Alex Tsigutkin, CEO AxiomSL
Some of you might remember Harvard professor and economist Joseph Schumpeter, who believed that Creative Destruction was what a ﬁrm faced when the choices that once drove its success become those that destroy its future. Many more theories followed, including the Innovator’s Dilemma, Disruptive Innovation and Disruptive Technology, to mention only a few. Today, between the UK’s vote for Brexit, Donald Trump’s U.S election win, the Netherlands, France and Germany holding elections in 2017, a slowdown in Chinese economic growth, there are economic factors on the global stage that are creating uncertainty, turning the old order upside down.
The reality is this: FIs must ensure continued sustained growth in this unpredictable geopolitical climate, with ever-changing regulatory regimes and market margins that are under pressure, and accurate and high-integrity data is a must to meet regulatory needs, just as top executives request comprehensive, transparent and granular data to assess and attest to their own risk exposure and returns. Faced with these challenges, FIs are forced to think creatively as they quite simply have tighter margins. To identify and recognise opportunities that originate from turmoil, leading executives should provide an innovative technological environment that will adapt quickly to the new regulatory, financial and operational paradigm shifts.
Over last several years, we have seen the financial services industry make significantly large investments in its risk and regulatory compliance systems. Today, with technology budgets tightening, firms have to leverage these solutions and integrate the them effectively with the remaining legacy systems to meet growing demands. Many studies concurred with this approach, and research analysts predominantly suggest that firms need to adopt a technology platform that can be leveraged repeatedly and across projects/applications to be cost-effective and achieve sustainable growth.
The technological capability of a platform to seamlessly interface across business functions is critical as FIs face challenges such as mapping complex data flows, unraveling lineage across the enterprise, separating data attributes from calculation processes, managing structured and unstructured data in a controlled production environment, only to mention a few.
As an example, let’s look at a CFO versus CRO responsibilities in an IFRS 9 environment. CFO signs off on the accounts and is used to talking in terms of assets and liabilities – precise values. In contrast, the CRO may be in charge of ensuring the firm is compliant with regulatory requirements. As a result, data is articulated differently, meaning assets and liabilities versus products and portfolios, and CRO will be delegated responsibility to ensure the validity of the credit risk models to forecast asset impairments, while the CFO will take charge of mapping those model outputs onto the published account as the goal of IFRS 9 is to converge risk and finance environments.
To this end, FIs should set up a cross-functional collaboration platform to ensure that duplication of work is minimised, such as disconnected processes making the same set of calculations without coordination from other teams, and the ability to automate processes to reduce lengthy run times in testing the soundness and sensitivity of the banks’ results. Too often, ownership of processes and information is fragmented and zealously guarded. Roles are designed around parochial requirements resulting in internal complexity, which hinders a much needed cross-business collaboration.
AxiomSL’s data driven structure enables banks to adopt a strategic posture and acts as a catalyst to move to a converged Risk, Finance and Operational data environment where a close coordination with other data-related initiatives (e.g. Basel III, stress testing, BCBS 239/RDARR, CCAR, FRTB, MiFID, IFRS9, etc) is needed. The data driven approach strengthens internal controls. This is accomplished by providing senior executives with the capability to monitor, design processes, and enforce control frameworks at a business unit and product level (retail versus wholesales parts of lending, trading, investment etc).
The importance of a cross-functional collaboration approach is driven by the increase in risk and financial data to manage the complexity of firms. These data include reference, transactional, and derived data (both current and historical). All of these data need to be cataloged, which is prioritised, categorized, tagged and managed throughout its lifecycle. A data management program with processes and controls in place, including end-to-end data lineage that identifies the source of every input and demonstrates how this object navigates throughout the entire workflow process, both upstream and downstream, is instrumental to successfully align the requirements and objectives of business decision makers and IT capabilities. Visualizing and recording the traceability and lineage of the data is not only a matter of transparency, but is also an approach to enhance risk management governance, internal controls, and data integrity.
To this end, a key enabler for success for FIs is to adopt (1) a dynamic data and process-driven platform seamlessly interfacing across business functions, where data quality control procedures including the adaption of business rules as well as attestation, validation and traceability rules with sign off ensure data accuracy and consistency, and (2) a platform that allows executives to reuse and leverage data and processes to mature their data management capabilities while avoiding siloed responses and delivering trusted information.
I began by talking about Schumpeter, and will end with an analogy to the Venn Diagram; before reflecting on that, let’s set the stage. CEOs and top executives drive the broader business changes needed based upon identifying opportunities coming from change and exploiting advanced analytics through meaningful and trustworthy information. Nonetheless, as structured and unstructured data grows exponentially, this process becomes convoluted and complex.
For instance, look at two datasets side by side, one can easily analyse key insights as they intersect. On the other hand, when assessing 200+ datasets, the insights are indeed much more powerful; however, mapping, aggregating and analysing large volume of heterogeneous datasets might create overwhelmingly complex processes that would actually inhibit the use of analytics and incapacitate CEOs to clearly translate and articulate outputs into actions.
To avoid this problem, FIs need higher-quality data and better processes demonstrating full transparency, with lineage and controls. As a result, leaders should consider the use of a high-performance integrated control platform that analyses and consolidates source data from modern and legacy technologies while enriching the taxonomy and metadata across an organization’s infrastructure. If aggregation and analyses are run in silos, or if the outputs cannot be traced to the source to demonstrate their integrity and controls, then the quest for data accuracy will fail—and so will the analytics.
So it’s about overlap and connecting the dots. AxiomSL’s data and process control platform steps in and acts as an integration and application development layer that is implemented with minimal internal disruption and without imposing a “black box mentality”. Processes can be decoupled, analysed and then reused and leveraged so the results can be even more powerful. It brings benefits in various areas across the enterprise including cost and timeline reduction though automation; steady business transformation via process and control enhancements; faster time to market through visual business rules and reliable data integrity with a technology that manages and attests to the accuracy of clients’ data throughout the entire workflow process. Integrating data integrity and control solutions into the architecture will ultimately enable FIs to gain a competitive edge. Automation, and full validation with data lineage will be key elements of any future system.
The start of a new year always brings about a fresh perspective. That is sure to be the case in 2017 after 2016 brought data governance matters further front and center, I believe executives in 2017 will need to be better analytically equipped than just “kicking the tires” when addressing the major strategic decisions that will transition their businesses for future success.
If change is the one true certainty in life, it is up to us to continue to make data integrity, controls and the ability to adapt quickly — the bedrock for any firm—as solid as it can be. As always, we accept the challenge.