A new English word "back office" has appeared in Russian everyday life. What it is? What functions does it perform? In what companies does it exist? Let's try to understand in more detail.
Back office. What it is?
These divisions exist in many organizations. A back office is a department or department of a company that has certain functions. We are talking about routine, administrative and maintenance. Traditionally, the functions also include information Technology(administration and support service), personnel department and accounting department.
In some organizations, additional areas of work that the back office should perform are separately prescribed. What is this? Often, employees of this department are engaged in statistical and analytical accounting of sales, purchases, stock balances and archiving.
If this back office is a division of the bank, then the functions include the execution of clearing operations, current settlement and cash services, and so on.
The history of the back office
At the initial stages of business development, the development scheme for the premises of any company was special. The foreground was occupied by the so-called front office. This was done so that customers had the opportunity to quickly and easily find the right employee. Naturally, management invested in this room significant funds making expensive repairs, cleaning and furnishing. The front office had to make the best impression as it is the "face" of any company.
Employees must also match the style of dress and behavior. This is the public side of any company.
The back office was traditionally located in the background. This is a place in which the production itself was carried out, there was a system of administrative premises, various departments, warehouses, and so on.
Therefore, these areas have traditionally been dirty, gloomy and not very well maintained. The presentability of these premises was not well monitored, as clients never appeared in them. Naturally, to appearance employees are not subject to special requirements. IN more paid attention professional skills and skills.
This division of the office into two large divisions that perform different functions has proven itself well and exists to this day.
Front office employees create a beautiful "picture" for the company. At the same time, it is thanks to the back-office staff that the company develops and prospers. Why? Let's consider.
Significance and importance of the back office for the development of the company
Practice shows how great the role of this unit for the organization.
First, the back office helps maintain a company's reputation in a highly competitive environment. Naturally, if employees perform their duties well and clearly. After all, for any client, the main criterion for a good company is a quality service. Thanks to the back-office employees, a full cycle of a particular operation is completed.
Secondly, risk management is also carried out by the back office. What does it bring to the company? It is the employees of this department that compile reports, select data, factors and make calculations, on the basis of which management decisions. Therefore, their correctness and accuracy is very important for the future of the company. Employees perform extremely responsible work, significantly reducing risks.
Thirdly, the back office service is also developing new methods of savings and rationalization proposals. Naturally, directly employees do not earn financial resources for the company. But they can indirectly influence this process.
Back office at the bank
It is an operating and accounting unit. Thanks to his work, the activities of the main departments are ensured.
The back office deals with the accounting and registration of transactions with securities, the management of liabilities and assets, as well as settlements with clients. But this is just the tip of the iceberg.
The back office performs the loan processing operations. In addition, employees are often involved in account opening, bookkeeping and risk management.
Back office. Documentation and support of transactions in the securities market
In banks, the back office often consists of several departments. Especially if the organization makes a large number of transactions in the market valuable papers. The duties of employees include electronic and documentary registration, their support. Let's dwell on this in more detail.
First, the back-office employee maintains a register of transactions, draws up a contract for the sale of securities of a certain issuer.
Next comes the process of re-registration of securities. It's about transferring ownership. To "start" this process, the back office employee needs to issue a transfer order and legalize the current transaction.
After the re-registration is carried out and the supporting document is received, the employee controls the final settlement process.
A very big responsibility is imposed on the back office employee. If there is the slightest inaccuracy in the process of paperwork, the transaction is invalidated. As a result, the client will suffer, and the company will receive serious losses.
In addition, the back office deals with analytical (internal) transactions between departments in the organization in the system of financial redistribution.
In recent years, various back-office automation programs have often been used for the trade sector.
Retail Back Office
When organizing a business, the leader faces many problems. Need to ensure shopping room goods, automate warehouse accounting at the enterprise, manage pricing, interact with suppliers and branches.
In order to solve these and many other tasks, as noted, there are special programs for the back office.
In system retail employees of such a unit will help control the arrival and release of goods, write off and move, revalue, carry out returns, cash and banking operations, and work with commercial equipment.
The software package can have different configurations: non-food retail, convenience store, mini-market or supermarket. There is currently a choice.
Back office in network trading
The main areas of work in network trading are:
- making changes and additions to a large range of goods;
- data exchange between departments;
- maintaining centralized accounting;
- obtaining operational reports on the functioning of branches, etc.
To facilitate work and ensure the interaction of the office with the network outlets, often use an automated version of the back-office. These programs allow the organization to work more efficiently and quickly.
Back office in catering establishments
In the work of employees of the back-office of the enterprise Catering mostly current operations. They traditionally include the following:
- performance of routine mandatory operations;
- maintaining commodity and warehouse accounting;
- food production control process;
- data collection and analysis;
- making report.
Depending on the volume and turnover of the organization, the back office in trade usually has from three to thirteen or fifteen people.
Currently, as noted, there are automated systems to facilitate the implementation of operations that must be performed by employees. This, of course, is a positive moment for the head of the organization. But not always for workers. Practice shows that the acquisition of automated systems that perform most of the back-office work leads to a reduction in staff.
It is not difficult for us to imagine what work in the office looks like, even if we ourselves have never had such an activity. However, as globalization grows, new previously unknown English terms come to us every day, the meaning of which is not always clear. Therefore, today we want to help you understand the terminology associated with working in an office, namely, what is a back office, front office and middle office.
What it is?
The front office is that division of the company in which employees are more likely to work with clients, buyers or customers than to perform service services and internal business functions.
Depending on the direction of the company, the front office performs different work. So in financial companies this structural unit is responsible for sales and trading, in banks - advising clients, opening and closing deposits, obtaining loans, in insurance companies, the front office is the direct conclusion of contracts for insurance services.
In the back office, things are different. In this department, they are busy with the internal routine, conducting the affairs of the company, and administration. This also includes Customer Service customer support, vacancies and employment department, internal business accounting, IT, analytics, accounting for past years.
The back office ensures the work of all departments of the organization. Employees here do not have direct contact with customers and customers and do not perform work related to the clientele, but are engaged in those activities that allow the company to work properly.
The middle office is the link between the front and the back. This division usually does not communicate directly with customers, but performs direct verification and processing of transactions related to external contacts of the company. For example, in a bank, the middle office checks credit history, enters information into the database.
The middle office was born to fill the existing information gap between the front and back departments.
Where did the name come from?
It is easy to guess that the terms are of English origin. Front (front) translates as "front", back (back) - rear, and middle (middle) - middle. The name of the front office is due to the fact that this branch is the first with which the client contacts, that is, it is closest to him, ahead of all other structures of the company. The concept of a back office appeared in those days when the construction plan office building provided for the presence of premises for direct contact with people - the front of the office, and the administration and warehouses, the production part were at the back. The so-called Staff only where only employees of the company could go. Middle office - middle, middle, because it is located between the back and front departments in its meaning, but it is not at all necessary that this department should be physically located between the front and back mentioned above structural unit. It is quite possible that middle office employees will share a working space with the back office, but go about their business.
Comparison of back, front and middle office work
Back and front offices are the opposite of each other. The front office is the face of the company, as it communicates directly with customers. They are constantly in the public eye, and the future success of the company directly depends on their competence and entrepreneurship. Back office work is shadow work. Employees of this unit are not seen by customers, they are not known by sight. However, it is this department that deals with the well-being of the company, internal regulations. Front office, back office and middle office perform different functions. The advanced office is engaged in increasing the speed of work with buyers, guests or clients, instantly registers completed transactions for the purchase or sale, is responsible for the safety of the information received and its authenticity. The back office, or the back office, is engaged in analytics, including analyzing completed transactions and profits, is responsible for preparing prices for goods, fixes this data in the database, works with pricing, controls the movement of goods in warehouses, decides which internal purchases need to be made for the firm. The tasks of the back office include the preparation of documentation for transactions made by traders or front-line managers.
The middle office is defined by the following basic roles:
- Product quality control;
- Legal department;
- Treasury Department;
- Management of risks.
The separation between departments usually occurs at the software or hardware level. There may not be an obvious line between them - the border passes only at the level of the system of concepts. However, it is important to separate the work in the back office and the front office at the managerial level and in terms of psychology. The managerial link must be aware that in the department responsible for the internal affairs of the company, the work of professionals, specialists with extensive experience is needed, because they have more responsibility and complex tasks.
Many managers treat the back office or middle office mediocre, relying on front-line workers who are responsible for the success of transactions with direct contacts. However, the importance of internal units must be taken into account for the following reasons:
- Back and middle office staff are responsible for maintaining the reputation of the firm. So high quality service maintenance customers, phone calls for support say a lot about the company and often greatly change the attitude towards it.
- Risk control is the responsibility of the middle office. The management link makes decisions based on the data, figures, calculations and documents that come to them from the offices, so their accuracy is important. The middle office calculates possible risks and prevents losses that the firm could incur.
- The Legal Department prevents an organization from inadvertently taking actions that are contrary to applicable state law.
- Thanks to the accounting department, the internal affairs of the company are always in an orderly mode and not a single cost leaves the database.
Of course, it is worth understanding that all units are equally important. In this article, we managed to analyze the features of the front, back and middle office. Based on this analysis, it became extremely clear that for the proper conduct of business, it is necessary to have a clear division of responsibilities, when each employee and each department performs its task, and in the aggregate, a single uninterrupted operation of the organization is obtained.
Two or three years ago, most large Russian banks were dominated by a simplified structure: front and back offices. But in Lately the cryptic phrase “middle office” became increasingly heard. Mysterious because a simple translation of the name does not always give a complete understanding of the tasks of this unit. Today, middle offices in the world's leading banks are departments that must carry out independent evaluation portfolios of the bank, monitor compliance with various limits and prepare daily current reporting for risk managers.
In Russia, until recently, the functions of the middle office were "smeared" between employees of the front and back offices. “Our “middles” in banks began to appear with the transition from formal risk management structures created to meet the requirements of supervisory authorities to centralized structures that manage risks in accordance with international standards,” says Semyon Alperin, Deputy Head of the Limits and positions of Prom-Svyazbank.
The frequent discrepancy between the duties performed by the standard “back office” and “front office” gave rise to numerous conflicts on the topic: “I am a trader, and I must trade, and not enter “tickets” into the system” or “the back office “processes” ready transactions, and does not bring them into his own system. Disagreements of this kind gave rise to the logical and inevitable emergence of a new division - the middle office.
Today, in Russian banks, the middle office most often performs two functions: control of commercial lending operations and control of operations in financial markets. The "middle" differs from the back office in the generalization of data and a broader vision of the picture of the structure of the bank's liabilities and assets.
The increase in turnover in the financial markets and the experience gained by bankers as a result of the first serious banking crises, especially as a result of the events of 1998, played a role in the organization of middle offices in some Russian banks. The losses incurred and the bankruptcy of a number of banks forced us to think about risk management and the introduction of organizational structure such a division as risk management, to which the attitude was rather cool before. In many banks, risk analysts were absent in principle. With the advent of divisions responsible for analysis and forecasting in banks, it became necessary to control the restrictions established by risk management on the magnitude of credit and market risks.
“In Russia, the number of banks with middle-office divisions in their structure does not exceed 5%,” - Igor Shiyanov, Alfa-Bank.
“In a number of banks, it was decided to separate control functions into a separate structure, since risk management (RM) is still an analytical division,” Igor Shiyanov, head of the department for controlling limits and positions at Alfa-Bank, tells BO. - As a result, a middle office appeared, which is responsible for monitoring the execution of risk management orders by traders, as well as for the formation of positional reporting. We can say that RM carries out risk management with the help of the middle office. Taking into account that the middle office should ideally control the limits on all markets in which the bank is present, this division began to accumulate summary information on all positions of the bank, as well as on the current financial result, which eventually became useful not only for risk management, but also for top managers of the bank.
The name of the division - middle office - fully reflects its essence: it is no longer a front office, but not yet a back office or accounting. It's right in the middle, as the name suggests. For example, a trader (front office) concludes a deal to purchase securities, the middle office must enter it into the system, the back office must pay, the accounting department must make financial statements. Or another option: the front office has agreed to issue a loan to the client, the back office transfers money, and the basis for the transfer is an agreement and that’s all accompanying documents- prepares the middle office.
MIDDLE OFFICE IN ALFA-BANK
The middle office of Renaissance Investment Management Bank consists of 14 people, which is quite a lot on average in the market. This is explained by a wide range of functions and tasks performed by this unit.
Three people in the middle office - a group for the establishment and processing of transactions. They are responsible for the correctness of transactions in the system and interact with traders, back office, client managers, risk managers for correctness and timeliness of data reflection.
Two employees are engaged in the establishment and preparation of documents for "structural" and non-standard transactions.
Nine specialists are client managers. They provide analytical reports clients, make comments on the reports: on the composition of the portfolio, on the methodology for calculating remuneration, on the methodology for calculating profitability, etc. Also, the tasks of client managers include consultations on standard products, participation in the development and execution of documents to support individual and structured transactions. They also follow the client's instructions and track client orders, interact within the middle office, with the back office, lawyers, risk managers, accounting and clients.
“Most advanced banks and companies have created their middle offices based on Western experience,” says Irina Fedorova, Head of Operations at Renaissance Investment Management. - In both cases, this is a subdivision that performs an auxiliary function in processing transactions. In "structural" transactions, the middle office takes part in its development, correct design and subsequent control, and if standard transactions are carried out, the “middle” issues “tickets”, enters transactions into the system and controls subsequent execution.
There are other approaches to the functionality of the middle office in the still not fully formed Russian practice. Since this division is rare in the structure of banks, its definition remains vague. In addition to directly controlling functions, the “middle” is often entrusted with a variety of non-core tasks: from sales functions to a department responsible for marketing or developing a regulatory framework.
Or maybe it shouldn't be singled out?
World practice, superimposed on Russian reality, often raises questions and doubts. So, regarding middle offices, a significant part of the banking community thought: is it worth separating this component into a completely separate structure?
When a trader does not know which employee of the “back”, depository or accounting department he should contact, it is convenient and correct for him to contact the middle office.
The need for this distinction can be justified by specific example investment bank: the front office concludes transactions, its specialists work with such concepts as "position", "security", "current financial result". The back office works with the concepts of "deal", "confirmation", "registration", "agreement". At the same time, the front office, that is, traders, is of little interest in the limits. If they calculate any risks, they do it only for themselves, they consider their potential bonus. Traders do not coordinate transactions with each other in any way, and if individually each trader's portfolio can be quite diversified, then when the bank's portfolio is considered in aggregate, it may turn out that together the traders bought a bunch of Gazprom shares.
It is the middle office that should add up these portfolios and look at the concentration of certain stocks or bonds and calculate the limits for the entire bank. And you need to do it in the current mode. The same back office is not interested in why the shares were bought at a certain quote, it only deals with the execution of transactions. So it turns out that between a trader who thinks about his own benefit, and a back office that thinks only about registration, there should be a middle office that will coordinate their activities.
The middle office is necessary as an organizational component, an independent structure that has nothing to do with business and is not interested in financial results. This is a dedicated, isolated "cold head" that exercises current internal control.
At the same time, independent does not mean separated from others. On the contrary, it is the middle office that is the link, its important function is to optimize the interaction between the bank's divisions, communication with all divisions. This is especially important when conducting complex "structural" transactions. The middle office is delegated the functions of current monitoring and control, to some extent it turns out that the middle office is forced to streamline the bank's activities.
The presence of a large staff of bank employees sometimes leads to difficulties for traders, they do not know which employee of the "back", depository, accounting department to contact if they have questions. Therefore, in order to save time, traders prefer to resolve any issues related to their operations by contacting an employee of the middle office. There is also a connection in reverse side. This imposes certain obligations on the qualifications of the “middle” employees, who must solve diverse tasks.
EXAMPLE OF MIDDLE OFFICE ORGANIZATION
The middle office in Alfa-Bank is a division that, in the process of development, in addition to the main function of limit control, has taken over the implementation of a number of operations inherent in the divisions of reporting, treasury, and others. Management is functionally divided into three parts: control of investment operations, control credit operations and control of payments. The functions of the middle office include control not only of internal limits, but also control of a number of restrictions set by external regulators: the Central Bank of the Russian Federation, the Federal Service for Financial Markets.
The second aspect of the activity is the formation of multi-level reporting both for risk management and for other departments of the bank. The information prepared by the middle office is also used in decision making collegiate bodies bank and department heads.
A fairly large part of the time is spent on maintaining the bank's information systems: setting up new instruments and counterparties, downloading quotes, updating limits. Middle office employees also monitor the presence of short positions, and for a number of instruments they close them on their own. Alfa-Bank's middle office employs 20 people, and the workload for each employee is quite large.
Middle office needed
only big banks
Not all banks have the need to organize a middle office. In Russian practice, the middle office is mainly found in banks with foreign capital, where management is carried out by Western managers, or in banks that widely use Western experience. Almost always, a middle office is present in the structure of investment companies. In small banks, this function is distributed between the front and back offices, but the middle and especially large ones are required.
“Most often than others, such structures are created by investment and universal banks,” notes Igor Shiyanov (Alfa-Bank). - The presence of a middle office in a bank operating mainly in the lending segment is exotic. I think that in Russia the number of banks with middle office divisions in their structure does not exceed 5%.
If we talk about the scale of the business, then the middle office is needed mainly only by large banks, banks with a strong investment component or banks with large turnovers in the financial markets. In this case, the allocation of employees responsible for limit control to a separate unit is advisable. In addition, only a large bank can afford the operating costs of additional staff and the purchase of special software. The middle office usually appears at the stage of growth or expansion of the company's business. And if the bank is not indifferent to the quality of customer service and wants to avoid confusion in the work of the front and back offices, then the middle office becomes a necessary link. Some experts believe that a middle office is a must-have for the top twenty Russian banks, while in other cases this structure cannot be called widespread or necessary. At a small bank that does two trades a week in bills, four in stocks and five in bonds and issues several loans, an employee of another specialty: back office or risk management is able to process a small amount of data. They can easily cope with all the tasks, there will still be time to complete transactions.
Every banker wants to know where the middle office sits
“If you have a good IT system, the location of the middle office does not matter at all, since it allows you to provide full-fledged communication between the front and back offices,” says Semyon Alperin (Promsvyazbank). - But in practice, most often the middle office is located next to the back office. Organizationally, the middle office is part of the operational department or the risk management department. In Promsvyazbank, it is included in the Finance and Risks block, that is, it relates to risk management.
So far, there has not been an unambiguous approach to the question of which division the middle office belongs to, everything depends on the predominant nature of its activities. If the middle office does not physically “sit” on the territory of the front office, then clients, as a rule, should not visit it. Sometimes middle employees communicate directly with customers, but this is the exception rather than the rule. Despite the fact that the “middle” functionality does not provide for direct communication with people, this does not exclude interaction with counterparties using various means of communication.
Between a trader who thinks about his own benefit, and a back office that thinks only about paperwork, there should be a middle office that will coordinate their work.
But if a middle office practically does not need a separate room, then its technologies and equipment are very specific and independent. Due to the specifics of their work, middle office employees must have the highest level access to the bank's information systems, allowing them to receive any information about transactions subject to control, the base of counterparties, quotes, etc. With the normal organization of the technological process, control is carried out automatically, and the employee of the middle office intervenes in the process of authorizing transactions in exceptional cases.
Therefore, the middle office needs specialized software that allows it to cover all the markets in which the bank operates. This is due to the fact that often front- and back-office systems do not allow obtaining all the necessary information in sufficient volume and in the required format. At the same time, the system in the architecture should occupy an intermediate position between front- and back-office software and not allow trades that have not passed limit control to get to the back office for further processing.
The point of view of some experts is interesting, who believe that the very name “middle office” could have appeared precisely among the developers of IT solutions for risk management. It was they who could divide the solutions into three levels: attribute technologies for conducting transactions to solutions for the front office, for the middle office - for controlling limits and risks, and for the back office - for processing transactions. According to the hypothesis, such a division was natural and therefore easily took root.
There are other approaches to the functionality of the middle office in the still not fully formed Russian practice. Since this division is rare in the structure of banks, its definition remains vague. In addition to directly controlling functions, the “middle” is often entrusted with a variety of non-core tasks: from sales functions to a division responsible for marketing or developing a regulatory framework.
Caesars of the banking world
In their work, middle office employees are always somewhere in the middle, at the intersection of some kind of “conflict of interest” between the front and back offices. “The tasks that middle employees have to solve are to find a compromise and an acceptable solution for the “front”, “back” and the client at the same time, - Irina Fedorova (Renaissance Investment Management) reveals the specifics of the work. - At the same time, the interests of the company and the law are observed. So if a front-office employee knows how to trade in the RTS system, and a back-office employee can be a narrow specialist in a particular area, for example, he knows how to transfer securities in a depository, then the “middle” employee should be more versatile. He needs to know, at least in general terms, the entire cycle of passing a particular operation, from the moment it is concluded to the calculation of taxes on the profits received. Otherwise, he will not be able to effectively coordinate the process.”
In addition, in order to perform control functions, a middle office employee must understand the features of the front office in sufficient detail in order to speak the same language with traders. Of course, he is obliged to understand the algorithms for calculating positions, which in different types transactions are defined in different ways. At the same time, the specialist must understand at least a minimum of the specifics of the work of the back office and the depository, since questions on transactions may also arise from representatives of these divisions of the bank. In the absence of a perfect IT system in the bank, which allows generating both detailed and consolidated reports, additional requirements are imposed on the employee for working with large data arrays. Often former analysts and traders work in middle offices.
“Personal qualities are also important for a middle office employee: endurance, concentration, communication,” continues the list of requirements Alexey Kuzmin, head of the middle office of IC FINAM. - During the day, you have to communicate with customers a lot, and in a rather stressful mode. For example, if we are talking on the forced closing of a position when there are not enough funds on the brokerage account.
Since the employees of the middle office work with a variety of automatic information systems, then they should know not only banking products, but also understand programming, know the SQL language, and be able to work with databases.
With a certain organization, the middle office needs not only universal omniscient employees, but also simple “hard workers”. For example, in one of the Russian middle offices there are employees who perform the functions of a trader assistant. Traders give them information about the transactions that they carry out in external systems, and assistants enter transactions with all parameters into the bank's accounting system, where, in turn, limits are controlled. It's pretty mechanical work, but it can also refer to the middle office.
Sergei Rybin,
Deputy Chairman of the Board of Stroycredit Bank:
Middle office supports non-standard services
As the product line expands, more and more credit institutions create full-fledged middle offices. The need for them is experienced primarily by banks that actively offer services that are not fully standardized. Promotion of such products involves active interaction with the client to accurately determine his needs and analyze creditworthiness. In some cases, it becomes necessary to provide additional documents and reporting. It is up to the employees of the middle offices to successfully solve such problems. They are often also responsible for risk analysis. In Stroycredit Bank, the main activities of the middle office are active work with clients attracted by the front office, transaction support and risk analysis.
Maxim Markov,
Head of Financial Institutions Department of Globex Bank:
The middle office is the accounting department of the treasury
In fact, the middle office is the accounting department of the treasury. As you know, one of the main tasks of the treasury in any bank is to maintain the liquidity and solvency of the bank, including through various operations in different sectors of the financial market. In this regard, one of the main tasks of the middle office is to maintain the bank's payment position in a different time perspective, based on information from the bank's departments: client, credit, settlement and others, including from the treasury itself. Based on this information, the middle office draws up a payment plan for the bank. With the help of it, the bank's treasury manages its liquidity: either it places excess liquidity on the financial markets, or, conversely, it reinforces the bank's liquidity through the use of various financial instruments. In addition, the middle office records and controls the operations of the treasury itself in order to comply with the limit of open currency positions and manage risks on open positions.
Valery Naumov,
Deputy Chairman of the Board of Soyuz Bank:
Middle office is full support deals
In the recent past, there was no clear definition of the functions of the middle office. And its role was performed by departments or lending support departments. With a small volume of transactions, such a "middle" model is possible even now, when one unit draws up, issues and services a loan. But in the conditions of business development, banks tend to separate the functions of "front", "middle" and "back". In our bank, the middle office is a division responsible for retail credit transactions in terms of risk control on them at the stage of issuing a loan and further support of the transaction until full repayment. "Middle" provides feedback on transactions in the bank and, in fact, is a tool to improve the manageability of the bank. Middle employees, in addition to their functions, must know the basics legal aspects and accounting of credit operations.
Alexey Kuzmin,
Head of the middle office of IC "FINAM":
Middle office in investment company
Traditionally, the functional purpose of the middle office of an investment company is the implementation of brokerage and dealer operations on the exchange and over-the-counter securities markets. FINAM's traders work on all Russian stock exchanges: RTS, MICEX, MFB, St. Petersburg stock exchange. The middle office accepts and submits client orders for the purchase and sale of securities, monitors client positions, including control of the margin level at the close of the trading session and the amount of the client's debt to the broker. Employees of the middle office monitor the risks arising from transactions and provide information interaction with all clients in whose interests transactions are made. A risk management system has been created in the middle office, which allows you to earn on any movements stock market, including during its fall.
06JunWhat is Back Office
back office is a term referring to that part of business operations that are aimed at solving problems necessary for the normal functioning of the company. This definition comes from the tradition of placing technical and other non-public departments at the rear of the business facility.
What is a back office, in simple words.
In simple words, the back office is the company's employees who do not interact with the public. They provide all the technical activities of the company, which are usually hidden from view. Examples include such departments as accounting, IT - department, warehouse workers, and so on.
The main components of the business.
Traditionally, almost any business consists of several areas that form a coherent and working structure companies. Each of the areas in a strict order performs its tasks to ensure the work of other departments.
Company architecture:
- Front office;
- middle office;
- Back office.
Now let's look at each sector in more detail.
front office is an area of the company that is responsible for the direct interaction of customers with sellers. This can include: salespeople, sales managers, consultants, investment brokers, traders, and so on. In general, this category can include those employees who directly generate income for the company, so to speak, make real money. In addition to specific specialties, it is customary to call a showcase of a commercial site, in particular an online store, a front office.
middle office is a field of activity in which administrative and managerial personnel work. This includes analytical departments, financial management departments, marketers, and so on.
back office is an area that does not directly generate revenue for the business, but provides vital support and administration. These include: the personnel department, accounting, logistics, technical staff, postal and warehouse departments, IT - department. By analogy with the front office, the internal administrative part of the site, to which ordinary users do not have access, is usually called the back office. Sometimes there are variants of the use of the term back office as a definition personal account in any internet project.
What is the difference between front office and back office?
After reading the above short definitions of these areas of employment, we can conclude that the main difference lies in the public interaction with clients. It should be noted that there is no significant difference in wages between these niches. In this matter, a specific profession and the duties assigned to a person play a significant role.
When carrying out lending activities of a banking institution, it is important to delimit the functions of bank employees in order to avoid a situation where one person is responsible for the final result of a particular banking operation.
The bank's credit process is a multi-stage one and requires both the collection of information about clients, the assessment of relevant documentation, constant communication with clients, and the preparation of various kinds of agreements and regular credit monitoring. To do this, each step of the lending process must be well thought out and distributed among loan officers.
Credit powers can be delegated different ways. In particular, powers can be distributed among individual employees of the credit department, groups of employees or various departments. The process of delegation of credit authorities is complex, since it requires not only the appropriate response of the loan officer to the needs of the borrower, but also the necessary qualifications and ability to make decisions.
In the activities of the credit department, the following areas of work can be distinguished to assign a certain number of employees to each of them:
Preparation and drafting of instructions for lending;
Evaluation of loan applications and conclusion of loan agreements;
Conducting credit cases and credit monitoring;
credit recovery;
Loan portfolio analysis;
Preparation of loan reports;
Management of risks.
Each employee assigned to a particular section should perform only those functions that are provided specifically for him. Only employees who are responsible for risk management in lending should be involved in all areas.
The procedure for the implementation of each credit transaction should be based on such principles as the availability of permission, records, control, and must include the following components: description of the operation; distribution of powers between the executors of the operation; establishing the responsibility of persons who carry out a credit transaction; documentation of information on the operation; measures of internal control over the conduct of a credit transaction and other components determined by the bank and approved in the internal banking regulations.
Distribution of functions in credit process and delegation of duties between bank employees can occur through the following bank departments: front office, back office, and middle office.
The front office is the divisions of the bank or its authorized persons who initiate and organize the banking operation (through the conclusion of relevant agreements). The front office includes units that directly serve customers and generate cash flow. In the lending process, the front office acts as an initiator, it is here that the preliminary and preparatory stages of lending are carried out.
Front office carries out following features in the process of lending to clients:
Finding and attracting clients;
Referral of clients to the appropriate employee of the credit department;
Study of the possibility of expanding the consumption of bank services by the client;
Control over the fulfillment by the client of the obligations that he assumed in connection with the conclusion of the loan agreement (transition to servicing, involving the bank in structures related to the client, partners, expanding the consumption of bank services, etc.).
In order to attract customers, front office units should use all available marketing tools:
Direct contact with the client in his environment;
Analysis of the current client base bank in order to identify potential consumers of the bank's credit services;
Expanding cooperation with existing borrowers;
Building relationships with business partners bank customers, etc.
The front office unit should work closely with the marketing and product divisions of the bank to agree on directions for promoting loan products and attracting customers.
Given the significant growth in the lending business, banking institutions are paying much attention to automating the lending process. At the same time, the automation of the activities of the bank's front-office units during the issuance and maintenance of a loan is of particular importance.
The activity of the front office of the bank begins with the arrival of the client at the bank branch, processing of the loan application and ending with the formation of the transaction. The functions of the credit front office should also include the processes of servicing the loan agreement in terms of interaction with the client, such as: working with applications for connecting services, restructuring the agreement, early repayment, providing an account statement, etc. At the same time, the organization of the work of the front office includes not only the automation of the workplace of the teller, but also the provision of appropriate software products for all departments when making a decision on a loan, including the moment the agreement is formed. This is due to the fact that as part of the process of issuing a loan, the operator, in addition to entering the application and the borrower's questionnaire, selects products and services, agrees on the terms of the contract with the client, and also forms a package of documents. At the same time, in parallel with the teller, other divisions of the bank are also involved in the procedure for issuing a loan, in particular, the security service, the legal department, and the retail lending department. In addition, the following system operations are performed, such as screening and checking the borrower in various databases. A typical loan disbursement process involving various departments in a bank's front office is depicted in Figure 4.4.
The processes for issuing a loan differ depending on the direction of the business, the cost of the product, the class of the borrower, the local market, the development strategy of the banking institution and other factors, and as a result, the approach to automating various business processes also differs.
Rice. 4.4. V Sample process issuing a loan with the participation of departments of the front office of the bank
at the same time, in consumer lending, which is characterized by large volumes of low-cost loans and quick decisions on their provision, the decision-making process requires minimal involvement of the baikou departments. At the same time, much attention is paid to credit scoring, automatic checks during external bases data, reducing the burden on the teller by introducing a preliminary scoring procedure at the request of the client. With car loans, the need for a loan calculator to select the most suitable loan conditions for the borrower increases. In the process of automating the credit process for issuing credit cards, there can be a large number of similar business processes that differ in card types and lending conditions.
During the provision of mortgage loans, the most complex automated business processes are used with the participation of third-party organizations (mortgage brokers, insurance companies, appraisers), which support a large document flow and a significant number of checks by the bank's divisions. In mortgage lending, as part of the lending process, not only the borrower is evaluated, but also guarantors, guarantors, and the like.
The main differences in the automation of retail lending processes by front office units in different business areas are shown in Table 4.2 (see p. 96).
An effective approach to automating front-office lending diarrhea is their pre-processing, taking into account the direction of the bank's development. The main prerequisites for automating front-office operations are: an increase in the volume of loans to borrowers and the need to process a significant number of loan applications; expansion of the sales network using the lending process, connection of new points of sale, transition to a rich financial structure, entry into new local markets; the use of complex lending processes with a large document flow, a multi-level decision-making procedure; the desire of banking institutions to reduce the number of loan defaults through the use of the developed ambulance new system assessment of the creditworthiness of the borrower and the like. At the same time, the automated system of the bank's front-office lending operations should be flexible enough, make it possible to manage it and automate any nuances of the lending process, since it is precisely the difference from standard procedures that gives the bank competitive advantages. The timeliness of the introduction of automated system which will make it possible to more effectively carry out the lending activities of the bank.
So, credit work in a bank begins in the front office. The main purpose of the front office is to sell the maximum volume of the bank's loan products, stimulate and sell other bank products in contact with customers, make a profit, maintain liquidity and minimize risks. The front office departments interact with the bank's clients.
Table 4.2. V
Back office - bank divisions or individual responsible persons who, depending on their functions, provide registration, verification, reconciliation, accounting of operations and control over them. The back office registers credit and other agreements, enters information into an automated system, checks, records and controls the bank's credit operations. The back office interacts with the front office departments, tax, law enforcement agencies, contractors, and the like.
Employees of a banking institution, who are entrusted with the functions of the back office of the bank, are responsible for:
Verification of documents received from the front office on paper or electronic media regarding the accuracy of the information provided;
Registration of transactions and entering the necessary data of the automated system of the bank;
verification of confirmations on the completion of transactions received from counterparties, and sending confirmation to the client about the receipt of funds;
Checking limits for borrowers;
Reconciliation of customer account balances;
Preparation of relevant orders for settlements;
Checking the correctness of the reflection of operations;
storage of information about transactions;
Calculation of interest on loans, commissions and the like;
Control over data processing, settlements, execution of contracts.
While monitoring the implementation of the concluded loan agreements, the back office employees check:
Availability of all documents on the relevant credit operation and the timeliness of their submission to the credit division of the bank;
compliance of the credit operation with the requirements of legislative and regulatory legal acts of Ukraine, as well as the operational procedures adopted by the bank, the established lending limits (any deviations from the established procedures and limits must be additionally agreed with the bank's management).
If violations are revealed, the results of the check must be formalized in an appropriate document (act, protocol, etc.).
In order to minimize the risk of credit transactions and to avoid mistakes that may be made by the bank's specialists in the process of analyzing the client's creditworthiness and examining credit projects, the bank may create middle office divisions that will control loan proposals submitted by the front office. Such a division of functions in the credit process will increase the efficiency of the bank's credit activities.
The middle office is a division of the bank that is not directly involved in operational work, but performs some general administrative and management functions. The main function of the middle office is financial control. Middle office divisions carry out:
Control over financial, managerial and tax accounting;
Monitoring compliance with the internal rules of the bank;
Financial forecasting of the balance sheet, income statement, cash flow;
Preparation of budgets for departments, products, clients;
Assistance during the preparation of internal and external reports;
Assistance in making managerial decisions.
The functioning of the middle office in ensuring the credit activities of the bank combines a set of analytical systems, such as a scoring policy system, a system for analyzing the effectiveness of points of sale of banking products, and the like.
There is a close relationship between the front office, back office, and middle office (Figure 4.5).
Rice. 4.5. V
Rice. 4.6
There is a clear division of functions between the front office, back office and middle office divisions. In particular, the front office and back office are directly involved in operational work, while the middle office performs analysis, financial control over operations and risk control (Fig. 4.6).
So, a clear distribution of responsibilities between bank departments at all stages of lending is aimed at improving the level and quality of customer service; creation of an information client base; maximum consideration in working with the borrower of a combination of factors that may lead to default by him of obligations; identifying problem loans and minimizing the risks of non-repayment of credit funds and payment of interest for their use.
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