Four reasons IT complexity at financial institutions is unparalleled
If the business of banking is based on aggregating capital and putting it at risk, a bank’s IT systems are the mechanisms that execute, document, and verify the vast number of transactions that make that business happen. But what has made this so complex? There are four main factors.
“An information management framework must be established to address finance and risk data convergence across the organization.”
1. Data volume
The volume of data accumulated through so many transactions can make generating even regular financial reports challenging, sources say. It takes time to move the necessary massive amounts of data across a global network. System downtime must be carefully planned.
2. Expansion and growth
As banks change and grow, the volume and variety of the transactions they require to do business expand, data-storage facilities multiply – and the complexity of IT magnifies. Organic growth through new markets and new products can lead to internal tension between the business lines and the support functions (including finance and risk) that must rely on data sourced through operations to produce reports and conduct analyses. The work of reconciling data flowing in through disparate operating units often falls to finance. Data sourced from increasingly far-flung operating units—gathered to suit a wide variety of operating requirements—will naturally begin to diverge if it is not governed well.
New regulatory requirements such as Basel II also contribute to IT complexity, because by necessity they require banks to find short-term reporting solutions that couldn’t have been anticipated when the underlying systems were implemented. Basel II is only the most recent regulatory regime to require major overhaul of banking infrastructures: in the past decade, banks have also addressed Y2K, Sarbanes-Oxley, and IFRS in all of its regional variants.
4. Mergers and acquisitions
Even under ideal conditions, acquirers must work to integrate acquisitions from an IT perspective very quickly, in order to avoid disturbing the customer experience or interrupting essential transaction processing, treasury, compliance, and reporting functions. It’s probably safe to say that a serious recession amid a major financial crisis is a less-than-ideal moment to conduct a large-scale merger. But that’s exactly the position in which some of the world’s largest banks find themselves. And intense efforts to integrate systems, processes, and staff—all the while responding to regulatory demands—don’t leave a great deal of time to think about the big picture in IT. The older the bank, and the larger the scale of the business combination, the more difficult it is to bring massive, disparate IT systems together.
More insights on what is happening:
- Four reasons IT complexity at financial institutions is unparalleled.
- Three effects of the financial crisis on banks’ reporting and analysis requirements
- Three steps toward achieving standardization, alignment and automation
Banks’ Moving Target: Sourcing, Analyzing, and Reporting Data in Challenging Times.