Managing technology and systems in Asian wealth management and private banking today is becoming an increasing challenge.
Date: Apr 20, 2012
Tags: Technology, Software, FATCA, Regulation
Managing technology and systems in Asian wealth management and private banking today is becoming an increasing challenge.
This is perhaps inevitable, given the pitfalls of banks having multiple, and sometimes out-dated, systems – many of which cannot communicate to each other – combined with an over-reliance on either manual or spreadsheet-based solutions, in turn leading to larger-than-necessary back offices and, therefore, inefficiencies.
Further adding to the existing burden is the fact that regulators and auditors are taking an ever-closer look at how banks are managing their data.
These were some of the main views and concerns at two recent roundtables in Hong Kong and Singapore – hosted by Hubbis in partnership with by Assentis Technologies, Information Mosaic and MSG – with some of the most senior technology and operations practitioners in Asian private banking and wealth management.
A difficult and frustrating balancing act
One of the biggest challenges the IT and operations experts said they face is trying to combine disparate systems by getting the feeds flowing to a central point, and then making the outputs meaningful and standardised for both clients and employees.
From a business perspective, the end-goal for institutions is to have a single, integrated system which tells management everything it needs to know.
Yet the many new regulatory and compliance requirements are making this difficult – and costly – to achieve.
Spending on solutions to fulfill new regulatory obligations, for example, has risen to 30% of total IT budgets at many institutions, said practitioners. This is to meet a range of needs, from know-your-client, anti-money laundering and suitability to FATCA and other new tax-related regulations.
For instance, there are various changes in the tax regimes in terms of the way tax between certain jurisdictions is calculated, and the way it is to be assessed.
And technology and operations professionals estimated it will take another two to three years of hard work to meet the various needs and requirements they are already aware of. At the same time, however, IT budgets are under continued pressure as a result of high cost-income ratios.
A further reason why many banks are worried about FATCA relates to the fact that what it looks like now is very different from what many firms expected at the outset. This has meant that it no longer only results in a higher cost of compliance, but also that many banks have had to put their other large IT initiatives on hold – whether these were related to new products or customer service.
With so much uncertainty about ongoing changes to the regulations, IT experts also said they are hamstrung to a certain extent about what to do next.
The increasingly international nature of private clients is adding yet more complexity to technology and operations solutions.
For example, said practitioners, there might be Hong Kong-based clients booked in Zurich, Singapore and Hong Kong. Worse still, the legacy systems that many heads of IT said they have inherited don’t tend to be very flexible.
In response to various regulatory changes, some of the smaller players said they fear they might be forced into a shared infrastructure approach, rather than building their own.
Another key issue private banks said they face in the current environment is related to product and client suitability, and in ensuring that in the process of transacting for their clients, frontline advisers are fully adhering to the various regulatory requirements.
Technology must therefore be adapted and updated to mitigate the inherent risks involved as part of this, warned IT experts, to ensure that trades which aren’t suitable are not allowed to take place. This not only safeguard’s the client’s interests, but also protects the institution’s reputation.
For example, one potential solution to ensure that a bank’s software and systems can communicate is to enforce a standard company-wide messaging system.
This means that any new system or software has to be able to adapt to this standard otherwise it cannot be implemented, regardless of the suitability of the business features.
Ultimately, the aim should be to ease the burden for advisers, as the aim should be to free up as much time as possible for them to talk to their clients and be as productive as possible.
Data shortfall
Perhaps one of the biggest business risks which private banks need to tackle, said technology and operations practitioners, relates to client confidentiality and data protection.
Such information – which is now critical not only to most business decisions, but also to fulfill regulatory obligations such as FATCA – is unlikely to have been as diligently gathered in the past as required by many firms, nor taken as seriously as it should have been, simply because it wasn’t a priority.
As a result, the missing data poses challenges to IT and operations departments when determining which suitability and cross-border issues impact which types of clients.
A lot of work now has to be done, explained practitioners, to fill in the gaps, clean existing data and then put in place the processes to review and maintain it.
Gathering data in an efficient way can help improve the productivity of relationship managers (RMs) in enabling them to access more information about clients, and more readily. Plus, it is vital for institutions to know what information has been shared with clients, and what each client’s preferences are. This is important in situations where RMs leave the firm, in order for the firm to maintain effective and efficient relationships with clients.
For the purposes of FATCA, meanwhile, this would help banks initially identify whether they have the required client data, then therefore whether they are able to perform the query analysis to identify which clients are at risk.
As a result, practitioners said they need more structure around how they capture and classify the data to get the required transparency of information. Only then can they expect to be in a position to manage it on an individual client basis.
Another issue to emerge in line with FATCA has been that it now appears to be the first of what are expected to be numerous global regulations to be implemented. In line with this, organisations which don't have in place effective data infrastructure systems won’t be able to react to a lot of the new regulatory standards in the pipeline, predicted the IT experts.
Technology developments in Switzerland
In response to the various challenges, many banks in Switzerland have moved away from first-generation systems and towards implementing highly-integrated solutions.
For example, probably 60 to 70% of banks have done this in the last seven years – in almost all cases related to regulation and tax compliance.
The last two to three years have seen a more integrated systems approach following greater regulatory scrutiny, the need to do more straight-through processing (STP), and demand from clients for advanced functionality in online banking and trading.
However, very little has been possible overall in terms of an allocation of the IT budget to improve the client experience.
Looking for solutions in the cloud
In an attempt to tackle some of the technology and systems challenges, IT specialists at private banks in Asia are considering the potential for cloud computing.
In Europe, for example, and especially among some of the larger banks, cloud computing is a key goal.
Initially, large institutions aren’t looking to use a public cloud, but rather build up internal clouds to make sure they can allocate resources more flexibly than having dedicated resources for all the various individual systems.
Meanwhile, smaller institutions intend to use more shared cloud services for some of their services, for instance satellite applications for investment proposals, marketing communication and client reporting. The concept of public clouds for core banking services is a long way off.
A key question relating to cloud computing, however, is how providers can ensure 100% security.
Another hurdle is getting staff trained to change or modify the work flows so that those systems become useable for individual organisations. There is also a cost in terms of defocusing sales people, and requiring changes in the compliance and administrative systems.
To make the technology more useable, more thought has to be given to each firm’s particular work flows, nuances and ways of doing business, said practitioners. For example, a Canadian bank would operate differently from a Swiss bank, so a Swiss-based system would need to be heavily modified in such cases.
A further challenge with cloud solutions is protecting client data, plus the cost of compliance and setting up the solutions is significant. A concern for global firms is based on the fact that what different advisers actually do with client data, and which data they can access, differs from one jurisdiction to the next. This puts constraints on using public clouds.
Private wealth firms are also looking at hubbing, where global firms in particular are starting to perform a lot of basic processes automatically, with the technology enabling them to strip out sensitive client data from the rest, then hub it, and put it back again.
The global firms are therefore leveraging economies of scale, which the smaller players will need to do at some point.
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