Handing IT departments a larger role in planning regulation strategies can reduce cost and drive business growth by removing siloes in the collation and monitoring of data, according to analysts Ovum.
Banks are having to spend increasing amounts of money in order to meet the growing mass of regulation aimed at creating stability in the sector following the financial crash in 2008. A wide range of new regulations, such as Basel III and MiFID II, have been introduced, and will require ongoing investment from banks as implementation is staggered over the next three or four years.
While there are clear disadvantages in failure to comply with regulations – exhibited in the $1.9 billion fine for HSBC’s lack of data monitoring around money laundering, for example – the cost of implementation is in many cases cutting into revenue growth among banks, which are already seeing less income and cutting costs across their business.
According to Daniel Mayo, Ovum’s chief analyst for financial service technology, a stronger role for IT departments in planning for meeting new regulations can help lower the costs by bringing together individual siloed projects, reducing the duplication of data across the organisation.
Currently, it is often that case that each individual regulation project is coordinated by a separate department, be it finance dealing with Basel III or compliance leading on AML, and there is often not enough communication between each area of the business, Mayo said.
“What often used to happen is that you would invest in anti-money laundering for example, and then have a separate investment in fraud, but actually 70 to 80 percent of what you are doing is the same,” Mayo told ComputerworldUK at the Ovum’s Financial Services Technology Forum 2013. “So you need to bring those projects together and have the same platform that allows you to do both.”
IT, on the other hand, is well placed to create a more coordinated approach to bringing regulation projects together to share data.
“The problem is that, for example, risk isn’t speaking properly with compliance or the front office, whereas IT is working with all of the different functions so is in a good position to say ‘we are doing the same thing across these different divisions, let’s try and do it in one project rather than two or three',” said Mayo.
“At some point you need someone who has overall control. Part of the problem is that responsibility sits between the compliance function, risk management, finance and ultimately it goes to the chief executive. But you need someone who can coordinate across those areas.
“IT has a strong supporting role because from an operation and implementation perspective they are far closer to the ground in working across an enterprise than any other area.”
One of the problems in bringing together projects is that banks often begin work to meet regulations only a few months before a deadline, he said. This means that there is little time to plan for the integration of systems which are subsequently delivered by IT departments.
“When you have very tight time pressures you can only really have a individual project approach because there is no way to do it in six months. If you are starting earlier you can plan those things into the systems," he explained.
By creating a more unified approach to the collation and monitoring of data for regulatory purposes, there are two main business benefits, Mayo said. One is the reduced cost of not having to replicate tasks for each separate regulation. The other is the use of data to drive business growth by leveraging the information that is gathered through the front end of the business for analysis or marketing purposes.
“One side of the benefit is in terms of reducing overall cost of compliance in the first place. So if you can share a platform or you are only getting the data once, rather than collecting it eight to ten times through each piece of regulation, so there is a direct cost saving there,” he said.
“The other area is if you are being forced to monitor something or take data, you can feed that back into a front line process and marketing to help support revenue growth as well. So the main focus is probably on the cost side, but people are starting to see that they can use this to support their business, and driving revenue growth. That is further down the line but it is starting to happen now.”