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An effective approach to financial data transformation and integration

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An effective approach to financial data transformation and integration

Hitesh Rathore, Principal Consultant – Global Consulting Group, Wipro

Samir Zaveri, Managing Consultant – Securities & Capital Markets Group, Wipro 

Today almost all financial institutions, especially global banks, face a constant need to integrate their data with their clients, other institutions, as well as with various market infrastructures and regulatory/statutory bodies. A number of financial messaging standards such as SWIFT, FIX, FpML and XBRL help financial institutions (FIs) meet this need.

The messaging standards are constantly evolving based on market needs and regulatory requirements. This in turn leads to considerable efforts for FIs, especially global banks, to maintain compliance with the latest versions of the messaging standards, creating pressure on profit margins.

The current state

There is widespread usage of SWIFT messages by almost all global banks, with continuous annual format changes based on market requirements. Besides the annual changes to the formats of some messages based on market requirements, the ISO version of all SWIFT messages has changed at times which results in changes to all messages. Such a major change dramatically increases the cost for FIs, who need to make many changes to the IT applications handling the messages.

Currently, most of the banks use ISO 15022 standard for SWIFT messaging, replacing the previous securities messaging standard ISO 7775.  However, in recent years, banks and financial intermediaries have also started using ISO 20022 standard in addition to the ISO15022 standard. This additional standard can provide a greater level of automation, although it tends to lead to a higher IT spend as it requires a greater level of changes due to its higher complexity.

Similarly, those using FIX or FpML, would have to upgrade legacy IT systems/platforms and challenges could arise in accepting older formats or versions of messages from a client/counterparty which has yet to adopt the newest standards. Thus, for any two parties to exchange data, they must either use the same protocol or use a conversion tool for protocol compatibility.

The challenges

  1. Lack of compatibility with legacy applications: Currently there are multiple formats and protocols of messaging standards like SWIFT, FIX, FPML and ISO. These standards are constantly evolving and new versions or periodic upgrades continue to be released. FIs are constantly facing challenges to upgrade legacy applications to accept new versions or use transformation tool for version compatibility.
  2. Complex validation requirements: Some of the new messaging standards have complex validation requirements. For example, the new ISO20022 SWIFT messages have large XML schema definitions (XSD) which require a lot of validation. This, in turn increases the time, effort and consequently, the cost for migration to new standard.
  3. Complex client onboarding: Issues surround complex client onboarding and setup initiatives to assist clients not operating on the same standards/formats/protocols can result in revenue realization delays.
  4. Regulatory requirements: Regulatory requirements such as Dodd Frank Act, European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Directive (MiFID), Sarbanes-Oxley Act as well as Basel Committee on Banking Supervision’s BCBS 239 are resulting in continuous changes to the messaging structures, causing a cascading effect on FIs to upgrade their applications to be compliant with these standards.
  5. High costs: Huge investments, both in terms of capital as well as technology resources, are required to make changes to industry standard protocols (SWIFT/FIX/FpML), including forced changes to downstream systems with low impact on processing requirements.

The Solutions

The message transformation and integration needs of various FIs are very different and it is difficult to find one solution that can readily fulfil the needs of most of the banks or FIs. Still, for any solution to work it should offer the main functionalities or features listed below:

  1. Data transformation flexibility – The solution should have the flexibility to transform data from one format to another seamlessly as per needs of the bank. For example, if a bank receives trade messages in XML format from brokers and needs to convert the same into SWIFT MT format, the solution should be able to do the same with ease.
  2. Support for industry standard messages – The product or solution developed should support all industry standard formats such as ISO 15002 format used in SWIFT MT messages or FIX format used in trade messages
  3. Validation of messages: Providing message libraries and related validation rules for standard messages during Institution-to-Institution (I-2-I) integration. Thus, a bank processing FIX, FpML and SWIFT messages should have the latest message libraries of these messages along with related validation rules defined to process those messages.
  4. Workflow management and rule based data transformations: Generally, banks need to integrate and route messages to various systems belonging to itself or other banks and institutions. To fulfill this need, the solution should have capability to define workflow for processing and routing messages based on pre-defined rules. As per needs of the bank, processing could be either real time or based on batch processing.
  5. Message dashboard – Since a bank usually handles quite a large number of messages as part of data transformation and integration, the solution should have a unified view or dashboard for message monitoring and management including exception handling. Additionally, it should also have the capability to maintain audit trail to aid in messages monitoring.
  6. Cloud based platform support – A cloud based platform is of great help to banks or FIs who want to start with the transformation and integration of few financial messages (or message types) to start with and gradually scale up later. This gives them the flexibility to start with a small initial investment and increase the spending on the solution based on the benefits they are able to reap.

Towards data transformation and integration

FIs are finding it increasingly necessary to have transformation of financial messages or data and integration with other parties such as clients or counterparties in various lines of businesses.

There is a definite need in the industry for a comprehensive, scalable and reliable solution, which can transform multiple messaging standards as well as proprietary formats, and have the flexibility to support integration with various applications including legacy applications. This is essential for seamless communication with clients, market intermediaries, and statutory/regulatory bodies. A solution with add-on modules that would enable message enrichment capabilities, audit trails, exception handling, dashboards and reporting features, as well as have capability to support Software-as-a-Service delivery, will definitely appeal to most financial institutions.

FIs need to have a proper analysis done to decide an appropriate strategy or approach that can help them solve data transformation and integration challenges. 

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Seven lessons from 2020

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Seven lessons from 2020 1

Rebeca Ehrnrooth, Equilibrium Capital and CEMS Alumni Association President

 

Attending a New Year’s luncheon on 31 December 2019, we played a game that involved predicting the world in 2020. Some of the questions included: would Uber become profitable? Would the three-decade bond rally finally come to an end? Would the US hit a recession?

Unlike any of our predictions based on a traditional approach to business and predicting, we now know that 2020 became the year where business, professional and personal plans were turned upside down, reshaped and put-on hold. The proverbial black swan had arrived.

As revealed in a new CEMS Guide to Leadership in a Post-COVID-19 World, to which I contributed, the COVID-19 pandemic has exposed deficiencies in the 20th Century vision of leadership, giving a rare opportunity to question the status quo.

So, what are the main lessons from 2020?

  1. Humans are enormously adaptive.  This is not an extinction scenario. The world is getting used to dealing with global human disaster which may become a recurring event. Life continues guided by new parameters.

  1. No sector or country is immune to rapid change. Just as the leveraged finance and equity markets ground to a halt during the Global Financial Crisis, we have seen a disruption in the financial markets (including M&A) in 2020, including a significant redistribution of wealth between sectors; think tech vs airlines and the hospitality industry. When a market is disrupted it has secondary and tertiary effects such as less work for accountants, lawyers, financiers etc.

 

  1. Location is not as important anymore. The belief that finance staff need to be based in one of the financial capitals to be effective has been forever altered. Pursuing a career in finance from anywhere is becoming possible. However, it’s likely that over time, financial controls and human interaction will move the work model back towards the traditional office approach, as work is a critical sanctuary for people. While working from home may allow more time for family, chores and sports, it is mainly effective for people who already have their internal and external networks. For junior employees it presents a notable challenge as they may be forced to spend their formative years without a chance to really build their networks.

 

  1. Change is likely to be lasting. The opportunity for alternative finance and tech focused providers is enormous and 2020 will accelerate this shift. For example, many retail banks are providing rather poor customer service, blaming the pandemic. Even the most loyal customers will be heading elsewhere. For recent graduates and current students this is a major shift; future winners and key employers may not be names we are used to seeing in the headlines.

 

  1. There will be a spotlight on leaders with visionary strategy and understanding of the operations. 2020 showed many politicians and business leaders behaving like they were playing a game of snakes and ladders, rather than executing a thought-out strategy. The next wave of thoughtful leadership is urgently required.

 

  1. Collaboration leads to success. The definition of a pandemic is an infectious disease prevalent worldwide. A global problem requires a collaborative solution rather than each country and industry on their own. Quoting Steven Riley, professor of infectious disease dynamics at Imperial College London: “Once you have the knowledge and you share the knowledge, then you are able to take measures to push transmission much lower”. This principle is transferable to management education. In a world more complex than ever, investing in a degree is hard currency. Combined with the full global alumni network, corporate partners and schools, CEMS is capital that doesn’t depreciate.

  1. Resilience has become a watch word. Saint-Exupéry’s quote resonates with me: “If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” We are in a new paradigm – so prepare for the next change. For COVID-19, while we hope that the vaccine will soon upon us, the broader long-term positive challenge remains.
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Data after Brexit: How does the end of the transition affect GDPR?

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UK's Post Brexit productivity puzzle

By John Flynn, Principal Security Consultant at Conosco

The UK has officially left the European Union now that the transition period has ended on January 1st 2021. But this could raise issues with one of the biggest bugbears for many companies – the international transfer of personal data.

Businesses can relax, somewhat – GDPR, which took businesses months to get their heads around, is not being replaced. It will continue as the UK GDPR 2018, and will still be based on the criteria of the Data Protection Act of 2018. However, the UK will retain the right to change the UK GDPR as it sees fit in the future.

The main changes apply to those who receive data coming into the UK from Europe. Transfers from the UK to other countries can continue under existing arrangements.

We know it can be difficult to cut through the legal jargon, so we have simplified what you need to know to protect yourself and your data:

1 – Update your privacy notice

Most businesses do not have the correct clauses in place ahead of January 1st, potentially exposing their liability, should something happen to their data. All company privacy notices online will need to be updated to specifically state ‘UK GDPR’, as opposed to ‘EU GDPR’. You will also need standard contractual clauses in place, which cover both parties – those transferring and those receiving the data.

 The Information Commissioner’s Office (ICO) has a list of what needs to be included in the standard contractual clause here. The ICO will remain the UK regulator for data protection, regularly liaising with each EU member state.

This also applies to Multi Corporate Groups who operate in multiple countries, who need to update their documentation and privacy notice to expressly cover the data transfers.  The UK has applied for an adequacy assessment, which would negate the need for contractual clauses, however this has not yet been approved by the EU.

2 – Data privacy assessments

Any company which runs applications and software should always perform a Data Privacy Impact Assessment. This was also in the guidelines before, but these assessments are now more important for those who outsource their IT operations internationally.

For example, when using a service such as a cloud-based system, the company must be sure that its service provider adheres to UK GDPR and stores the data within the European Economic Area (EEA), or has a binding corporate agreement with the company, where data is stored outside of the EEA. You should also, as mentioned above, make sure that a contractual clause is in place.

3 – Review local legislation

Contracts should now have contractual clauses that specify the responsibilities of the data controller and the data processor. If you are receiving personal data from a country territory or sector covered by a European Commission adequacy decision, the sender of the data will need to consider how to comply with its local laws on international transfers. You should check local legislation and guidance in this case.

4 – Cyber Security health check

The ICO is increasing its capacity and efforts to crack down on data breaches, post-Brexit. Now is a great time for all companies to have a health check to understand their Information Security posture and GDPR compliance. Nobody wants to be caught handling data improperly and fined when it could have been prevented with education and training.

A gap analysis performed by an expert is money well-spent. It’s also a fact that companies that have cybersecurity and Information Security controls are not only able to better defend against attacks but are also far better placed to recover from an attack.

Looking forward

It’s important that all businesses – large and small – are properly preparing their data storage and transferring for the 1st January. ICO has been busy setting examples by fining large, high-profile companies for failing to keep millions of customers’ personal data safe.

It will continue to come down hard on the data breaches of personal identifiable information and special categories of data. The saying ‘prevention is better than a cure’ rings truer than ever this year, and you will thank yourself if you make the efforts to properly store your data now, and not when it’s too late.

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2020 reflections and 2021 outlook

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2020 reflections and 2021 outlook 2

By John Hunter, Head of Banking and Fiduciaries, Finance Isle of Man

Reflections on the most surreal year

The Covid-19 pandemic has completely changed the world as we knew it, resulting in catastrophic loss of life and fears of a downturn hang over global economies like a sword of Damocles. In the UK, the new strain has further exacerbated the situation. As I am sure many have already said we are living in what could be called the most surreal times. People have been trying to cope with this “new normal”, by changing their lifestyles and evolving behaviours.

The Isle of Man responded swiftly to the pandemic by closing its borders and enforcing social restrictions which everyone respected and adhered to. Socially and culturally the Island demonstrated all the good things that come from living on a relatively small Island where community still means so much.

The Isle of Man’s financial services sector adapted quickly, seamlessly transitioning to working from home. The banks too adopted flexible remote working practices and continued to support clients around the world helping them navigate the challenging situation and making the most of any opportunities that arose.

Although there is no substitute for face-to-face interactions, we all embraced web-conferencing platforms like Microsoft Teams and Zoom to stay connected with contacts around the world and build and nurture business relationships, whether it was with financial services firms or high net worth individuals looking to relocate to the Island.

Furthermore, a priority for the Isle of Man has been to reinvigorate the business and cultural ties with South Africa. In a normal world, we would have travelled to the country, held in-person meetings with businesses and industry representatives and talked about building on our wonderful historic ties. However, because of the scale and breadth of disruption we had to change all our plans! We hosted a virtual roadshow which comprised a series of webinars exploring why it has never been more important for South African businesses and individuals to choose the right jurisdiction for long term financial planning.

Looking ahead to the future

We are all hoping that the global rollout of vaccines will provide the pathway to some form of return to normality and all the things people are missing will be back. Like amidst all periods of immense turmoil, interesting, new possibilities have emerged such as the revolution in work culture and a renewed importance of being close to nature and green spaces is. And these possibilities can help reshape society for the better.

The global economic recovery and rebuild might seem further away in the current environment especially amidst the new lockdowns. But we are confident in the resilience of economies and are hopeful that different industrial sectors and governments working together would result in green shoots.

The financial services industry has an important role to play in getting the world economy back on its feet. It is a core component of the solution to continue facilitating the financing of corporates, as well as to develop sustainable finance and nurture digital technologies which have proven to be vital during the pandemic. The sector should continue its cooperation and collaboration with governments and regulators to ensure efficient capital flows and financial stability for businesses and individuals.

Banks too have a crucial role to play as they are instrumental to the effective transmission of monetary policies and stimulus packages. As mentioned in a report by EY: “Financial insecurity in the wake of COVID-19 will require banks to boost consumer confidence and help build a more resilient working world.”

We expect the Isle of Man’s financial services sector and banks to continue navigating the situation with resilience as they have been doing thus far and contributing to the global recovery process. Also, we truly hope this will be our busiest year ever (subject to our ability to travel), with an extensive global schedule of planned activity to promote the Island as an international financial centre of excellence and innovation. Personally, I had planned to be in South Africa for the British & Irish Lions tour, but regrettably, it might not take place and as such we will look forward to catching up with friends there as and when we can.

Conclusion

No doubt, there are significant challenges for the world ahead but as Albert Einstein said: “in the midst of every crisis lies great opportunity”. And it is this opportunity that we all need to work together to identify and make the most of. We are confident that in 2021 the Isle of Man will continue to support financial services businesses help their clients, employees, and the wider society through these surreal times. We are all in this together.

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