The revolution of business information systems and their corresponding data stores has transformed how global organisations produce and use information. This has happened in three parallel realms: enterprise business applications, personal productivity and content applications, and the internet. With the emergence of holistic and semantic data integration technologies, innovative organisations have started to leverage the immediacy and relevance of unstructured and Web data. This has enabled the use of rich enterprise applications and processes, and in the reverse scenario, real-time data in edge-of-enterprise Web applications.

Key Findings

• The Data Virtualisation Platform – To accomplish the goals of holistic data integration, a data virtualisation platform must be more than the sum of the key capabilities found in separate technology stacks for EII, Web extraction and Search/Indexing.

• Applications of Data Virtualisation – As organisations become aware of the unique capabilities of data virtualisation to merge structured and unstructured information, they are discovering new uses and even new business models to enhance their competitive position.

• Current Strategy – Data warehousing and integration strategies are common place in the market to varying degrees but none of the participating banks have taken the next step towards virtualisation. Where it has been used, it is only in pockets of the organisation, layered on top of the existing integration strategy.

• Responsibility and Stakeholders – There are a number of different areas of the bank which inhabits sponsors and stakeholders at the participating banks. As can be expected, heads of the business lines have a vested interest in Data Virtualisation. Furthermore, a number of the participants commented that IT is the main stakeholder.

• Future Plans – A majority of the respondents highlighted that future plans concern spreading their current techniques across a greater number of areas within the bank.

Conclusion

The goal of making information a strategic asset can no longer be limited to the subset of structured data contained in enterprise databases and applications. Business and government organisations must deal with the reality of the information explosion driven by Web 2.0 and user-generated content. Increasingly, just as much useful and relevant data resides outside enterprise applications as within it.

As banking products and processes become increasingly complex, the need for risk management solutions that can deliver on all levels has become more significant. Banks now have a wide array of vendor products to choose from, the merits of which must also be judged against the unmatched customisability afforded by in-house solutions. As banks must now fulfil increasingly complex regulatory requirements and build a robust risk management framework simultaneously, vendor strategy has become a key area of concern.

Key Findings

• Current trends – Across all areas of risk, a large number of banks are either using in-house Risk Management solutions or a combination of both in-house and vendor solutions.

• Market leaders – The survey found no clear market leader among Credit Risk vendors, however, QRM, Algorithmics and Oracle were the most popular options among respondents for Liquidity, Market and Operational Risk management solutions respectively.

• Features – Flexibility was considered the most important feature in an ideal vendor solution, followed by cost effectiveness.

• Vendor strategy – Most banks expressed satisfaction with their current risk solutions. A few, however, have started a long-term change programme to expand the capabilities of their current Risk Management solutions. Regulatory reforms have had a deep impact on banks’ vendor strategy.

Conclusion

Banks realise that having a risk solution that can be easily customised to meet specific requirements offers competitive advantage. An increasing number of banks, therefore, are opting to use vendor products and in-house solutions together, instead of relying exclusively on the former. When it comes to features, flexibility and customisation are the most important factors to users. The survey results show that the role of external consultants in the selection of vendor solutions is still important, but it diminishes sharply at tier-1 banks. Finally, regulatory authorities have also become key determinants of the vendor strategy pursued, as banks must now comply with a plethora of reforms within a short span of time.

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A loss of confidence in the Brazilian economy due to political upheaval in 2002 witnessed the withdrawal of operations in Brazil. Of late, however the trend has reversed. Brazil has remained largely untouched by the catastrophic events of the credit crisis felt by a great many economies globally. With an increasingly stable political foundation, the improvement of Financial regulation over the last half decade, accompanied with falling interest rates, The world’s leading investment banks are re-establishing a foothold in the Latin American nation.

Key findings

• Business Structure and Set Up – New systems or applications are first developed or purchased and incorporated into the banks systems libraries at the respective banks headquarters, or primary locations, before being rolled out in emerging market regions.

• Application support – Brazilian emerging market have endeavoured to host systems and applications locally, it is vital banks have a readily available and talented support staff situated locally to ensure downtime due to maintenance issues is kept to a minimum.

• Software and hardware procurement – Participants gave an indication that whilst the head quarters signed off any legal interaction with vendors, conversations and preliminaries are conducted by those within the Brazilian offices.

• Preferred vendors – Global banks spoken to operating in this area prefer to utilise vendor provided solutions rather than developing software in-house, with the source from the European bank highlighting that there was a distinctive ‘buy before build’ philosophy at the institution. Imminent releases by Murex and Kondor are eagerly anticipated as they are expected to be more in tune with the Brazilian market.

• Challenges – There is a perceived belief amongst industry insiders that Brazil is synonymous with poor power and telecoms infrastructure. This notion has given rise to the presumption that downtime is a major issue in the area. However, such assumptions are, to an extent, misplaced with those operating in the area not believing this to be a problem.

Conclusion

Historically, global financial institutions have struggled to gain a long term foothold within the Brazilian market, due to the political and economic nature of the Latin American giant. Whilst Brazilian bureaucratic problems look set to persist, Brazil will continue to be a market place where it is difficult to set up new business, however, with vendors becoming increasingly sophisticated, setting up the infrastructure and equipping new offices with capable hardware is becoming more attainable.

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Grid computing in the financial services industry allows co-ordinating a colossal amount of resources to assist a common objective. In retrospect, financial institutions have realised the importance of high quality information and are embracing incumbent technology, serving as a means to get through the tumultuous problems banks face in high data volumes in risk management. The solution many banks have already sought after is Grid Computing, which enables firms to maximise their existing technology. This report will focus on Grid Computing and how it is utilized within the financial services industry.

Key findings

• Current Trends – On paper, Grid Computing seems to be the ideal concept for businesses. Grid solutions are becoming increasingly established and perceived to be the answer in challenging computational problems.

• Affects of Grid Computing – Financial institutions are seeking an increasing demand in market data following the financial crisis; they require quickness in computational power, consistency to perform regularly and reliability in complex results.

• Inadequacies – Grid computing is by far without its flaws and the benefits definitely outweigh the shortfalls. However, there are issues which need to be addressed.

• Vendors – There are various vendors that actively produce software tools and applications. Lepus lists the most prominent vendors in Grid computing today with insight from Tibco.

• Future Initiatives – The future of Grid computing is somewhat ambiguous as more companies are turning to cloud computing.

Conclusion

In the past, the reasons for acquiring grid computing have been improvements in efficiency; enable the use of resource sharing, ease of manageability, and reduction of costs. Nevertheless, grid computing has changed the way financial institutions maximise their existing technology and has made possible certain functionalities that were once deemed impossible or deemed possible for the future. Banks can use risk analysis models with seemingly unparalleled complexity and almost real-time portfolio analysis with top end distribution, efficiency and speed.

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Rather than a transient, temporary or incident related development and initiative, developing the optimal Business Continuity Plan (BCP) needs to be a key strategic priority. Ultimately, the BCP framework needs to undergo continuous evolution in order to incorporate the changing dynamics of the business as well as the market place. Whilst there is no doubt that there will always remain an element of unpredictability, and thereby a reactive component to business continuity facilitation and management, banks ought to minimise this uncertainty by developing more comprehensive processes and plans.

Key findings

• Background and Overview – Developing more consistent programmes that minimise anomalies and incorporate jurisdictional nuances is certainly on the agenda. Implementing a more robust and global testing programme is certainly an aim for a number of firms.

• Current Practice – Coordinating the interests and priorities of numerous individuals, groups and businesses will be absolutely fundamental.

• Business Continuity Challenges – It is abundantly clear from the responses provided that the changing regulatory environment is one of the major challenges for the participating banks.

• Business Continuity Plans, Strategies and Initiatives – Conducting annual reviews appears to be the general trend as far as the interviewed sample is concerned.

• Business Impact Analysis – Business Impact Analysis is reviewed at least once a year by all of the participating firms.

• Application Instances and Prioritisation – Applications are differentiated by their priority for recovery. This was confirmed to be the case at all of the firms that took part in the study.

Conclusion

Given the importance of effective business continuity planning and strategy, it is imperative that banks allocate the necessary resources and investment warranted by such an essential programme. As previously mentioned, the longer term implications of lower probability higher impact events will be significantly greater than the initial BCP outlay or subsequent expenditure required for the purposes of programme maintenance. Ultimately, making the enterprise more prepared and resilient should not be considered an expense but rather common practice.

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Research conducted by Lepus in mid 2008 discovered that the financial services industry was looking with great interest into the use of hardware accelerators, in a bid to handle the increased demand for computer power coming from the business. However, the economic downturn, combined with the maturity of the technology meant that it was not something that was expected to see great investment in the short-term future. If calls for vendors to standardize their products and make them easier to program were heeded, and funding returns to the front office, it is expected that vendors producing this technology will experience much demand for these products.

Key findings

• Front office budgets – Whilst the responses differ slightly, giving evidence to the varying effects of the credit crisis on each of the institutions, it is clear that whilst budgets have generally been scaled back in recent times, greater funds have been apportioned for compliance purposes.

• Drivers and current practices – Factors such as the necessity to comply with recent regulatory amendments are propelling banks to look at the technological advantages garnered from the use of hardware accelerators. Conversely however, factors such as changes to the market and a decrease in demand for complex products are in turn giving less scope for the use of such devices.

• Technological focus – Compliance or evolving regulation and the need to quicken processes to aid trading is driving two of the three interviewed banks to develop hardware acceleration technology.

• Challenges – A number of industry commentators state that hardware acceleration technologies are only suitable for projects that are well-defined and that infrequently change. Therefore, banks who undertake projects to develop FPGAs and other hardware accelerators will have to overcome these challenges.

• Viability – Hardware accelerators and high power computing in general are becoming easier to use, however advances have so far not been extensive, and banks are still finding many challenges that can be associated with any leading edge technology.

Conclusion

the extent of uptake across the industry will ultimately come down to which technology people feel most comfortable using. Therefore, the vendors that are able to make their products readily customisable and easy to comprehend will largely determine the technological landscape over the next five years. Opportunities await the institutions who allocate time, resources and expertise to research and development in a bid to garner enhanced performance from hardware acceleration technology.

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Establishing the optimal on-shore / off-shore balance and plan needs to be a key strategic priority, rather than a transient, temporary project related and/or specific issue. It is interesting to note that some banks do not necessarily treat off-shore locations and teams as ‘off-shore’ – and very much so consider these sites to be an extension of existing on-shore teams. Therefore, activity and tasks that are off-shored by these firms may not necessarily coincide with typical off-shore industry trends. However, increasing maturity and sophistication in this space has led more banks to increase the importance of tasks that they off-shore and outsource. Naturally, there still remain a number of practical issues and, therefore, reluctance in terms of front line client facing.

Key findings

• Background and Overview – Rapid proliferation and developments observed in countries other than India are resulting in financial services institutions using countries such as China, the Philippines and Singapore, for the purposes of their off-shoring and outsourcing ventures.   

• Off-shoring and Outsourcing – Realisation that there is potential to earn significantly more in the UK and the US could spur the migration of top talent away from India. This is not the case with new off-shore and emerging market players, certainly not as of yet.

• Risk Technology – The banks were unanimous, with all of the respondents stating India as the primary location in the Risk IT space.

Credit Trading Technology – Recent research (2009) indicates that the majority of banks consider India as one of their key off-shore locations.

Equities IT Trends and Developments – Some of the issues experienced with previous off-shore projects are to do with cultural differences, work ethic issues and language related barriers.

Conclusion

Off-shoring and outsourcing ventures are a significant part of many financial services firms’ strategy. Therefore, given the importance of such programmes to the overall direction of the bank, they need to be recognised as a key strategic priority with dedicated attention and the resources that they warrant. Treating off-shoring and outsourcing as cost cutting exercises is not prudent or viable in the long term. Ultimately, banks ought to ensure that off-shoring is closely integrated with ongoing developments and changes that occur in on-shore locations. More effective communication and ongoing dialogue should go some way in supporting this. 

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Traditionally, Investment Banks have taken a DIY approach to systems development. However, since being hit by the credit crunch, banks have been forced to reduce headcount and are faced with tighter IT budgets.

Key findings

• Challenges – Tightened IT budgets, increased regulatory changes, the need to react faster to market changes and increasing maturity of vendor products is driving banks to more seriously consider buying over building. Nevertheless, banks increasingly scrutinise vendors over their financial stability in the current climate.

• Attitudes towards Third-party Solutions – Banks have generally become more open to buying vendor products in recent years, as they do not have funds available for all in-house developments, and seek to move away from cost-intensive legacy systems. They also accept that there is an increased availability of sophisticated solutions in the market.

• Areas Where Banks are Deploying – Commoditised process and the Back Office have traditionally seen increased use of vendor solutions, e.g. Oracle for finance, Murex and Calypso. The mid-tier investment banks have been more open to adopting trading and risk management solutions.

• Building for Competitive Advantage – A number of tier-1 and the upper tier-2 banks continue to rely on in-house development, especially in the Front Office, where they believe more value can be added to generate competitive advantage. Trading, risk management systems and information management/business analytics are key areas where these banks will continue to opt for the build approach.

Conclusion

Whenever new systems are required, the question of build versus buy now arises more often than in the past. The decision to build in-house or buy from a third-party supplier increasingly depends on the cost advantages that can be gained as well as the sophistication of a supplier’s product.

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Given the recent global financial crisis, IT budgets are seeing a significant shift, with some departments and functions being forced to do more with less, whereas other areas have seen a modest growth.

As the Front Office has always been, and will continue to be the revenue generator for every bank, there continues to be a greater focus on this area within most banks at present as they try and take advantage of a global economy slowly emerging out of a catastrophic downturn.

Key findings

• Organisation and Reporting Lines – The Front Office IT functions at two leading banks report into the global CIO, whereas at another leading bank, the reporting line links with the CTO.

• IT Budgeting Forecasts – According to a leading US bank, industry budgetary numbers more likely reflect the effect of previously deep budget cuts during 2008 and the first half of 2009, which left many IT departments operating at “bare-bones” capacity.

• Front Office IT Spend – On average, equal amounts of budget are allocated to supporting existing applications in the Front Office dealing room, as those are the systems on which a bank’s business is generated, and developing new applications for new business streams. The fact that an average of 20% of the front office budget is spent on tweaking and fine-tuning applications reflects the amount of customisation many banks do to applications that application development is an ongoing process.

• Wireless and Desk Based Hardware Strategy – All the interviewed banks commented on how they are currently focusing on wireless technologies. However, two banks expressed that they have already invested heavily in wireless technology and now they are focusing more on maintaining their current solutions.

Conclusion

Now that the freeze on IT budgets is beginning to thaw, there is a definite shift away from maintenance and towards increased Front Office application development. Given recent events, there is little doubt that this has much to do with the spotlight on risk management at an enterprise level. Added to this, the continued need to cut costs has meant that more of the budget is being allocated to integration projects within banks, with an increased focus on exception processing. In terms of new business streams, the move to enable more cross-asset trading is continuing to take centre stage and at some banks, has prompted wide scale integration projects over the last couple of years.

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Banks considering undertaking a move from a legacy in-house system to a vendor provided option will have to overcome a number of problems. Two of these include re-education of users and realigning processes, with achieving a balance between cost savings and a competitive edge being the greatest challenge. Whilst off the shelf solutions offer a number of packaged models, these are not seen as sophisticated enough for key market players. However, the process of integrating off the shelf packages with front office model libraries is a complex undertaking.

Key findings

• Current Practices – There does not appear to be an industry wide accepted practice as to the best way of maximising front office revenues whilst simultaneously keeping expenditure to a minimum. However, half of the banks contacted stated that they integrated in-house developed model libraries with vendor provided systems in some asset classes

• Benefits – There are a number of benefits that can be derived from projects to incorporate proprietary model libraries with vendor provided technological solutions across the Front Office. The main ones are control, concentration of expertise, cost effectiveness and flexibility

• Drawbacks – Though there are a number of benefits from this approach, drawbacks must also be considered. Such challenges may often be as great a factor when taken in hand with the benefits, which ultimately colours the decisions on undertaking such a strategy.

• Lessons – A number of banks that have undertaken such a task have highlighted that there are many issues to be worked through in the initial years of the project. Although this has resulted in one bank turning its back on vendor solutions, two others who persisted are now reaping the rewards.

Conclusion

Given the generally held view that revenue and market share are directly correlated with the complexity of systems and products that an institution primarily moves to market, it would be the preferable choice of any institution to not only develop their own models, but to also develop Front Office trading systems. However, this is an expensive and time consuming undertaking and not a realistic one for many banks, even in times of great prosperity. Therefore, banks have had to seek alternative avenues, which allow them to minimise costs while still maintaining a competitive advantage in the market place.

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