Fathoming the unfathomable

Category: Asia, Global

Regulatory pressure is proving something of a poisoned chalice for the fund management technology business. Yes, it compels their usual client base to use more of their services, but at a price. In fact, there is a triple ratchet cranking up demand. The first is primary regulatory pressure from entities like the Basel Committee on Banking Supervision and its local counterparts, whose 2013 principles are actually compelling banks and financial institutions to improve their financial IT infrastructure for macroprudential systemic stability reasons. There is secondary pressure from client institutions under new transparency and monitoring obligations that have to be served by a better information flow. And there is a tertiary pressure from entities like family offices that simply follow the trend and act on the general push for greater disclosure and better reporting.

Compared to these, other drivers for new technology implementation and adoption are relatively superficial. And Dodd Frank and Solvency II are just two examples of the raft of often ill-coordinated regulation and legislation encroaching on the financial information and data provision space.

The snag for technology providers and integrators is that the performance bar has never been higher. A related problem is that IT departments and integrators are often forced to work with mare’s nests of legacy systems suddenly exposed to new expectations and demands. But there is no pulling back from the requirements. The Basel Committee’s Principles, for instance, actually have to be implemented by global systemically important banks in full by beginning 2016. The visibility of technology failure, as well as the potential for it with the greater demands placed on systems, have therefore also never been higher.

“Many banks are facing difficulties in establishing strong data aggregation, governance, architecture, and processes, which collectively represent the initial stage of implementation”, reported the Basel Committee in December 2013 after overseeing actual implementation to date of the principles. And the report continued, damningly: “Instead, they resort to extensive manual workarounds. Notably, of the 30 banks that were identified as global systemically important banks (G-SIBs) during 2011 and 2012, ten reported that they would not be able to fully comply with the principles by the 2016 deadline. The main reason reported is large, ongoing, multi-year IT and data-related projects.”

If that is all the most critical systemic banks can do under highly concerted regulatory pressure, one can only guess the situation in other financial institutions and financial services practice areas. If nothing else, at least financial information technology professionals will be guaranteed years if not decades more work cleaning up this situation.