What if business could be like lego?
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Thushan Kumaraswamy
Head of Solutions
Architecture lead with over 20 years’ experience helping the world’s biggest financial services providers in capital markets, banking and buy-side to deliver practical business transformations in client data, treasury, sales, operations, finance and risk functions, and major firm-wide efficiency initiatives. Mastery in business and technical architecture, with significant experience in end-to-end design, development and maintenance of mission critical systems in his early career. Specialities – business and technical architecture leadership, data warehousing, capital markets, wealth management, private banking.
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Business has a problem. Duplication, inefficiencies, non-standard systems as far as the eye can see. Can we use the concepts of Lego to improve this situation?
If we identify those core building blocks (like the classic 4x2 brick), we can organise and remodel them to create a more streamlined operation and give us ideas for new opportunities.
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Contact Us
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Regulatory Risk: Getting away from Whack-a-Mole
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Senior Management is under more pressure than ever to demonstrate compliance and risk-sensitive decision making - but the process by which they do it is straining under the sheer number and weight of obligations to manage.
36% of fines handed out by the FCA over the last 3 years - over a third - have been for failings related to management and control (PRIN 3)*. With an average penalty of £24 million firms cannot afford to be lax in this. Transparency of their firm’s systems and controls continues to be vital for leaders at Board level and within Senior Management Functions to ensure that their business is compliant and within risk tolerances.
Increasingly, during the ongoing pandemic, regulators expect comprehensive, responsible, and tangible governance and control to be operated by regulated firms. Creating transparency of firms’ regulatory activity across the business paramount. Not just for leaders at Board and Senior Management Functions levels (SMFs) but also in the supporting infrastructure within Compliance, Operations, Technology, Finance, Legal, and HR.
In their recent Joint Statement for Firms, the UK regulators outlined that firms must:
“Develop and implement mitigating actions and processes to ensure that they continue to operate an effective control environment: in particular, addressing any key reporting and other controls on which they have placed reliance historically, but which may not prove effective in the current environment. .. Consider how they will secure reliable and relevant information, on a continuing basis, in order to manage their future operations.”**
Joint statement by the Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA), 26th March 2020
‘Securing reliable and relevant information’ is harder than it sounds. The information required for this is frequently cobbled together in PowerPoint, Excel or other tools from a wide variety of disparate sources. This is inefficient and time intensive, and is subject to inconsistencies. Information may be out of date by the time it is produced, and often does not meet the level of detail required by the various audiences.
More than that, Senior Managers lack a consolidated view of their regulatory risk across their business. This is difficult to achieve given the number of areas they need to monitor, ongoing regulatory change, and the pace of digital transformation. Managers are often spending more time piecing together a picture of their overall regulatory ‘health’ and fighting fires than they are developing the business.
Compliance issues become like Whack-A-Mole, as soon as one gets whacked, another one pops up, and then another. Senior Management are effectively blindfolded holding the ‘mole hammer’ and have to ask a business analyst or a compliance officer “are there any moles today?” and “what do I hit?”.
These regulatory moles are not common or garden business problem moles. There may be hundreds of moles to whack at any given time. As a result, managers need the ability to triage the reports of mole sightings to decide which is most pressing. Which is most likely to ruin his or her lawn? Is it the Sanctions Breach mole, the Data Protection mole or Transaction Reporting mole?
Not only are there many of them - you need to keep records of which ones you’ve whacked and why. At some point you’ll need to evidence why you didn’t whack the Sanctions Breach mole immediately and provide the context for that decision. If you fail to whack enough of them, or the right ones, your business could be fined, or worse, you personally could end up in court.
This is a much more pressing issue due to the level of personal accountability, and broadened personal liability, introduced by the Senior Managers and Certification Regime (SM&CR). The SM&CR, which came into force on 9th December 2019, overhauled the Approved Persons Regime for individuals working in UK financial services firms. Placing more stringent requirements on senior managers to take responsibility for their firms’ activities through a ‘Duty of Responsibility’ to take ‘reasonable steps’ to prevent or stop regulatory breaches.
As the FCA Handbook states in their “Specific guidance on individual conduct rules” (COCON 4.2) addressed to Senior Managers: “SC2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.”***
We believe that one of these ‘Reasonable Steps’ is having appropriate reporting to achieve a clear view of the ‘Regulatory Health’ of their business and their risk points. Firms and Senior Managers need the ability to:
- Capture key regulatory risk metrics
- Link them to the appropriate compliance monitoring data
- Put those risk metrics into context across the business
- Generate a consolidated view of the business’ regulatory health and risk points
- Make it accessible & easily understandable to the relevant managers
- Make it ‘persistent’ over time to and allow ‘point in time’ views of risk levels
A solution that could a) take existing and live compliance data b) isolate the risk metrics that really ‘matter’, and c) present them in context across regulations and business areas is really needed for Senior Managers to have a picture of their overall risk.
Senior Management should know where the regulatory moles are - without having to ask. Rather than having to review reams of documentation, it could allow managers a more holistic and focused view of regulatory risk across their business, as well as save time and resource spent creating, managing, and reviewing PowerPoints. Knowing what to look for is half the battle after all.
Don’t let the moles ruin your lawn.
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References
1. Leading Point analysis of FCA fines related to PRIN 3 Management and control: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.” FCA Principles for Business https://www.handbook.fca.org.uk/handbook/PRIN/2/?view=chapter
3. “Specific guidance on individual conduct rules” (COCON 4.2) addressed to Senior Managers: https://www.handbook.fca.org.uk/handbook/COCON/4/2.html
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On July 14th, experts from banks, hedge funds and market infrastructure providers will discuss how financial institutions can create transparency and insights from their regulatory risk data, and Leading Point will introduce their new industry-leading regulatory risk data system SMART_Dash.
Panellists will discuss:
- The challenges of internal regulatory oversight that all financial services firms are facing
- How businesses can create a consolidated view of their regulatory risk
- The ways that regulatory monitoring data can be more accessible
- An introduction to SMART_Dash; a revolutionary tool providing regulatory risk reassurance
*Regulatory Risk, not moles
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Join our webinar to learn more about how to create transparency and insights from regulatory risk data
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Senior Management are effectively blindfolded holding the ‘mole hammer’ and have to ask a business analyst or a compliance officer “are there any moles today?” and “what do I hit?”.
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36% of fines handed out by the FCA over the last 3 years - over a third - have been for failings related to management and control (PRIN 3).
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"[Firms must] Consider how they will secure reliable and relevant information, on a continuing basis, in order to manage their future operations."
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"firms need to ensure that their cloud-based operating models are not only safe and secure, but address the capabilities required for operational resilience testing. Investment in frameworks and data analytics that can support these capabilities are essential"
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Thushan Kumaraswamy
Head of Solutions
Architecture lead with over 20 years’ experience helping the world’s biggest financial services providers in capital markets, banking and buy-side to deliver practical business transformations in client data, treasury, sales, operations, finance and risk functions, and major firm-wide efficiency initiatives. Mastery in business and technical architecture, with significant experience in end-to-end design, development and maintenance of mission critical systems in his early career. Specialities – business and technical architecture leadership, data warehousing, capital markets, wealth management, private banking.
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Rajen Madan
Founder & CEO
Change leader with over 20 years’ experience in helping financial markets with their toughest business challenges in data, operating model transformation in sales, CRM, Ops, Data, Finance & MI functions, and delivery of complex compliance, front-to-back technology implementations. Significant line experience. Former partner in management consulting leading client solution development, delivery and P&L incl. Accenture. Specialities – Operating Models, Data Assets, Compliance, Technology Partnerships & Solutions in Capital Markets, Market Infrastructure, Buy-Side, Banking & Insurance.
Innovation is Not Perfect. Accept and Embrace It
Thushan Kumaraswamy
Partner at Leading Point Financial Markets
It was my pleasure to attend Societe Generale's breakfast event on 9 November 2018 called "Implementing New Technologies" in Spitalfields, London on behalf of Leading Point Financial Markets. The event comprised of presentations about the FinTech innovation landscape and the use of Robotics Process Automation (RPA) in SocGen, followed by a panel discussion, hosted by Susanne Chishti, Founder of FinTech Circle.
Since there was so much good content and thinking at this event, I thought I would share my views on the event and how it ties to our propositions at Leading Point Financial Markets.
Do not ignore FinTech companies that are not 100% ready
There are thousands of FinTech (and RegTech, LegalTech, WealthTech, InsureTech, XYZTech!) companies just in the UK, let alone globally. Many of these are in different stages of their evolution.
Source: The Startup Lifecycle
Financial services firms, especially larger firms, often resist adopting innovative technologies from companies who don't have a long record of existing clients. In such a fast-moving environment as FinTechs, this can mean losing out on the potential business benefits at a time when competition is squeezing margins and ever-increasing regulatory pressures are driving up costs.
Imagine being able to run a pilot or proof-of-concept for a small area of the business, with an identified strategy of goals and specific objectives, to demonstrate to the senior management team how such a new technology could be used to deliver real business benefits. This kind of pilot can be run in an agile fashion, but require business and IT teams are fully on-board and involved with the project. Since the scope is small, the resource commitment is also smaller than a normal implementation.
There is a significant opportunity for financial services firms who are willing to start these small-scale projects with innovation companies who might not be 100% ready (in the Validating or Scaling phases above) alongside implementation partners who know the technology, have the domain knowledge and understand operating models.
Don't automate a bad process
Robotics Process Automation (RPA) as a concept is easy enough to understand; computer programs (the "robots" or "bots"), using a set of pre-defined rules replicate what humans would do using computer systems in a repetitive fashion. For example, daily copying of client names from an Excel sheet to a CRM (Customer Relationship Management) system. This basic automation can free up the human workers to do more valuable work.
Source: Robots Join The Team
This is all good stuff. However, before jumping straight to implementing RPA solutions, it is worth considering what the business process is actually doing. Is this Excel-to-CRM method the best way of getting client details into the CRM system? Is it possible to improve the process first? As part of an RPA implementation, you should be looking at process improvement strategies first, then automating what is left. This way, you save on the number of bots you would need and increase the efficiency of the process as a bonus. Process experts can document existing processes and identify opportunities for improvement prior to any RPA technology implementation.
How does a bot change a password when accessing a core system?
There are some potential gotchas when using bots, like the above question, which can cause problems during day-to-day running. If a bot uses a specific login to access a core system and that login has a password expiry, what happens then? Is the bot expected to define a new password? Should a human get involved? Also, consider licences on existing software platforms; are there any clauses that prevent the use of bots? There may not be right now, but it is not difficult to foresee software companies bringing in new clauses to control the potential uptick of system usage through bots.
Panel Discussion: Selecting and Implementing New Technologies
- Susanne Chishti, Founder of FinTech Circle (Host)
- Anthony Woolley, Head of Innovation, Societe Generale
- Vasu Vasudevan, Digital Enablement Capbility Lead, Schroders
- Richard Archer, Director, EY
- Keith Phillips, Executive Director, The Investment Association and Velocity
The first question was about trends in innovation. The guests talked about the bleed of innovation between FinTechs, RegTechs, LegalTechs, but also into manufacturing and other industry sectors. The biggest topics being:
- Artifical Intelligence (AI) and Machine Learning (ML)
- Big Data
- Cloud
- Distributed Ledger Technology (DLT) / Blockchain
- Social & Mobile
- Robotics & Automation
As mentioned above, the twin drivers of competition shrinking margins and regulatory compliance increasing costs are forcing companies to come up with new ways of thinking. This may not come naturally to the larger, older financial services firms. They may have pockets of innovation but sometimes struggle to create a company-wide innovation culture.
The importance of customer-centricity was raised to a question on technological advancements. Building a single view of client will enable improved service to clients and increased revenue growth using data analysis across large cross-referenced data sets to be more specific with marketing and cross-selling.
An interesting question about how to bridge the gap between legacy platforms and new innovations was put to the panel next. It was noted that capacity is required to do this. How do companies get that capacity? By using technologies like RPA to free up people to generate this real value for the business.
Another technique is to use APIs (Application Programming Interfaces) as wrappers around your legacy platforms to make them easier to connect to other, more modern, applications. Using APIs turns your legacy platforms into building blocks that be linked together. A COBOL API can let other systems use the data held in the COBOL system, without the need for expensive COBOL programmers.
Source: Intro to APIs
This brings additional data protection concerns though, as customer data held in these legacy platforms may not have up-to-date data security and data protection applied to them and exposing the data through APIs could potentially increase risk of data loss.
A concern raised by the panel was about the use of RPA as a concrete sticking plaster rather than as a purely temporary fix for the use of legacy technology. The temptation is there once an RPA solution is doing its work, to leave it there rather than address the legacy platform.
The panel were asked about their top three technologies. The answers covered:
- Data aggregation, clustering & consolidation
- AI and ML
- Blockchain
- Data analytics (behavioural analysis for active asset management)
- Digital passports (recording clients' digital identities)
- Intelligent automation (robotics)
- Unstructured to structured data
- Document intelligence (text mining)
- RPA
- Collaboration tools in investment operations
- Natural language processing (voice recognition)
- Cloud (along with data and APIs)
Source: Top 30 Emerging Technologies
One important factor for digital was considering how people interacted with their devices. Many people of a certain age feel comfortable using on-screen keyboards and touch gestures. Some younger people prefer voice interactions through assistants like Alexa, Siri or Google and that audience is only going to grow.
A vital question was put to the panel about how to implement new technologies. FinTechs often feel like they are in a zoo. Potential clients come to see what they can do, have some meetings, but then don't connect again. There are some activities that can improve the relationship-building on both sides for FinTechs trying to scale-up or break into financial services; along with the obvious (but not always followed) things like respecting each other and being collaborative, there is a need to not destroy the start-up's spirit. Go in to the relationship with the understanding that the technology partner is young and may need some support and guidance.
The idea of changing the culture of the financial services firms was discussed. It was believed that this needed both top-down leadership & funding and also bottom-up drive. An internal innovation fund was set up that enabled small teams working on-the-ground to prepare a business case and pitch over six months to present. Over 70 of these teams took up the challenge, with some generating real business benefits. But, it is more than those end success stories that matter; it is the change in mindset across the company that demonstrates that innovating is part of business-as-usual for everyone in the firm, not just a select few tucked away in an innovation lab.
Other key factors were having both business and IT teams engaged and willing to work together as partners, being able to run projects in an agile (or Agile) fashion and accepting projects that "fail fast", but test and learn quickly. It was interesting to see how business architecture could help in these situations by mapping commonalities across the business using capability models and describing roadmaps aligned to customer journeys.
Source: Practical Business Design
One of the major blockers to building an innovation culture was the procurement process in many large financial services firms. These bureaucratic processes can take over eight months to allow a start-up to being implementing a solution, which can destroy the innovation impetus. A fast-track procurement process, enabling implementation of new technologies, perhaps in some protected sandbox environment, taking eight weeks would be a massive enabler. It feels like there is work required to develop streamlined procurement processes, specifically for innovation technologies.
An audience member asked how many start-ups typically fail. In any typical innovation portfolio, an angel investor may have invested in ten start-up companies. Five of these will likely go bust. Three may remain as the "living dead", where they plod along, just existing as a private company, without any hope of getting a return on the investment. The other two may become "superstars", where they go public with a bang and these two pay off the investment in the other eight start-ups.
I believe that, with more help in providing a consistent analysis of these start-ups on behalf of private equity firms and venture capitalists, the ratio of failures:living dead:superstars could be improved.
This was a very interesting panel discussion and my thanks go to Societe Generale for running the event, the guest speakers on the panel & presenting and to Susanne Chishti for hosting. The themes of technological innovations and the challenges of implementing them in financial services were very familiar to what I have seen in my own experience, but these challenges are not insurmountable with the right support.
If you don't use these new innovations in your business, for example in the field of anti-financial crime, where do you think the criminals are going to go when your competitors
do use them?
Final thought: You cannot wait for the perfect innovation. By the time that happens, your competition may be far ahead of you. You would be better off using what innovation can offer now, but work together with the technology companies to complete that picture for your business.
The right partner can help intersect the old world with the new.
#innovation #event #socgen #data #technology #startup #scaleup #financialservices #ai #ml #rpa #robotics #blockchain #bigdata #cloud #fintech #regtech #legaltech #wealthtech #insuretech #implementingnewtechnologies #leadingpointfinancialmarkets #leadingpointfm #lpfm