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Banking Regulations – Surviving the IT Nightmare

By Derek Britton, Solution Marketing Director at Micro Focus

Recent high-profile compliance failures in the financial industry are leading to higher regulatory demands with more stringent mandates. Only recently was Standard Chartered Bank a victim of compliance failure and imposed with a hefty penalty of $340 million by regulators. The increased emphasis on compliance combined with rapidly changing business requirements, means organisations need to demonstrate robust internal governance and reporting mechanisms, albeit in an increasingly fluid and fast paced environment which makes IT more expensive and more complicated. Derek Britton

Last year banks were subjected to over 60 regulatory changes per day , putting huge pressure on IT teams to react and keep quality to the required level. This will continue, with regulators cracking down on non compliance with substantial fines. Research from The Chartered Institute of Internal Auditors (CIIA) has revealed that 60% of fines levied by the Financial Services Authority (FSA) last year were down to weaknesses in the risk management systems of financial services firms, costing £38.5m in fines during 2011.  To manage these changes manually is a very difficult task.

While the regulations themselves may be simple enough to comprehend, the technical requirements for their implementation in IT are often far from it. Core IT system engines, typically residing on big mainframes, are optimised for scalable, resilient production performance and provide the horsepower to keep financial enterprises running. However, with new regulations coming in so fast many organisations are not sure of the best strategy to adopt. FATCA- the US Foreign Account and Tax Compliance Act, which forces foreign entities to disclose all US clients and effectively collect tax on behalf of the IRS, is one example.  Financial institutions will be required to extract data from their core systems, products and service providers and package the data in a form required by the IRS. This will require an overhaul of key systems. Moreover, the likelihood is that other countries will also follow suit with similar regulations. Continual changes and modifications to regulations are also making the process more arduous.
How IT responds to regulatory change is a critical challenge. Over-burdened IT environments, already working at near-full capacity, could negatively impact the resources and bandwidth available to prepare for these changes – drastically slowing the whole process down and potentially costing large amounts of money.
Additionally, the larger the organisation, the higher the potential cost of modernising or responding to regulatory change. Large organisations need to find ways of managing potentially spiralling costs brought about from increases in mainframe capacity. A genuine option is to review existing core system workload to identify bottlenecks, which could – especially on traditional mainframe systems – reside in the development, testing or even production deployment activities of IT. Using smart technology and exploiting new advances in mainframe technology (IBM’s zEnterprise system, for example, consolidates z/OS, Linux, UNIX and Windows servers into a single environment), IT teams can shuffle major IT activities across this more flexible and efficient environment. This is because it behaves exactly the same way as the more traditional mainframe environment, but offers even greater capacity and flexibility.
By looking at how core IT system delivery activities and workload can be optimised across all available platforms, organisations can then cope with the development, testing and redeployment needs brought about by regulatory changes at a lower cost while also meeting delivery timeframes. With this process, bottlenecks in the delivery cycle will be eliminated and testing and delivery schedules will be able to be met without the previous limitations of mainframe capacity.
Overall, optimising core systems development, QA and deployment workload across the zEnterprise or similar contemporary environments can provide the capacity to make businesses more agile, and in a better position to cope with current regulation requirements, as well as those yet to come.
Financial institutions need to make sure that their IT systems as well as their businesses are ready for any regulatory changes.  For organisations to be able to manage this and make sure costs do not spiral out of control, IT managers need to look at alternative environments so that mainframe activities are not hindered. Otherwise, they could face major setbacks in terms of capacity or worst still, regulatory fines.