Mercenary or Consigliere? The Role of
Independent Financial Market Advisory and Knowledge
Process Outsource Partners in Structured Products

Abstract

The regulatory challenges facing financial institutions (banks, insurers, credit unions, hedge funds, pension funds, and so on) since the 2008 financial crisis require significant overhauling of internal processes to deal with complex assets. These include but are not limited to credit origination, underwriting, due diligence, securitization, surveillance, credit transparency, risk management, capital and liquidity management, internal and external reporting of complex assets such as residential and commercial mortgages, consumer and commercial credit, and structured products. Yet, an overlooked area among market practitioners and financial institutions, in the midst of evolving regulatory edifice and injunctions, has been the role of independent financial markets advisory and knowledge process outsource partners in structured products. Here, we seek to explore the distinct and evolving roles an independent financial markets advisory can provide to financial institutions, where multidisciplinary nature of the solutions, as well as a high degree of domain knowledge, is required. This article highlights three areas: 1) credit, valuation and risk management, 2) mortgage compliance and credit underwriting services; and 3) litigation consulting and dispute resolution. The authors argue that a new breed of specialist FMAs that have assembled a wide array of expertise under “one roof” are ideally positioned to deliver an end-to-end or ad-hoc basis knowledge process outsourced solutions in highly technical areas, such as structured finance and securitization, complex asset credit underwriting, model validation, valuation, quality assurance, stress testing, internal process audits, regulatory reporting, and dispute resolution enhanced credit underwriting.