expensive, time-wasting updates to legacy, on-premise technology. Therefore, those with the vision to adopt a cloud-based approach are saving money, time and risk firm-wide. This has implications not only for the back office but for the front office as well.

“Overall, collateral management infrastructure remained largely unaffected by the increased volumes brought about by the pandemic; the technology did its job,” observes CloudMargin CEO Stuart Connolly (pictured), noting this was also the case for CloudMargin itself. “What was exposed, or re-exposed, is that this remains an operational people-based process. Therefore, there is still room for improvement. Ultimately, operational teams had to put in the hard yards to bridge the gaps in automation which CloudMargin is solving for the industry.”

Firms which have shifted to a virtual collateral management platform can see all their collateral in one place, giving them the power to use it much more effectively. “In some cases, we have seen clients using the newest optimisation tools to analyse collateral management, collateral used and the cost of collateral to impact the pre-trade process and trading decisions,” Connolly notes.

Mindset shift in the cloud acceleration

In Connolly’s experience, firms are increasingly taking a holistic, longer-term view and using the transformation of the collateral management process as a catalyst for further change and use of the cloud: “Collateral management is central to the post-trade process for OTC derivatives,” he said. “Managers who recognise this can help spearhead a broader digital transformation across the post-trade chain, as long as existing silos with conflicting priorities don’t interfere.”

A prime example of this is Deutsche Bank, which two years ago chose to migrate its capital markets related collateral activity to CloudMargin’s platform as part of its global transformation programme. This project is providing significant cost savings and improved its client experience through a networked solution, in addition to bringing enhanced transparency, reduced operational risk and simpler processes.

From its perspective, CloudMargin has seen progress in companies’ sentiment toward these solutions. Connolly outlines: “During our first few years in business, we spent significant time explaining cloud technology and demonstrating the high levels of security and robust nature of the platform. Over the years, we’ve seen a mindset shift – eliminating the resistance to cloud technology we used to see. 

“The past year has proven this even more, with many financial firms even accelerating their plans to move tech and operations to the cloud. Firms embracing change are prepared to partner with fintechs like CloudMargin that have a long track record of moving other financial firms to the cloud to help them achieve their long-term strategic goals.” CloudMargin was the first and still is the only collateral management platform specifically designed for the cloud.

Culture change

Moving to the cloud involves a shift in people, process and other technology. It’s a broader change, but if done right, it can position the firm as an agile operation. It can drive down costs, mitigate risk, run efficiently and provide critical data for the back-office operations that can also help the bottom line in the pre-trade process.

“All of this hinges on forward-thinking leaders willing to drive the process. Increasingly, we’re seeing collateral managers who didn’t think of themselves as a transformational leader recognise that they can play this critical role in transforming their organisation,” Connolly highlights.

The building blocks for a successful collateral management transformation project include breaking down silos and establishing an integrated new operating model. This starts with cultural change, Connolly comments: “The industry is fragmented, and sometimes we see departments within an organisation unnecessarily compete against each other. 

“A cloud-based platform with out-of-the-box integrations with all the relevant fintech providers, critical market infrastructure and APIs can help teams connect to any up- and downstream internal system. Such a solution can bring it all together to meet the firm’s goals, comply with regulations, maintain best practices and more.”

Cost as a catalyst

When it comes to the cost of making this transition, CloudMargin finds it is not a barrier but rather a driver toward deploying a platform like the company offers.

“We estimate that firms, depending on the set-up of their current collateral management programmes, can save up to 70% annually by implementing CloudMargin. A web-based, SaaS approach can significantly drive down costs for market participants, be they asset managers, pension funds, insurance companies, hedge funds or large global banks. Enabling clients to lower costs, increase efficiencies and reduce risk is exactly what we set out to do,” Connolly says.

Evolving regulatory requirements, competitive pressures and the need to reduce cost, increase operational efficiencies and lower risk are all catalysts to drive firms along this transformation path. 

“The uncleared margin rules (UMR) have been a huge driver for asset management firms that will continue to come under scope until 2022. These firms will continue to make changes that will position them to meet the requirements and simultaneously gain substantial efficiencies through automation, empowering them to do more with less.

“Operational strategists can use this transformation to give internal teams the ability to see everything firm-wide in one place. This gives them the opportunity to optimise collateral and make informed decisions that can positively impact trading decisions as well as facilitate straight-through processing,” Connolly states.

Standardisation on the horizon

Looking ahead, CloudMargin expects even more centralisation and standardisation to take place. Connolly says: “We envision a truly networked solution that enables firms to centralise on a single utility offering for collateral management, with further automation and exception-led processes. 

“The commoditised nature of collateral processing and ancillary actions means the industry doesn’t need to support dozens of different, and in many cases archaic, platforms but rather can coalesce around a single-networked platform – potentially saving the industry hundreds of millions of dollars while reducing credit, operational and counterparty risk. We also anticipate a further increase in the diversity of asset usage beyond traditional cash and government bonds. Optimisation – on a pre-trade and post-trade basis – will remain an important component of collateral management for a long time to come.” 

Start making change today

CloudMargin created a Tool for operational and collateral management leaders and innovators to get started in transforming collateral operations. Access the tool here.


Stuart Connolly, CEO, CloudMargin
Stuart Connolly joined CloudMargin as CEO in June 2019, after serving as Group CEO for TriOptima AB for more than two years. A seasoned leader in fintech, OTC markets, collateral management, banking and prime brokerage, Stuart was a long-time Managing Director at Goldman Sachs, where he led several key areas for the global firm, including EMEA Derivatives Clearing Services FXPB in the Securities Division and Derivatives Prime Brokerage, covering interest rates and foreign exchange products.