Technology Challenges of the new Regulatory Environment
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This document summarizes the technology challenges banks face in complying with increasing financial regulations. It notes that between 2008-2015, banks had to balance cost-cutting with meeting new regulatory requirements, often by adding piecemeal solutions to existing systems. This led to increased technology debt. It warns that large IT projects typically run over budget and time while under-delivering value. The document discusses challenges around consolidating front, back, risk and finance systems into a single vendor solution. It raises questions around over-reliance on single vendors and lack of standardization across the industry. An alternative of using discrete, flexible components with standard interfaces is proposed but no current offerings provide this.
Technology Challenges of the new Regulatory Environment
- 1. PostTrade Forum &Trade Show NH Danube City Hotel,Vienna Kerry Evans – 11th September 2015 Technology Challenges of the new Regulatory Environment
- 2. Seem Familiar? TechnologyWeb for the good times
- 5. Regulatory impact analysis We’ve all got one of these. 9 2015 7 365 112 4 1021011 6 78798 3 8 10412 9 11 95 7 1112 16 2 61152 31 2017 1 42 3 20182016 4 125108 31/8/16 FSB Phase 331/7/15 FSB Phase 2 1/1/18 IFRS 9 implemented 15/2/15 LCR deadline templates 30/6/16 AnaCredit Pilot 31/12/16 AnaCredit Compliance 30/6 /15 Remedial actions AnaCredit 31/3/15 PoA DIV31/1/15 PoA DNB At least 1 a year At least 1 a year Stress testing Regulatory Topic 1/1/16 BRRD Minimum Required own funds and Eligible Liabilities 1/1/16 BCBS #239 complianceBCBS #239 AQR Rem Actions* Liquidity reporting 1/1/16 Daily LCR FSB** IFRS 9 30/6/15 New templates ALMM FTP BRRD 28/2/15 CRD IV aftercare 1/1/16 Set up IT/Information System 31/12/16 Equity Framework 30/4/15 LGD changes 30/9/15 CRM & Netting 1/7/15 Asset calculation IHCEPS FINREP 1/7/16 Compliance with EPS requirements 31/12/15 Stress testing UAH21/7/15 Collins Amendment Reporting on solo level (expected) DPM 1/1/16 DPM 2.4 31/12/17 Securitisation Framework 1/1/17 DPM 2.61/7/16 DPM 2.5,1/7/15 DPM 2.31/1/15 DPM 2.2 COREP 1/7/16 Full MMS reporting1/4/16 Partial MMS reporting 1/10/15 New templates LCR 1/1/16 Apply SREP guidelines At least 1 a year SREP 13/4/15 SSM SREP MMS 1/7/18 Net Stable Funding Ratio At least 1 a year * Solution DIV tbd ** Extension phase 1 tbd Regulatory milestone Regulatory milestone, no fixed dateLegend
- 6. What Changed Connect to new market places Pre-trade checks Transaction reporting Clearing House connectivity Financial Reporting
- 7. Revenues and Regulations Increased pressure on IT budgets Technology debt observed in 2015 was largely caused by the application of a series of tactical bolt-ons or hacks to existing software platforms, often exacerbated by regulators failing to articulate, complete, unambiguous, quantitative, verifiable requirements in good time. In addition, our clients are in an environment where business leaders demand increased reliability, flexibility and the ability to quickly react to requests. * Greyspark JP Morgan, Citi, Morgan Stanley, Goldman Sachs, Wells Fargo, Barclays, RBS, Lloyds, HSBC, Standard Chartered
- 8. 2008 -2015 –competing drivers Cost saving and regulation Regulators Required : Collect and consolidate information, cross asset and cross business lines More complexity, more systems, more costs. Business Required : • Reduce costs, • Cut surplus systems, • Restore profitability • Support new business models Know More Know It Better Know It For Less
- 9. Crunch Point How much can we consolidate ? Front Office Back Office Front to Back Risk Finance The whole lot ?
- 10. • Set your project up to succeed • Senior management support • The right delivery team • Business IT Partnership • Stages for funding and delivery • Strong project disciplines • Short delivery cycles • BE PREPAREDTO CANCEL • Pick your vendor carefully • Product scope • Credible road map • Accessible skills in market • Focus on the benefits • It’s not all about IT – 95% is good enough • Business processes – fit the system • Business compromises (out of the box functionality) • IT - 95% is NOT good enough • Actually retire your systems. • Focus on the quality • Management reporting • Decision making • Deployment and support • Plan, measure, report, replan What do I need to consider? On average, large IT projects run 45 percent over budget and 7 percent over time, while delivering 56 percent less value than predicted. * McKinsey
- 11. • Change lifecycles for the future • Front office changes vs. Risk System changes • AvoidVersion Drift • AdoptVendor releases and adapt business processes • Rebalance of system ownership • More partnership (& more committees) • Wedded to one supplier • 20 year relationship • Concentration of suppliers • Not many offering credible options • Price of entry for competitors • Standardisation • Common business processes • Common technological skills • Common risk models What are the implications? How could a monolithic IT architecture impact my business? For My Firm For the Industry
- 12. Standard platform Discrete flexible components (open source ?) Standard inter-process communications No-one is offering – although some of the elements exist Is there an alternative? Can I fight the fashion Outsourced entirely Fully standardized platform Fully standard processes The utility solution Coming soon from a vendor near you