SOPs for Finance Industry

Why are SOPs critical for Financial Institutions?

Today, vast, complex, and sophisticated processes are part of every standard financial institution (FI). This is mainly due to the modernisation of banking products, evolving customer requirements, dynamic regulatory environment, use of advanced technologies, the emergence of organised scams and frauds, etc. Without process and operational planning, it is nearly impossible to run a modern-day financial institution while meeting contemporary requirements and expectations.

Every financial institution has two types of functions – primary and secondary. The primary functions include services and facilities like savings and current accounts, overdrafts, loans and advances, credit, discounting bills of exchange, etc. The secondary functions include portfolio management, foreign exchange, periodic collections and payments, fund transfers, underwriting of shares and debentures, etc. Serving these essential functions timely and accurately is the basis of the existence of financial institutions. Operational planning provides the much-needed platform to execute these functions in an organised and systematic manner.

The reasons to develop and implement SOPs (Standard Operating Procedures) in financial institutions are elaborately discussed next.

Digitisation and IT Integration

SOPs for the banking industry constitute the foundation of digitization of banking services and integration of internal operations with the IT systems. SOPs provide the informational inputs required for identifying the software requirements. When FIs define their operations in terms of task triggers, the flow of work, standards of input and output requirements, authorization framework, access rights, timelines, OTP generation, etc., the process of developing or customising a software product becomes easier.

Robust Application Processing

Providing loans, advances, and credit constitute some of the primary services provided by FIs. The interest earned from these assets is the main source of income for commercial banks and other financial institutions. The ROI generated from these assets is a matter of crucial significance for them. Thus, in giving out loans and advances, FIs need to exercise caution in processing loan/credit applications. An important activity in this direction is checking the creditworthiness of the loan applicants. This includes checking the stability of income, credit and repayment history, tax payments, regulatory conditions, the purpose of loan, amount and type of credit sought, etc. By using SOPs for the finance industry in processing credit/loan applications, FIs could ensure that the necessary factors are duly taken into consideration when the operations are executed.

Reduce Exposure to NPAs

Interests are a major source of revenue for financial institutions. It affects their cash flow and profitability. But loan defaults are a shot on the arm for banks and other FIs. Defaulting on loans need not be intentional. Sometimes customers misjudge their abilities to repay. It is the duty of the FIs to exercise due diligence in screening loan applications. This subsides the risk of exposure to the creation of NPAs. There are other ways to address NPAs like loan restructuring, collateral possession, selling off bad loans/advances at discounted rates or equity conversion. However, these are remedial actions when the damage has already been done. The good practice is to avoid the scope of generation of NPA in the first place. How a FI chooses to screen loan applications depends on their discretion. The need is to develop SOP-based processes and strictly follow the procedures.

Defined Operational Framework

Nowadays, the social media handles of almost all financial institutions are flooded with negative reviews. Even with digitisation, the speed and accuracy of service delivery are unsatisfactory. When something is off the routine, customers and employees are equally clueless. This is the outcome of poor operational planning and lack of IT integration. No aspect of service must escape the framework of operations. Otherwise, when unfamiliar circumstances arise, employees will not know how to respond. With SOPs in place, employees would know the flow of work and respond as per situational requirements. When employees know what they are doing, they would be in a position to help customers understand the situation.

Account Opening and Closure

Opening and closing accounts of customers and clients are two of the most basic activities in FIs. Nowadays, this process is automated to a great extent. Banks have to follow certain internal policies and regulatory guidelines while both opening and closing any account. Apart from that, there are also factors like the accuracy of the data entered into the system, adding customers’ specifications and preferences into their accounts, delivering account opening kits to customers, etc. All this information stays in the system for a long period and is also used to deliver services to customers. Having a planned, comprehensive and systematic set of SOPs helps banks accurately map the processes and execute the operations.

Authority and Accountability

Authority and accountability are sensitive issues in banks and other FIs. SOPs for finance company operations can make a big difference here. Having the right software and automation environment significantly addresses the matters related to verifying credentials, access to accounts, user rights, cross-validation of transactions, etc. But first, the processes have to be defined using SOPs dictated by the internal policies, regulatory requirements, and any other aspect that needs to be incorporated into the operations. For example, when a request for a fund transfer is initiated, the IT system of a bank cannot simply go ahead and execute it. It cross-checks the authenticity of the customer first. The system will check if the account qualifies for the requested transaction. It also checks if the transaction itself has validity or not. The recipient’s account details have to be valid for the transaction to take place. This is a generalised example. The actual procedures may be different and may vary from bank to bank. But the point is to have SOPs based on which the functionalities of a banking software could be defined.

Living up to Customers’ Expectations

The role of banking and financial institutions has heightened around the world. In growing economies, the scope and volume of operations of the FIs have significantly increased. Needless to say, that competition between FIs has also intensified. Securing customer satisfaction and delight through better, quicker, and more reliable services have become the cornerstone of marketing in the finance industry. But have the FIs been able to live up to the expectations of their customers? More important than that is what the FIs are doing to ensure that they could deliver better, quicker, and more reliable services. Take the example of a KYC process at any bank. Even after successfully completing the KYC process once, it would be annoying for its customers if they keep getting calls from the bank to submit additional documents. Why did the bank not ask for the right documents in the first place? If there are changes in the regulatory norms, did they inform customers while asking for additional documents? Did the bank provide an option to collect the documents digitally from the customers? By having sound processes, FIs can reduce the scope of customer dissatisfaction. The opposite is true when the operations are unplanned.

Audit and Control

Audit is a powerful management tool for control function and is critical to keeping the activities of FIs in check. Audits shed light on financial irregularities that are taking place or have taken place in a FI. There are innumerable instances of audits detecting frauds and scams in the world of finance. However, the goal of auditing is not just detecting irregularities and frauds. The bigger picture here is to improve the operational sturdiness of an FI. It is to detect loopholes and deviations in operational planning while keeping an eye on the developments taking place in the industry, the concerned professions, and the regulatory environment. Like any other business process, audit also needs to be mapped and defined using SOPs. The objectives are to simplify the audit process, make it easier for implementation, and ensure that it yields the intended financial reports and insights.

Enhancing Operational Capabilities

When there are planned and defined processes and systems, it enables an organisation to have higher volumes of business. This could be at the same location or by opening new branches in other locations. From another perspective, having strong processes become necessary after a business reaches a certain size. It is easier to handle a limited number of customers with fewer internal resources. But after growth in business volumes, operations tend to become more complex and burdensome. In such situations, enhancing the strength of the workforce does not help. Neither is that an ideal solution. SOPs for the financial industry help FIs enhance their operational capabilities. If the workload increases by 10 times, the team size cannot be increased accordingly. That is not a viable solution. Instead, process and automation solutions should be considered.

Training & Development

One way to identify training and development needs is through job analysis. The other is a more realistic one i.e. through measurement of actual performance against the standards. By defining the workflow with standards, SOPs help in identifying training and development requirements. With SOPs in place, it is easier to spot where employees are slowing down or underperforming. For example, if the average time that a team takes to open a new account is 24 hours but a few employees are taking 36-48 hours, that should immediately draw the attention of the operations or service manager of the branch. If no internal or external factor is responsible for this delay, there is a scope to look into what is causing these employees to slow down.

Why BPX

BPX is a management consulting enterprise specialising in professional SOP writing services and the development and implementation of process management solutions. We are a team with 10+ years of experience and have worked with 500+ clients from over 20+ verticals. We engage qualified and experienced SOP writing consultants and business process consultants with quality project exposure. As a budding international brand, we consistently strive to deliver world-class solutions. Our agile working systems enable us to access the services of talented professionals from all over the world. Long before remote service became a thing, we have been operating with hybrid functionalities. We believe in working in close coordination with our clients to deliver the best solutions. This is made possible with our robust feedback and reporting mechanism.

To know more about our process consulting and SOP writing services or if you have any queries related to SOPs for banking and finance, drop us a message with your contact coordinates and we shall get back to you.