Today’s core bank systems are no longer about just keeping pace with the massive transaction volumes and complex regulatory requirements. As explored in a recent article in The New York Times, technology is quickly replacing individual reputations on Wall Street and, with the help of flexible IT infrastructures, banks are better positioned to gain competitive advantage.
Specialized technologies must enable complete control over the processes that manage data, provide full transparency into the data’s origins and path through an organization, and inspire confidence on the part of both business and IT users. The architectures that support core systems transformation have to have that control, transparency and confidence built into their DNA.
Core systems transformation can feel like a demolition project. Worries abound about where the debris will fall after the wrecking ball hits. Forward-looking banks are taking a smart approach to scheduling the demolition: before knocking down the whole architecture, they are shifting to incorporate solutions that answer the call for greater agility -- these systems can evolve to accommodate the coming deluge of Big Data, are easily integrated into a compliance strategy and, can provide transparency into the risks associated with every single trade and transaction across all divisions and geographies of global operation.
At the same time, banks are increasingly willing to wrap yellow caution tape around outdated technologies. Why? Because too many stone age solutions don’t have the “books and records” integrity that the new modus operandi demands. It’s not enough, for example, to know that a financial instrument’s price was created by Trader X in Location Y. Now banks have to ensure control across the organization regarding the origins, risks and regulatory implications associated with that product. That control feeds directly into the new reporting imperative.
Drafting the Blueprint
Arriving at a clear and concise blueprint for transformation can be a challenge for banks because of the uncertainty surrounding choosing the right solutions to both foster and support core systems transformation. How can banks measure the return on the IT infrastructure changes they are making, and what are the best practices for predicting that return even before the changes are complete?
First, adopting an “architecture” or core systems strategy sets the foundation. Needing to stay agile and nimble to tackle regulatory changes, organizational change and hurdle risks, banks must focus on the unique data management processing requirements within their organization and match those strategic needs with engines for driving core systems success.
And, in turn, core systems impact a bank’s ability to make strategic, smart decisions, not only in the market but also on their IT investments. So tapping both business and IT users who build applications is key when laying the foundation: this creates a collaborative “architecture” -- the key to a blueprint for fast, easy and straightforward implementation of new systems.
The Right Materials for the Job
Picking and choosing the appropriate materials for the job can be daunting. Bank IT reconstruction crews aim to lighten their “materials” list quickly by identifying flexible, clear view systems with collaborative environments. However, that task is sometimes not as easy as backing up a truck up to Home Depot and loading it with steel beams.
How to overcome this challenge? IT departments within banks must embrace a rules-based approach that depends on data-flows, not hardwired events. Outdated platforms run on traditional code bases, which negate the ability for business and IT users to work in sync. Instead, banks should opt for rules-based platforms, which alleviate and close the control loop between front office and back office, allowing for more effective product control based on richer, timelier data.
This requires opening the door to the foreman’s trailer, though: business and IT users need to work in lockstep to maintain the right levels of input and control to successfully map business process outcomes. These include management, financial and regulatory reporting and risk management. Both financial and operational metrics must depend on this type of common analytical platform, through which core technologies can become holistic systems.
Unlike building a skyscraper, the design, construction and taking to market of new financial technology can take days, not weeks or months. However, the sourcing, implementation, reconciliation and rollout of financial technologies that support those products can seem to last infinitely.
Part of the challenge is a perpetual cycle of change, where banks have to respond very quickly to market shifts, new products, regulatory demands and customer preferences. At the same time, front office technologies that touch trading desks, teller windows and ATMs tend to take priority. And the bridge between the CIO and the CFO can be rickety.
For banks’ IT departments, this is intimidating. On the one hand, the technology infrastructure must support the strategic needs of the bank. On the other hand, that infrastructure is comprised of legacy systems and processes that may pose operational risks, but may be perceived as less risky and less costly than adopting a new way of doing things.
To meet deadlines for the reconstruction of core systems, it is absolutely crucial that IT finds and leverages champions within the business, preferably from the C-suite and above departmental silos. If the head of risk management isn’t wearing a hard had along with the guys designing IT platform, the framing will never withstand the earthquakes of market and organizational change.
Cutting the Red Ribbon
Banks not planning some sort of demolition soon will be left in the dust. Transforming core systems isn’t just about renovating for cosmetic improvements. It’s an imperative for making room for the technologies that support smooth, fast, and flexible processes. Just as tearing down a plaster wall to install insulation is hard and expensive work, transforming the It architecture that supports a bank’s operations is fraught with difficulty.
But anxieties over what a bank might uncover behind the walls aren’t justification for putting off these building improvement processes. At the heart of core systems transformation is an alignment with what really matters to senior management: consistent performance, competitive success and high-level reporting to shareholders and regulators.
Martin Redington is Senior Vice President, Product Management, Microgen