[dropcap color=”#dd9933″]F[/dropcap]INANCIAL institutions are increasingly reliant on data and information technology (IT) as the foundation of efficient operation, regulatory compliance and future growth and profitability. This pervasive data reliance carries risks, as well as opportunities. The role of the chief information officer (CIO) in helping navigate a path through this complexity is now fundamental to institutional health and integrity.
It is hard to think of a time when the role of the CIO has been more important to the current and future health of a major financial institution. In both offensive and defensive strategy —driving revenue and earnings growth and ensuring secure and effective compliance —the contribution of the CIO and his or her team is increasingly crucial.
Across the board
THE role of data and information is now integral across the business, from back-office to marketing and sales, and from risk management to meeting stakeholder and regulators’ expectations.
nCost and efficiency: It is very clear that banks’ balance sheets are being completely reshaped by the major new regulatory initiatives that have followed in the wake of the financial crisis. In some cases, these are driving return on equity below the cost of capital. As a result, and in order to return to generating sustainable returns and acceptable levels of organic capital, banks have no alternative but to become leaner, simpler and more cost-effective in their operations. As a key enabler of process and workflow efficiencies, technology has a huge role to play here.
- Exploiting data: Mastering the massive increase in data flow and extracting the greatest value from it is fundamental to organizational health and success. The implications extend across the business operating model. At the front end, financial-services firms face real challenges in managing and making sense of the vast array of information which can now be made available about the attitudes, behavior and needs of clients, prospects and targets. Technologies such as data mining and data analytics are increasingly important as a foundation for effective marketing, sales and cross-selling.
- Managing risk: The financial crisis and the wide-ranging regulatory response have placed increased emphasis on the need for effective management of risk in all contexts: reputational risk, operating risk, regulatory risk. Companies now face the twin challenges of sustaining improved risk management and furnishing evidence of its effectiveness to stakeholders: regulators, clients, shareholders. Collecting, analyzing and presenting the relevant data is now indispensable to creating the foundation for strong stakeholder relationships.
- Customer relationships: IT and data management are fundamental to maintaining stable and responsive relationships with clients who are increasingly expecting continuous access to their financial-service providers on a range of online and mobile platforms. Integrating the different interface technologies and grounding them on consistent, high-quality data are essential elements in creating fast, agile communications and decision-making. Consumers do not want complexity, delays or inconsistency. Companies that cannot implement the necessary systems quickly enough will find themselves squeezed out and facing further disintermediation by technical innovators, new entrants and new technologies, like we are seeing in payments or money transfer.
- Day-to-day operations: Fundamentally, optimizing day-to-day operations means maximizing the use of scarce resources and ensuring that people have the right information to make optimal decisions at the right time. This requires accurate and consistent data, which can serve both to underpin the operational health of the company and satisfy internal and external requirements.
The universal importance of good data and information management across the business operating model places a huge premium on the ability to collect, aggregate and analyze data to create a “single view of the truth”: one complete and internally consistent data and information resource which can satisfy all needs. Regulators are increasingly focusing on risk-data aggregation, such as in the Basel Committee’s recent recommendations. Whether it is a question of customer-facing operations, internal systems and procedures or external reporting, the winners will be those who can bring together data in a coherent way to serve these multiple needs most effectively.
Safeguarding the institution
THE exponential increase in the volume of data necessary to the operation of financial-services companies, together with institutions’ increasingly critical reliance on it, carry major dangers of their own. Companies are more and more vulnerable to the loss or corruption of mission-critical data and at greater risk of reputational damage and regulatory sanction if they misuse it. Data and cybersecurity has to move from being a peripheral and technical specialism to a central strategic concern. Proper data security has to become as much a matter of business-as-usual as securing safes or locking filing cabinets.
Similarly, when internal processes, business-to-business communication and delivery of customer services all depend so critically on data and IT infrastructure, maintaining its integrity is a key requirement in sustaining institutional security. We see only too frequently that when critical technology, such as a payments system, fails, even for a few hours, the impact can be widespread and immensely disruptive. Leaks and loss of sensitive customer data breach the trust between institution and client and can carry significant financial penalties. Significant reputational damage can occur if these situations are not well handled.
As systems become more global and more interdependent, they begin to resemble the organizational and contractual connectedness that contributed so much to the creation of the financial crisis. It may not be too fanciful to think that the next major crisis may arise from IT vulnerability unless defensive measures are continuously upgraded.
Here, where solutions often depend on major expenditure on IT and systems, it can be hard to quantify the need and demonstrate desired returns on capital. In a low-margin, high-complexity environment, the desirable risk-reward balance may not be immediately apparent. Nevertheless, investments to improve data security, reduce complexity and enhance the customer proposition are crucial if companies are not to be outflanked by braver or more farsighted competitors.
Seizing the benefits
IT is not all danger and defensiveness. The new technologies are the way of the future, and if properly developed, promise major improvements in internal efficiency, external reporting and, perhaps most significant, customer relations and customer propositions. Whether it is further development of Internet and mobile channels or innovative new technologies for payments, there are major potential benefits, as well as risks. The role of the CIO now is to help define an institution’s core strategy against this rapidly developing background and guide investment decision-making on the basis of a clear view of risk and reward.
Technology, data and information management have been a core part of financial services for many years. They have just become more important still. Boards and executive management need to ensure they are accorded the same priority as any other critical success factor.
The article is written by Jeremy Anderson of KPMG in the UK.
R.G. Manabat & Co., a Philippine partnership and a member-firm of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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