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Front middle back office. What's happened

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 domestic business functions.

Depending on the direction of the company, the front office performs various 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 the customer support service, the department for vacancies and employment, 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 back in those days when the plan for the construction of an 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 staff will share working room with a back office, but mind your own 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 various 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. Average office count possible risks and prevent losses that the firm might 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 very clear that proper management affairs, it is necessary to have a clear division of responsibilities, when each employee and each department perform their task, and in the aggregate, a single uninterrupted operation of the organization is obtained.

What is a back office: the origin and explanation of the term + 3 reasons why your company needs it + examples of back office tasks in 3 business areas + 2 types computer programs back-office + 3 problems they solve.

Many foreign words in the Russian language have become the definition of a certain field of activity. In the early 2000s, the concept of a back office appeared in the business industry.

Over the years, the term began to be used in sales, in financial institutions, as well as in the securities market.

What is a back office and what role does it play in modern business you will learn from this article.

1. Explanation of the term "back office"

This expression came into Russian from English - “back-office” (which can literally be translated as “back-office”). Today, its meaning is a little vague, due to the fact that back office units have many areas of activity that are radically different from each other.

A back office is a department in a company whose task is to formalize, register, and record transactions related to the company's finances.

Along with this, there is another, no less important department, which is called the front office. What is this? The task of the front office is to conclude deals and attract new partners, customers that influence financial position and company development.

The back office includes the following departments:

accounting,
Human Resources Department,
company administration,
support service, analytics,
statistics, etc.

In fact, he deals with all administrative matters.

The front office, in turn, is a staff of managers who, for their part, attract new partners to the company.

2. How did such a thing as a back office appear?

The history of the creation of such a popular term in business originates from the usual building layout.

All buildings large companies built on the same plan...

First was the front office.- front side of the building. It was needed so that the client or visitor could easily find the right department or a specific employee. This room had an expensive repair, because it is the "face" of the company. Employees must always be well dressed, behave politely with customers, etc.

The second part of the building was called back office. All production and administrative work. Since visitors have never been here, the renovation, lighting, interior was not presentable.

If in the front office employees paid great attention to appearance, then the main role was played in the background professional quality company personnel.

Building layout separation has become a global term for two divisions of any company. The front office is a bright picture that attracts customers. The back office is the development department of the company, which monitors all processes.

3. Why does your company need a back office?

Directors of start-up companies are faced with the question of whether they even need such a division.

Its creation in a new firm or even in an already existing one is important for 3 main reasons:

The reputation of the firm.

Today, there is a lot of competition in any field of activity. Back-office employees uphold the firm's reputation every day through their actions.

For example, specialists of the analytics and statistics department make daily miscalculations in order to improve the organization's performance.

The administrative department of the company constantly makes sure that everyone does their job efficiently and as quickly as possible.

Increasing profit.

Of course, front office workers attract new clients, but without accounting support, any operations with money can increase income or, on the contrary, reduce it.

Moreover, it is in the back-office department that employees develop new development plans, which in the future can significantly increase profits.

Responsibility for risks in new transactions.

The work of front office managers is based on the search for a major customer. At the same time, without miscalculations of all the benefits and possible risks from the transaction of back office workers, the contract will not be concluded.

This stage is the most responsible, because it depends on it whether the company will receive a profit or loss.

4. Back office tasks in 3 different areas of activity

Although the interpretation of the term is the same for any business sector, in practice in different areas activities workers perform tasks that are different.

3 examples of what exactly the back office is responsible for in different areas:

In a financial institution, this unit is the operations and accounting department, which is responsible for the operation of the entire organization. Specialists pay much attention to credit operations,.

Also on their shoulders lies the responsibility for transactions related to securities, the work of accounting, control over the assets and liabilities of the bank.

Trade and sales.

In the field of trade and marketing, the division is responsible and controls all financial transactions, the arrival of goods, their sale, sale, movement, write-off of balances, return of defects, evaluation and study trading market, purchase of equipment, premises for the sale of the product, etc.

For workers in the field Catering All work of the department is related to current operations. The back-office takes responsibility for compiling the financial report, keeping records of products, controlling the quality and preparation of dishes for customers, and recruiting staff.

5. Responsibilities of a back office worker

There are many specialists in this department and each of them has his own task. It is possible that newcomer firms have few employees, sometimes there may be only 5-10. Therefore, one has to search universal worker, a specialist who can be responsible for several processes at once.

If you are in just such a situation, then you must figure out what duties a person from the back-office unit will be required to perform.

The main responsibilities of this unit include:

Registration and registration of the transaction.
Conclusion of contracts related to the purchase or sale of goods.
Operations to transfer ownership from the seller to the buyer.
Control over the financial flows of the company.

Almost all responsibility for the prosperity of the company lies on the shoulders of the back office workers. The slightest errors in the miscalculations of financial transactions and organizational issues can lead to losses or even.

6. Is it possible to replace the back office department with a program?

In the yard, whatever one may say, the 21st century is a time when most processes are automated (or at least tend to be). This fate did not bypass the back office subsection.

Back-office is a computer program that controls and executes the company's technological processes related to sales, finance, accounting, etc.

Many directors purchase these programs to save money on the salaries of administrative staff.

There are 2 types of back-office for PC:

Here, for example, is the "Compact" program, which is intended for a store. The database has all the information about the work trading network. To use it, 2-3 people are enough, who will only control the work and enter new data.

Thus, it is possible to resolve such issues much faster:

Fast customer service and closing new deals.

The program automatically makes miscalculations, determines possible risks, profits, losses, etc. In this case, there can be no a priori error if all the data is entered into the program correctly.

Automatic accounting and control of the firm.

When a company receives data on financial condition and statistics on the performance of all departments, this contributes to the maximum control of the company's activities from the inside.

This information is needed so that management can control all processes, study shortcomings and eliminate them in time.

Analysis of cooperation with customers and partners.

Monitoring this information will help improve marketing strategy enterprises.

From this article, you learned what is a back office, as well as about the existence of computer programs that can replace an entire department with live employees. The program accelerates many organizational processes.

An overview of working with such an important element as

back office of the company - in the following video:

This, of course, is a big plus for the work of the company, but then there will be no need for some specialists and people will have to be deprived of their jobs. In addition, with all their accuracy, machines are not yet able to outdo people in many ways.

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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 final result any banking transaction.

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 in various 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 an appropriate response of the loan officer to the needs of the borrower, but also necessary qualifications and decision-making ability.

In the activities of the credit department, the following areas of work can be distinguished for assigning to each of them a certain amount employees:

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 transaction; 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; Events internal control for the credit transaction and other components determined by the bank and approved in the internal banking regulations.

Distribution of functions in the credit process and delegation of duties between bank employees can occur through the following bank divisions: 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 credit process, the front office acts as an initiator, it is here that preliminary and preparatory stages lending.

The front office performs the following functions 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 of the bank in order to identify potential consumers of the bank's credit services;

Expanding cooperation with existing borrowers;

Establishing relationships with business partners of bank customers and the like.

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 operator, but also the provision of appropriate software products of all divisions 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 Typical process of 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 in external databases, 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, which, 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 transaction with the requirements of legislative and regulatory legal acts of Ukraine, as well as the operating procedures adopted by the bank, established limits lending (any deviations from the established procedures and limits must be additionally agreed with the bank's management).

If violations are found, the results of the check must be documented 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 perform some general administrative and managerial 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.

Two or three years ago, most large Russian banks were dominated by a simplified structure: front and back offices. But lately, the mysterious phrase “middle office” has become 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 incurred losses and bankruptcies of a number of banks forced us to think about risk management and about the introduction of such a unit as risk management into the organizational structure, 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 to 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.

You can justify the need for this allocation using a specific example of an 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. The management is functionally divided into three parts: control of investment operations, control of credit operations and control of settlements. 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 by the collegiate bodies of the bank and heads of departments.

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 high.

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, it all 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 who 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 access to high level to the information systems of the bank, allowing them to receive any information about transactions subject to control, the base of counterparties, quotes, etc. With a normal organization technological process control is carried out automatically, and an 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 you to receive all necessary information in sufficient volume and 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 must understand the algorithms for calculating positions, which are defined differently in different types of transactions. 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 work in middle offices former analysts and traders.

“Personal qualities are also important for a middle office employee: endurance, concentration, communication skills,” 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, they should know not only banking products, but also understand programming, know the SQL language, 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 trades they make in external systems, and assistants enter trades with all parameters into accounting system bank, where, in turn, control of limits is carried out. This is a rather mechanical job, but it can also apply 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 a full support of transactions

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. Employees of the “middle”, in addition to their functions, must know the basics of legal aspects and accounting for credit operations.

Alexey Kuzmin,

Head of the middle office of IC "FINAM":

Middle office in an 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 stock market movements, including during its fall.

Training of interaction between departments within the bank

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Where does the bank start? Of course, from the front office. Banks need the client to say to himself: this is my bank, I like the service in it and I like the way its front office is organized. What happens next, the client does not see. Nevertheless, Strange as it may seem, the quality of sales and customer service depends on the well-coordinated interaction of two more “offices” of the middle and back offices with each other and with the front office. This happens because they must be internal clients and partners in relation to each other and participate together in a single chain of creation customer value for the client, and not to confront each other, as is often the case. A bank cannot and should not have customer-oriented and non-customer-oriented divisions, just because individual divisions do not work directly with customers.

In preparation for the training seminar used examples from foreign and domestic banking practice, and Basel II recommendations, which determine the allocation of risk management functions to a separate structure and application of unified approaches to risk management in the bank, which leads at a certain stage to the need to create a middle office.

Members

This training is intended for all senior and middle managers of the bank in order to help them master and understand effective principles organizational building credit institution and internal interaction.

Training program

1. Concepts and definitions

Bank structure and its elements:
- Strategy, strategic goals and objectives;
- Business architecture;
- System architecture.
Bank business architecture elements:
- Front-office (Front-Office);
- Middle-office (Middle-office);
- Back-office (Back-office);
- Accounting.
Elements of system architecture:
- Information warehouse (DWH);
- Reporting.
Product approach to the definition of service functions.

2. Separation of banking structures in world and domestic practice into front-middle and back-offices in terms of evolution organizational structures risk management

Exclusion of conflict of interest is the fundamental principle of the distribution of functions in the bank.
Formal divisions of risk management.
Distributed structure of risk management.
Transitional structures of risk management.
Centralized risk management structure:
- Front office;
-Middle office;
-Back office.

3. Front office

Front office concept.
Main functions.
Interaction of the front office with bank departments.
What not to do in the front office.
The front office is a factor in the bank's capitalization.

4. Middle office

The concept of the middle office: "between the hammer and the anvil."
Middle office as an important element of the risk management system in a bank.
Organizational structure of the middle office.
Middle office functions.
Interaction of the middle office with bank departments.
Comparative characteristics of middle and back office functions.
Optimization of interaction between bank departments using the middle office.
Which banks need a middle office? Criteria for creating a middle office.
The relationship between the quality of customer service and the presence of a middle office.
Non-core functions of the middle office or what the middle office should not do.

5. Back office

The role and functions of the back office in the bank.
The place of the back office in the organizational structure of the bank.
Interaction of the back office with bank departments.
Practical aspects of organizing the work of the back office.
Legal support of back office activity.
Methodology for organizing the work of the back office.
What not to do in the back office.

6. Relationship between strategy, business processes and organizational structure

The functional principle of bank management is the basis for the isolation and disunity of departments.
The process approach of bank management is to ensure the growth of the bank's value by attracting and retaining effective customers.
The structure of the bank's business processes.
Process as an object of control.
An example of a business process "Consideration of an application and issuance of a loan."
Business Process Modeling Standards.
Types of banking organizational structures: advantages and disadvantages.
Communication of the organizational structure with business processes.
Engineering and reengineering of bank business processes.

7. Management workshops and exercises

Determination of the departments included in the front-middle and back-office and the order of their interaction.
Does a bank need a middle office?
Definition of main and auxiliary business processes.

Methods

Interactive seminar.
Work in groups with the preparation and protection of presentations.