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

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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.