The Financial services Industry has been inundated with financial reforms and regulatory mandates, which has made compliance one of the top, spend areas in the Banking & Financial services domain. This has meant that an unprecedented amount of budgets have been assigned for compliance programs, potentially compromising the investments on strategic business and technology transformations. Though this might be true for a majority of institutions, a few have managed to leverage regulatory mandates as drives for technology transformation.
Technology leaders of these Banks & FIs have taken a holistic view of their compliance and technology needs and carved out a next generation Data and IT strategy, which enables them to not achieve compliance in a timely manner but only also develop the regulatory processes and capabilities on infrastructure, which is scalable, transparent and forward looking.
Following are some of the Top Technology Transformation some of the Banks and FIs have achieved in the preceding years along with Regulatory compliance.
- Big Data Adoption for Risk & regulatory functions –The Banking & Financial services Industry witnessed a very early interest and investments at creating enterprise data lakes and data reservoirs which largely remained underutilized since there were very few consumers of the enterprise data. Also getting Data lakes operationalized required the need for sourcing and provisioning purposeful data for specific Business needs with greater granularity and frequency. It was the Regulatory need of Basel and CCAR for enterprise wide data cutting across lines of businesses and requirements to demonstrate superior controls, which led to an accelerated adoption of the big data platform for Regulatory needs.
- Next Generation Modeling Infrastructure –Risk modeling for long had been largely characterized by Business teams developing models on rudimentary business modeling tools which were not scalable and have very little transparency and auditability. Regulatory expectations around model governance and model management have compelled Banks and Financial services to build the next generation model development and Model Implementation infrastructure which is not only are scalable and completely auditable and traceable. This model Implementation development and Implementation infrastructure could potentially be leveraged across the enterprise for all analytical and modeling needs across the lines of Business and enterprise functions beyond the Risk & regulatory models.
- Enhanced Data Management capabilities – Regulations such as BCBS 239 and CCAR stress testing have transformed the enterprise capabilities in Data management and data controls rapidly. Data governance has moved beyond policies and procedures into being an operational entity, which is driving, enhanced data controls across the organization. Data Quality is no more a technology program which greater ownership coming in from business and enabling greater quality of data for drawing business insights of strategic business value.
- Risk & Financial Integrated Infrastructure – Risk & Finance have existed as parallel entities in Banks & FIs with their own federated infrastructure. It was the regulatory era, which highlighted the need for an integrated infrastructure to provide a more consistent set of numbers across analytics and reporting needs cutting across these two organizations. Regulations such as IFRS 9, CCAR and FRTB have promulgated the need for the handshake between Risk & Finance and emphasized the obvious overlapping need for data elements across these two functions. Hence we see Banks & FIs develop a common Finance and Risk data provisioning platform and also an Integrated Reporting framework with a common staging to feed into the various schedules of Risk & Finance
Self Service Analytics – For ages, we have had the business teams asking for the ever-elusive data elements, which the technology teams seem to be falling short of provisioning or doing so with the level of granularity which could not meet their Business analytics needs. Regulations such as CCAR & IFRS 9 have been exploration heavy, which has pushed CIOs to provision a self-service analytics sandbox and other data exploratory environments, which has, help business teams with their increasingly complex definition of business data needs. A number of Business & Financial services organizations today seem to have a self-service analytics environments built on big data and traditional data platforms as well.
Therefore, what exactly are some of the key Solution considerations when CIOs are planning their IT and Data strategy to ensure they are able to achieve technology transformation in addition to regulatory compliance?
Below are some best practice, which could be considered:
Engage the Chief Risk Officer, Chief Compliance officer and Chief Finance officer as part of the Strategy definition process to factor in, not only current but also anticipated regulatory requirements.
- Inculcate a Business Architecture driven Technology definition culture within the organization, which will highlight the overlapping business needs between regulatory and non-regulatory business functions.
- Set up an Architecture review board with representation from key stakeholders of current and the planned regulatory programs.
Regulatory compliance should take a priority in terms of focus, resources and investments. However, it is also important to take a holistic view of the kind of capabilities, which are being built out for meeting the regulatory needs and assess its applicability and potential leverage for carrying out a technology transformation for the larger benefit of the organization to serve a wider set of Business needs. Regulations such as Current expected Credit Loss (CECL), Fundamental Review of Trading Book (FRTB) and SCCL (Single Counterparty Credit Limits) provide an excellent opportunity to plan a larger technology transformation riding on the wave of investment and focus, which such regulatory programs will garner.
About the Author
Manoj Reddy is the Head of BFS Risk & Compliance Practice for TCS North America with an experience of more than 15 years in the areas of financial services, IT, and business consulting. Reddy has lead several risk consulting and implementation engagements for financial firms globally. He has provided both Regulatory and Strategic Business solution to his customers over the last decade primarily in the area of CCAR, Basel, Liquidity Risk and Enterprise Risk management and is currently leading TCS efforts in North America with respect to providing cognitive solutions for Risk & Regulatory problems.