To reduce unrelenting cost pressures, Swiss private banks should rethink longstanding third-party sourcing assumptions, especially when it comes to handling elements of their back- and middle-office IT and business portfolios.

1. Swiss Private Banking and the Rationale
for Global Services Delivery
To reduce unrelenting operating cost pressures, Swiss private banks
should rethink longstanding third-party sourcing assumptions and
update their knowledge of what partners can provide, especially when
it comes to handling elements of their back- and middle-office IT and
business portfolios.
Executive Summary
Switzerland’s hallmark data privacy laws, which
once made Swiss banks attractive to wealthy
customers worldwide, are increasingly making it
difficult for banks to efficiently conduct business.
This trend, combined with the pre-crisis level of
activity and a general client preference for safer
investments, is causing a steep drop in profit
margins across the private banking sector. Unfor-
tunately, operating costs have also continued to
climb. The result: an expected industry shakeout,
with the remaining players focusing intensively on
cost reduction. Recent settlements with foreign
governments on alleged tax evasion claims will
hasten this shakeout.
A recent Boston Consulting Group global study
noted that the cost base of global private banks
has increased from 61 cents to 73 cents to the U.S.
dollar1
during the past five years. To reduce costs,
private banks are expected to turn to third-party
partners for certain operations. In fact, UBS and
Credit Suisse already work with partners on large
portions of their IT and business services portfo-
lios. More recently, Deutsche Bank hired Avaloq
Group to handle a majority of its wealth manage-
ment back-office operations in Switzerland, where
80 employees were rebadged to the vendor.2
In general, Swiss private banks are not as mature
as their American counterparts or their retail and
investment banking peers when it comes to global
sourcing. This is primarily due to the following
three drivers:
• Process maturity.
• Service standardization.
• The increasingly competitive landscape.
This point of view paper examines the feasibility of
global sourcing for Swiss private banks, which are
seeking a return to their historic healthy margins.
Bottom-line pressure and the growing clamor for
relaxing Swiss secrecy laws will increase receptiv-
ity to global sourcing opportunities.
The Business Context: Data Privacy
Data security, a strong characteristic of the Swiss
private banking industry, has often deterred global
sourcing opportunities. Despite the rejection of a
bill introduced in the Swiss Parliament seeking to
temporarily allow Swiss banks to share informa-
• Cognizant Point of View
cognizant point of view | march 2014

2. 2
tion with U.S. tax authorities, it is clear that the
Swiss banking model is on the verge of a change.
As a result, it is only a matter of time before more
middle- and back-office functions will be sourced
from third parties after incorporating appropriate
safeguards.
The Swiss Federal Banking Act of 1934 and its
subsequent amendments, which apply to all
banks in Switzerland, prohibit the transmission or
disclosure of any customer-related data to a third
party, unless:
• Banks have complied with provisions in the
Financial Market Supervisory Authority
(FINMA) outsourcing guidelines and the Data
Protection Act (DPA).
• The data that allows the customer to be
identified is encrypted, or the unencrypted
data transfer is expressly approved by the
customer.
• Banks can legally exercise due control over the
supplier functions.
As the global services industry has matured, it has
become increasingly feasible to conduct control
checks and leverage IT appropriately to overcome
these challenges. Advanced data encryption and
data masking tools ensure that banks adhere to
data privacy laws. Third parties are increasingly
adept at providing “clean room”’ facilities with a
level of data protection that is considered even
more secure than the bank’s own operations. And
as these vendors expand globally, many offer a
mix of near-shore and offshore facilities to deliver
various permutations of a global services delivery
matrix.
Global Sourcing Decision Factors
Global sourcing is no longer an exception but a
competitive necessity. Decisions to hire a global
services provider typically pivot around the
following:
• What to source: Banks must decide what their
core functions are and consider third-party
partners to access expertise in noncore func-
tions. Doing so frees up resources that can be
applied to core strategic initiatives, such as of-
fering even more customized client solutions
or driving a transformation project. Typically,
the middle- and back-office tasks are suitable
candidates for turning over to a third-party
expert. Figure 1 illustrates the potential global
services landscape for a private bank.
cognizant point of view
Sales Front-Office Middle-Office Back-Office
Acquisition
Asset allocation determination
Account and securities deposit
Research/data analysis
Salesforce management
Order entry
Allocation/rebalancing
Payments
System maintenance
Order validation and routing
Settlement notes
Corporate actions
Clearing and settlement
Custody/administration
Reconciliation
Fee calculation and booking
Portfolio accounting
Contract management
Tax services
Client relationship
management support
Client and management
reporting
Trade enrichment and
completion
Transaction management
and control
Financial statements
and custody services
Investment strategy
and process
Continuous client
relationship management
Risk profile assessment/
regulatory documentation
Risk management and
controlling (client rating)
Product management
(product rating)
Investment controlling/
monitoring
Complaint and claims
management
Risk management and
analytics
Portfolio maintenance
and rebalancing
Service provider and partner
management
IT processes and
administration
Regulatory & management
reporting
Data and document
management
Processes requiring no client data access.
Offshorability rating: 80%-90%
Processes requiring minimal
access to client data.
Offshorability rating: 60%-70%
Data-sensitive processes requiring full
access to client data.
Offshorability rating: 20%-30%
Source: Based on the domain knowledge and experience of Cognizant’s Private Banking Operations group.
Figure 1
Private Banking Outsourcing Landscape

3. 3cognizant point of view
• Sourcing model: The main decision here is
whether to follow the captive route (where
banks create and manage their own offshore
delivery centers) or hire a third party that is
primarily responsible for running the opera-
tions to meet service level agreements (SLAs).
Other options can be considered along the
spectrum between these two extremes, such
as working with a third party in an affiliate
model. An example of this is when a generic
IT infrastructure setup is provided by a third-
party provider, but the IT security and IT net-
works belong to the bank. The bank may retain
supervisory functions in such an affiliated set-
up. Figure 2 reveals how and why a third-party
sourcing decision is typically superior to the
captive alternative when the following param-
eters are considered:
>> Cost effectiveness: Which option tends to
have lower operational and setup costs?
>> Core activity: Where would the bank prefer
to source core/critical activity?
>> Competency: What are the general talent
competencies in a captive or third-party op-
tion?
>> Scalability: Which option is more scalable
and flexible?
>> Talent retention: What is the attrition and
longevity of staff within the organization?
>> Control: Can sourced work be better con-
trolled via a captive or third-party provider?
>> Management oversight: Which option re-
quires less corporate management band-
width?
>> Transformational: Can the bank leverage
IT and engage in transformational exercises
with its captive setup or with a third-party in-
tegrated IT and business services provider?
• Sourcing location: The selection of the sourc-
ing location is primarily decided upon on the
basis of cost-effectiveness, availability of tal-
ent, overall business environment, culture, lan-
guages spoken and laws. If it’s feasible, banks
should consider a ”follow the sun” approach,
which provides them with up to 18-24 hours
of productivity if the third-party services are
delivered from another time zone. When all
of these parameters are considered, India of-
ten appears on the top of the list for favored
sourcing destinations.
Looking Ahead
As Swiss private banks continue to experience
margin pressure, they will need to review their
global services footprint in order to remain com-
petitive. This is especially true as pressure rises
from both public and governmental entities for
increased transparency of Swiss banks. Banks
that have chosen to set up captive centers for
data privacy reasons are likely to review their
decisions, particularly as third-party vendors
continue to demonstrate increased process
maturity, in addition to a level of industry
knowledge and data sensitivity that allows for an
equal level of confidentiality. The upside benefits
of revisiting such decisions can be substantial. But
for banks that do not reconsider their stance on
global third-party services partners, the missed
opportunities can be enormous.
Figure 2
Scoring the Sourcing Choices
Third-party sourcing often outscores a captive arrangement when key parameters
are considered.
Cost-effective
CoreActivity
Competency
Scalability
TalentRetention
Control
Required
Management
Oversight
Transformational
Total
Captive — 1 1 — — 1 — — 3
Third-
party partner
1 — — 1 1 — 1 1 5

4. About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-
sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
delivery centers worldwide and approximately 171,400 employees as of December 31, 2013, Cognizant is a member of
the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing
and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
World Headquarters
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Email: inquiry@cognizant.com
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About the Author
Sharad Sharma is a Director within Cognizant’s Banking and Financial Services Business Unit. He has
over 14 years of experience in financial services, spanning asset management servicing, hedge funds
reporting, auditing, budgeting, planning, financial control, etc. Prior to joining Cognizant in 2007, he
worked with Cap Gemini and Hewlett Packard Co. Previously, he handled fund accounting and adminis-
tration for a leading asset manager. Sharad has an M.B.A. from the Indian School of Business, Hyderabad,
and is a qualified Chartered Accountant. He can be reached at Sharad.Sharma@cognizant.com.
Footnotes
1
Daniel Schafer, “Only the Strongest Will Survive Shakeout,” Financial Times, Nov. 28, 2013,
http://im.ft-static.com/content/images/8c66f238-5647-11e3-96f5-00144feabdc0.pdf.
2
“Avaloq Group to Take Over Wealth Management Operations Back-Office of Deutsche Bank,” PR Newswire,
June 30, 2013, http://finance.yahoo.com/news/avaloq-group-over-wealth-management-032400474.html.