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By M. Isi Eromosele
Banks must meet more varied regulations today than ever. The
sheer scale and scope of banking regulations, including Dodd-Frank, Basel III
and IFRS pose challenges to all financial institutions, from the smallest bank
to the largest financial services enterprise.
Financial organizations must give regulatory requirements
top priority, since failing to meet these rules and regulations places banks in
a risky position. Potential fines and remedial actions that result from
noncompliance are only part of the risk. Financial institutions also face significant
business consequences if they fail to take the necessary steps to meet
regulations.
The increasing number of regulations and their widening
scope were enacted to protect
bank depositors and customers, but they were also put in
place to protect financial institutions and ensure their viability. The current
regulatory framework aims to make banks and the global banking systems more
resilient and stable.
While ensuring that their technology enables the necessary
transparency, analytics and reporting for regulatory compliance, financial
institutions must also improve operational inefficiency, hone their competitive
advantage and mitigate multitude risks.
The Need For A Global View
To meet current regulatory mandates, financial institutions
must examine their data governance and quality, as well as transparency, audit
processes and liquidity risk within each area and using various time horizons. Previously,
banks looked only at a two-week or even one-month time horizon for liquidity.
However, as the global financial crisis that commenced in
2008 has shown, credit markets can dry up. The U.S.
government had to step in to provide liquidity in the marketplace. Today, the
time horizon has been redefined. Currently, a financial institution might have 30-
to 90-day time horizon from a liquidity standpoint.
Several years ago, it was sufficient for banks to do
liquidity stress testing on a monthly basis. Now financial firms need to
understand their positions daily. Organizations that can get that critical
information daily have a huge competitive advantage over competitors that can
get this information every two weeks.
Timely information empowers financial institutions to
swiftly respond to world-changing events, such as political unrest or economic
upheaval.
Meeting New Requirements
Raising the quality, consistency and transparency of capital
as required by the Dodd-Frank Act is driving financial firms to collect, analyze
and report more detailed data to regulators, auditors, management and customers.
To meet these requirements, financial firms need to address
not only capital adequacy, but also mortgages, liquidity, stress testing and
other provisions that will challenge the need to establish real-time visibility,
analysis and reporting of enterprise wide data. To do so, it is imperative for
financial organizations to transform their existing operational and technology
infrastructure.
Reacting to regulations on a rule-by-rule basis isn’t a
viable strategy. Instead, financial firms must come up with a well-designed
plan to transform their technology infrastructure and operations to provide
visibility, analytics and reporting necessary to meet current and future
required mandates.
Some organizations have to aggressively consolidate their
systems, seeing the need for regulatory compliance as an opportunity to fix
systems that may not be working optimally. An optimal technology infrastructure
can help institutions drive down both the time and cost of maintaining
regulatory compliance an, at the same time, enable these
firms to expand resources, expertise, intelligence and
visibility across the enterprise.
Unifying Core Technology Platforms
Banks and financial services companies have traditionally
acquired technology in a reactionary way, implementing solutions such as market
risk systems or credit risk systems to address acute problems.
As a result of the above, over many years, financial
services organizations can wind up with dozens of disparate systems from
multiple vendors, all acquired at a time of need. This disparity inevitably creates
massive operational problems.
If a firm has 30 different systems, each providing the
company with information on different time horizons, on different time frames
and on top of different data, the organization won’t be able to reconcile the
information to create a single holistic view of the institution.
In a competitive operating environment, it is essential to
have a holistic, enterprise-wide view that makes it possible to drill down into
the lines of business or different product or asset types. Consolidating these disparate
pieces into a single system is a practical
means to get this essential holistic view.
Under the audit and transparency data governance
requirements, regulators need to see how the data came in, how it came together
and what rules were used to clean, scrub and transform the data.
Financial organizations must show how they do the quantitative
steps, as well as how data landed in a reporting area. Organizations that have
dozens of disparate, siloed systems will find it difficult, if not impossible to
be able to show end-to-end flow and continuity.
Piecemeal technology acquisition also creates integration
road blocks. As an organization’s technology environment becomes more complex, the
integration challenges only get more complicated and costly. In the long term, integration
becomes unsustainable.
Having a common platform facilitates the introduction of new
products and services, which can make a huge difference in a competitive global
marketplace. Integrating a new offering is as simple as dropping in the new
functionality when everything is on the same platform and data model. Technology
can support business and respond to ever-changing market conditions much more
quickly.
Financial services organizations must be proactive in taking
steps to comply with regulatory mandates. A sensible, comprehensive approach to
industry and government mandates gives banks the opportunity to transform their
technology and operational infrastructures, improving not only regulatory compliance,
but also administrative efficiency and competitive positioning.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
Copyright Control © 2012
Oseme Group
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