When I was reading about banks, I came across the terms front office, middle office, and back office. What do they mean?
Most divisions within a bank can be classified into three areas based on the task they perform. These areas are known as front office, middle office, and back office.
So, what is a front office?
The divisions within a bank that interact with customers directly are called the front office. Some examples are sales and marketing, relationship management, advisory services, and securities trading. The front office is responsible for generating revenue for the bank.
What is a back office?
The divisions of the bank that provide administration and support services are called the back office. These roles are typically not client-facing. Some examples are clearing and settlement, record maintenance, accounting, and information technology. The term back office is sometimes also used to describe all functions that do not generate any revenue for the bank.
And what is a middle office?
The divisions responsible for risk management, compliance with regulations, and strategy make up the middle office of a bank. The middle office ensures that the deals negotiated by the front office comply with all relevant laws and are as per the bank’s agreements with its counterparties. Together, the middle and back offices support the activities of the client-facing front office.
That was a lot of information. Can you sum it up so that it is easier to remember?
If you think of it in terms of an amusement park, the front office would be the ticket sellers and ride operators. The middle office would make sure that all the rides are safe and no laws are being broken. Finally, the back office would keep track of season pass holders, billing, and maintenance of the rides.