By Bob Mudhar, Partner at Citihub Consulting.
Public Cloud Adoption. Operational Resilience. Data Management. Microsoft 365. These will be the stories likely to dominate the headlines in banking technology for 2020, as forecasted by Bob Mudhar, Partner at Citihub Consulting.
His perspective is slightly different from banktech providers since, as a technology consultancy focused on Financial Services organisations, they operate in key areas that are current, relevant and in-demand at their clients’. The following are the areas Bob Mudhar sees financial services firms investing in, either through their own internal spend or through using external providers, ISVs and banktech organisations:
The major top tier Financial Services (FS) firms are still investing large amounts of time, money and organisational willpower on cloud adoption programmes. Mostly, they are trying to move early adoption candidates into full public cloud. Here, the challenges are still on technology security and enablement issues. FS firms find that moving a single instance of something into public cloud as a bespoke effort is achievable. Converting a single handcrafted migration into a factory-style approach to migrate thousands of applications is a much more challenging task. One common theme here is the lack of real and relevant skilled resources capable of the level of automation at such huge scale.
An emergent theme in this same topic is known as “compliance as code”. Paul Jones, Associate Partner at Citihub Consulting notes, “Firms have already benefited from infrastructure as code (where software engineering techniques such as versioning, testing and automation are applied to infrastructure delivery) and they are expanding this approach to cover security & compliance, too.”
Instead of a handbook or Wiki, corporate IT policies and security standards can be written as tests, and these tests can be executed against real infrastructure by CI/CD. Compliance teams get an up-to-date view of the status of their environments, and DevOps teams get clear, implementable requirements that can be embedded into their delivery pipelines.
Compliance as code is part of a general to “shift left” on security and compliance – an effort to introduce security & compliance best practice early in the development of a solution rather than leaving it for assessment, often by a separate team, just before deploying it to production.
Finally, as firms have adopted public cloud, there is increasing attention spent on Cyber Vaulting of code and data – that is ensuring you have access to your own code and data in the event of catastrophic failure of your cloud service provider. Once this is resolved, the next step is the rehydration, or recovery, of an entire application estate.
Data management and data governance were themes in 2019 and will continue to be headline topics in 2020, with growing importance. Data ties together the cloud adoption story and the digitisation of the banking enterprise. This is because firms often see the offloading of data to the cloud as being an enabler (easier for multiple areas to access the same data, greater usage of the latest toolsets). Once data is in the cloud, it becomes a huge driver for enabling the digital enterprise – offering services to clients on any platform (from mobile through to desktop PC) and ensuring a consistent experience on any device. However, moving data to the cloud also means understanding what data a firm has and what controls they have over it.
The migration to Office 365 is far more than an application upgrade. This is because it is also a move to the cloud as some of the services will be natively on Microsoft Azure. As it will be company data that will move to the cloud, there are concerns over data integrity and security. Hence, what starts as an application-upgrade problem has become, for many banks, all about auditing what data is stored internally and how to handle it in a post Office 365 world.
The PRA has been increasing focus on operational resilience of financial service firms. This is coming from a far more holistic perspective than technological data centre and disaster recovery plans. It considers the resilience of the organisation as a whole – people, processes, and technology. There may be a role for banktech firms here to propose innovative new solutions to resilience. However, there will also be a need for forensic investigation and uncovering of operational resilience risks and how to mitigate those. Some firms have begun mobilising their responses. The recent Treasury report on TSB technology failures was another trigger point to increase strong focus on operation resilience.
There is a link here to cloud adoption. As more services are digital first, and as the retail banking customer increasingly uses a mobile device as their only interaction with financial services firms, then the resilience of the cloud platform becomes a priority entry point and therefore at the top end of critical infrastructures that need an assured level of resilience. A few years back, technology resilience would have been focused on back-office system. Now, the front portal and cybershop front are just as important.
ECB stays put but warns about surge in infections
By Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – The European Central Bank warned on Thursday that a new surge in COVID-19 infections poses risks to the euro zone’s recovery and reaffirmed its pledge to keep borrowing costs low to help the economy through the pandemic.
Having extended stimulus well into next year with a massive support package in December, ECB policymakers kept policy unchanged on Thursday, keen to let governments take over the task of keeping the euro zone economy afloat until normal business activity can resume.
But they warned about a new rise in infections and the ensuing restrictions to economic activity, saying they were prepared to provide even more support to the economy if needed.
“The renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity,” ECB President Christine Lagarde said in her opening statement.
Fresh lockdowns, a slow start to vaccinations across the 19 countries that use the euro, and the currency’s strength will increase headwinds for exporters, challenging the ECB’s forecasts of a robust recovery starting in the second quarter.
Lagarde saluted the start of vaccinations as “an important milestone” despite “some difficulty” and said the latest data was still in line with the ECB’s forecasts.
She conceded that the strong euro, which hit a 2-1/2 year high against the dollar earlier this month, was putting a dampener on inflation and reaffirmed that the ECB would continue to monitor the exchange rate.
The euro has dropped 1% on a trade-weighted basis since the start of the year, but is up nearly 7% over the last 12 months. Against the U.S. dollar, that number rises to over 10%.
Opening the door for more stimulus if needed, Lagarde confirmed the ECB would continue buying bonds until “it judges that the coronavirus crisis phase is over”.
Lagarde also kept a closely watched reference to “downside” risks facing the euro zone economy, which has been a reliable indicator that the ECB saw policy easing as more likely than tightening.
But she signalled those risks were less acute, in part thanks to the recent Brexit deal.
“The news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns is encouraging,” Lagarde said. “But the ongoing pandemic and its implications for economic and financial conditions continue to be sources of downside risk.”
Lagarde conceded that the immediate future was challenging but argued that should not impact the longer term.
“Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term,” Lagarde said.
Benign market indicators support Lagarde’s argument. Stocks are rising, interest rates are steady and government borrowing costs are trending lower, despite some political drama in Italy.
There is also around 1 trillion euros of untapped funds in the Pandemic Emergency Purchase Programme (PEPP) to back up her pledge to keep borrowing costs at record lows.
The ECB has indicated it may not even need it to use it all.
“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” Lagarde said.
Recent economic history also favours the ECB. When most of the economy reopened last summer, activity rebounded more quickly than expected, indicating that firms were more resilient than had been feared.
Uncomfortably low inflation is set to remain a thorn in the ECB’s side for years to come, however, even if surging oil demand helps put upward pressure on prices in 2021.
With Thursday’s decision, the ECB’s benchmark deposit rate remained at minus 0.5% while the overall quota for bond purchases under PEPP was maintained at 1.85 trillion euros.
(Editing by Catherine Evans)
Bank of Japan lifts next year’s growth forecast, saves ammunition as virus risks linger
By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) – The Bank of Japan kept monetary policy steady on Thursday and upgraded its economic forecast for next fiscal year, but warned of escalating risks to the outlook as new coronavirus emergency measures threatened to derail a fragile recovery.
BOJ Governor Haruhiko Kuroda said the board also discussed the bank’s review of its policy tools due in March, though dropped few hints on what the outcome could be.
“Our review won’t focus just on addressing the side-effects of our policy. We need to make it more effective and agile,” Kuroda told a news conference.
As widely expected, the BOJ maintained its targets under yield curve control (YCC) at -0.1% for short-term interest rates and around 0% for 10-year bond yields.
In fresh quarterly projections, the BOJ upgraded next fiscal year’s growth forecast to a 3.9% expansion from a 3.6% gain seen three months ago based on hopes the government’s huge spending package will soften the blow from the pandemic.
But it offered a bleaker view on consumption, warning that services spending will remain under “strong downward pressure” due to fresh state of emergency measures taken this month.
“Japan’s economy is picking up as a trend,” the BOJ said in the report, offering a slightly more nuanced view than last month when it said growth was “picking up.”
While Kuroda reiterated the BOJ’s readiness to ramp up stimulus further, he voiced hope robust exports and expected roll-outs of vaccines will brighten prospects for a recovery.
“I don’t think the risk of Japan sliding back into deflation is high,” he said, signalling the BOJ has offered sufficient stimulus for now to ease the blow from COVID-19.
NO EXIT EYED
Many analysts had expected the BOJ to hold fire ahead of a policy review in March, which aims to make its tools sustainable as Japan braces for a prolonged battle with COVID-19.
Sources have told Reuters the BOJ will discuss ways to scale back its massive purchases of exchange-traded funds (ETF) and loosen its grip on YCC to breathe life back into markets numbed by years of heavy-handed intervention.
Kuroda said the BOJ may look at such options at the review, but stressed a decision will depend on the findings of its scrutiny into the effects and costs of YCC.
He also made clear any steps the BOJ would take will not lead to a withdrawal of stimulus.
“It’s too early to exit from our massive monetary easing programme at this point,” Kuroda said. “Western economies have been deploying monetary easing steps for a decade, and none of them are mulling an exit now.”
(Reporting by Leika Kihara and Tetsushi Kajimoto; additional reporting by Kaori Kaneko; Editing by Simon Cameron-Moore & Shri Navaratnam)
World Bank, IMF agree to hold April meetings online due to COVID-19 risks
WASHINGTON (Reuters) – The International Monetary Fund and the World Bank have agreed to hold their spring meetings, planned for April 5-11, online instead of in person due to continued concerns about the coronavirus pandemic, they said in joint statement.
The meetings usually bring some 10,000 government officials, journalists, business people and civil society representatives from across the world to a tightly-packed two-block area of Washington that houses their headquarters.
This will be the third of the institutions’ semiannual meetings to be held virtually due to the pandemic.
(Reporting by Andrea Shalal; Editing by Chris Rees
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