Nick Russen, head of banking, business solutions group, Europe for Misys outlined a number of challenges that banks are currently trying to tackle in this space. These included how banks can grow their business and replace fragmented infrastructure, remove barriers to straight-through processing (STP) while managing the associated risks and reducing costs, as well as complying with regulatory changes while still remaining competitive.
To provide an example of how financial institutions (FIs) can tackle these changes, the session also featured a case study from a major UK bank that has implemented the Misys payment services hub. The bank in question wanted to improve its offering to customers, which had previously been too fragmented. It had also been through a merger, and wanted centralised payment controls over the new entity. Additionally, the bank wanted to increase STP (where appropriate), decommission legacy apps and simplify the landscape for SWIFT and Clearing House Automated Payment System (CHAPS) messages.
The bank’s objectives included using the new payments hub across its entire commercial banking operations, including treasury and London InterBank Offered Rate (LIBOR) loans. It sought to implement a messaging and routing system to control settlement, regardless of asset class, brand or heritage, have a 24/5.5 capability, and to introduce a common operating model across its operations. The bank was also keen to increase the level of STP in its payment messages and introduce a more efficient operating model with greater control of payments.
The bank representative explained that they had taken a phased approach to implementing the payments hub. Because of this, they were able to prove the scalability, rather than taking a ‘big bang’ approach. From start to finish, phase one of the implementation took six months. He told delegates that testing the system took time, but it was important to allow time to get it right and prove the accuracy of their data. It is important at this stage that quality assurance is spot on.
By implementing the hub, the bank was able to replace its complex and fragmented IT landscape. It also sped up the onboarding of new products in capital markets, increased the bank’s control of payment flows, added monitoring and alerting procedures around payment flows, and helped the bank manage the cost and pace of change of regulation and industry-wide standards.
The Regulatory Relationship with Risk Management
An afternoon panel discussion focussed on the greatest regulatory challenges impacting risk management. Both Tatyana Kosareva, head of IT systems at Russia’s Alpha Bank, and Gianluca De Marchi, head of risk management at Italy’s Unipol Sai Group, joined moderator David Rowe, senior advisor, risk and regulation with Misys, to share their thoughts.
As the discussion began, both panellists were keen to try to take the positives from the mass of regulations that have hit the financial services industry since the 2008-09 crisis. Kosareva said that regulations have actually helped the industry get through the crisis and De Marchi made the point that, while he is constantly challenged by the regulators, they have helped FIs move to more strategic rules. He added that, while compliance with regulations is obligatory, those banks able to think strategically about the added burden would be in a good place to add value to their organisation.
With the stress test environment high on the agenda at most banks, De Marchi said that today there is a better knowledge of an organisation’s risk profile in management circles. He added that regulations have helped to introduce targets for banks, which can help improve controls and strategic thinking.
Rowe asked the panellists to identify the biggest obstacle that pushes up the cost of compliance. De Marchi noted that there is a lot of time for advisory in this space. His own organisation has introduced risk models that have actually improved their capital allocation. Because of this, he considers money spent on regulatory compliance to be an investment. Kosareva pointed out that the IT department at her organisation spends approximately 40% of its time on regulatory matters. For her, the biggest problem is the time that compliance projects take up, which can delay the ability of FIs to take products to market without hold-ups.
Addressing the ‘plumbing’ of banks, Rowe said that if a company such as Google decided to become a bank, they would build it in an entirely different way to the architecture existing in most FIs today. De Marchi made the point that new technology has to be introduced in order to manage the huge levels of data that banks process.
In the case of the
Solvency II regime
, for example, 65 quantitative reports had been required in one year. De Marchi said that at his institution they considered how to change their point of view on this issue and how to increase their flexibility to respond to regulatory challenges. His bank has around 15m clients, and would like to understand them better. Data management and data quality are key to achieving this, as Kosareva noted.
With the different systems used at her institution, Kosareva discovered that only 54% of the organisation’s data means the same thing in every system. The other 46% can create uncertainty if its meaning changes depending upon which system it is in. Kosareva observed that uniting all data is very difficult, but that clear data in one centralised place is vital.
Overall, day two at the Misys EMEA Market Forum has shown both the quantity of challenges that banks are wrestling with today, and how the most innovative institutions are rising to tackle them.
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