Graham Underwood Managing Director of GFT UK acknowledged that commented âaside from just getting through the year in one piece, integration and compliance are going to be the big technology issues facing financial institutions this year. Not least, because of the new regulation surrounding liquidity which will come into force in Novemberâ. He continued, âclearly, responding to these IT challenges on flat budgets will be testing, especially as over two-thirds of available money often goes on run-the-bank projects, leaving little for the change-the-bank issues which the new liquidity regulation may demand. The slight increases which nearly half of the Gartner respondents report will easily be swallowed up by the amount of work to be completed in 2009â.
GFT UK is already experiencing requests for liquidity risk management projects and has established a multi-disciplinary team to respond to this demand. This rise in enquiries perhaps corresponds with the January publication of the FSAâs consultation paper on changes to its rules governing liquidity. It revealed that âthe FSA sees its proposals as far-reaching and believes that many institutions will need to reshape their business model significantly over the next few years as a resultâ .
Graham Underwood explains, âintelligent financial institutions and their CIOs already acknowledge the seriousness of the situation, but are not paralysed by it. This is not a time to do nothing but a time to seize the opportunity to restructure, to modernise the bankâs systems and to ensure the simple things are done better. In short, to produce cost efficiencies from within the IT department. After that, we expect to see banks cutting back on the number of instruments they offer, divesting holdings and moving out of geographies in order to focus on their core strengths and, more importantly, release cashâ.
With budgets hardly moving, GFT believes it will be the competent and responsive companies which make it through the year and also meet their regulatory requirements. The events of the past few months have raised the issue of liquidity to the top. Adapting the bank to meet these new requirements will be the challenge this year. 2009 wonât be a year of growth, but it will have to be one of intelligence, resourcefulness and agility.
GFT & LIQUIDITY RISK REGULATION
GFTâs multi-disciplinary team predicts that financial institutions will have to consider the following:
- Taking a holistic view; risk cannot be successfully managed from within an asset class or geographical location. Diversification is a major plank of liquidity risk mitigation strategy, requiring a sophisticated and pro-active approach.
- Consolidate liquidity risk management across the businesses as well as time buckets. Too many discontinuities still exist across major maturity bands.
- A predictive, real-time approach. Reconciliation has to be faster and smarter; end of day just isnât soon enough any more, as demand for intra-day reporting grows.
- A more aggressive regulatory stance, requiring a stronger emphasis on stress-testing as well as credible contingency planning for "outlier" events.