Compliance

11:56 AM
By Dr. Ashok Hegde, Head of Capital Markets Business Units, MindTree Ltd., Bangalore, India
By Dr. Ashok Hegde, Head of Capital Markets Business Units, MindTree Ltd., Bangalore, India
Commentary
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2009 Outlook: Tech Investment Is Key to Banks’ Recovery

Reflecting on the unprecedented financial events that have recently unfolded, banks and capital market players all over the globe believe that saying, "2009 will be challenging," is definitely an understatement. Businesses need to reinvent themselves to exploit the opportunity that has been created through asset price increases over the last decade without causing further contractions within the macro variable of an economy. And this is a priority. Though the bailout effort is underway globally, what is unclear is how this will impact IT spending, and identifying critical programs within an enterprise will be viewed as the top priority for further support and investment.

However, if I have to pick among the best available options for an IT head within banking, financial services, insurance and capital markets players, I will pick the following as top priorities:

Rationalization of IT services providers: Outsourcing of core and peripheral applications development, support and maintenance are executed through multiple service providers ranging from professional service providers to product specialists. In addition, large numbers of individual contractors are deployed across IT supporting lines of businesses (LOBs). This is particularly true for asset management firms. It is important that the banks recognize that though this trend helped during the economically buoyant period (where availability of required skills was higher priority than efficiency), today it cannot be considered as a strong strategic initiative to build leaner and more effective IT organizations. Cooperation among competitive service providers is a good theory but difficult to apply in reality. Rationalization of the service provider portfolio " having one player who can provide scale, supported by one or two midsize service providers " will help an enterprise bring much needed efficiency in the services-buying process. It should be followed by significant reductions in individual contractors whose continuity has been in question.

However, if the bank is considering outsourcing for the first time, selection criteria should involve the service provider's experience of helping first-time outsourcers achieve significant flexibility, cost savings and risk-mitigated contractor replacement. This should be the most important concern of any first-time outsourcer. Building deeper capabilities and stronger IT infrastructure to support enterprisewide decision making: The study of economics of recessions shows that the financial contractions of Japan which began during the early 1990s still continue. Japanese banks have not been able to exploit markets of the near past. If we look at this history from an IT perspective, it's easy to infer that Japanese enterprises did not invest in building a robust IT infrastructure. This has been considered one of the major reasons why Japan did not benefit significantly during the global economic boom that lasted almost a decade.

It is important for global financial organizations to invest in IT infrastructure to enable better insight into data attributes that reside in front-, middle- and back-office applications. This will enable better decision making with respect to pricing of a deal, managing risk and supporting back-office functions from clearing to final accounting. Improving real-time availability of critical data attributes and turning them into meaningful information will be the key to success.

Redefining the internal compliance and regulations department as a profit center: A myopic view of the compliance and regulations department sees these critical functions as cost overheads, and, therefore, reducing investment into their technology infrastructure has significant cost to the banks, as well as to taxpayers. The inability of a decision maker to understand the risk exposure is considered one of the core issues of this global financial meltdown. Risk through contaminated assets went unnoticed, to a large extent " even though all the data attributes were available within the systems; all the information was there. Eventually, desire for growth overtook the need to be careful. Though the problems have been validated, doubts exist that the back-office functions did not really raise an alarm in time to warrant the highest level of attention. When a function gets branded as a cost center, its ability to get mindshare becomes limited. Its voice becomes feeble and not everyone wants to hear what it says. Rebuilding IT infrastructure that supports back offices on the principles of any profit center needs to be taken up as a priority.

Failure to invest further in technology will limit any enterprise's ability to override the downward turn of events.

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