The Sibos 2012 trade show started today in Osaka, Japan, with an opening plenary from the new chief executive officer (CEO) of SWIFT, Gottfried Leibbrant, recounting his first 120 days in charge and his plans for the future, says Tom Groenfeldt. A panel of bankers, consultants and technologists also addressed the key question of the role technology plays in innovating financial services. Up for debate was whether siloed systems still hold the sector back, how tech can be deployed to meet the regulatory burden and if it can aid risk assessments. Bank of America’s CIO was also interviewed.
Sibos 2012 got underway today with a couple of interesting technology panel discussions addressing its role in developing new business models and innovations for financial services (FS) and an on-stage interview with Cathy Bessant, the chief information officer (CIO) at Bank of America, who stressed the need for the business to define the technology strategy if it wanted to achieve a good outcome, rather than introducing tech and then trying to find a role for it.
The technology panel on the opening morning of Sibos 2012 asked the classic question – is technology the problem or the solution? The answer provided by the panellists was:
• It depends.
The technology panel was made up of practitioners from the KPMG consultancy, JPMorgan Chase and State Street, among others, and it was gratifying to note that there was a divergence of views and that no one used the long-abused term ‘alignment’ when discussing the role that technology plays in innovating FS. Predictably, however, regulators did get a bit of a dressing down.
Simon Topping, a partner in KPMG’s China practice, didn’t exactly say that regulators are ignorant about technology, but he did point out that regulators often think bank systems will be capable of delivering complex information, such as stressed value at risk assessments and real-time market movements, without ever considering the legacy challenges facing banks.
The trouble – familiar to global bank IT professionals but not necessarily to regulators who expect that the hundreds of millions banks have invested in technology should be able to produce some basic enterprise-wide information – is that banks are living with spaghetti code developed via numerous mergers and acquisitions (M&A) over the years. And the silo problem has only got worse over the years, especially post-crash as capital adequacy requirements have risen, because banks do not have sufficient tech investment budget to fix the problem. Only projects with instant return on investment (RoI) tend to get greenlighted at the moment.
Technology conundrum: Eliminating legacy
The result of this technology legacy conundrum said fellow panellist, Dr Mark Lawrence, was that when regulators called banks after Lehman Brothers failed back in 2008 to ask about their exposure, some didn’t know their exposure; some said to call back in a couple of hours; while others said it was X and a few hours later said it was actually 5X. Lawrence, now a consultant, was previously the chief risk officer at ANZ, so he knows what he speaks of. “Supervisors found that in some cases banks took more than a week to add up their exposure to Lehman,” he said. The reason for that was a lack of system integration after M&A.
Lee Fulmer, managing director at JPMorgan Chase and chief technology officer (CTO) for cash management, said technology isn’t the answer but it is the enabler. Each area of the bank tends to tackle regulatory compliance in its own way with its own systems and its own data.
“You don’t solve the problem by throwing money at it,” explained Fulmer. “The key is to figure out how to create a system that allows you to cross-reference all these pieces of data. I tell my bank we shouldn’t hire data architects, we should hire information archivists, someone from a library who understands information, context and taxonomy. We need people who have looked at hundreds of years of how to organise information. They are better than database administrators at thinking about how information can be used in 15 or 20 years.”
Instead of spending IT budget in 200 places, banks should look at a way to focus spending to achieve an end state that will help the regulator get information and help the bank manage more effectively. If Fulmer was sceptical about IT, David Saul, chief scientist at State Street, thought that a semantic layer could provide some of the solution. “Look at your hard persistent problems and identify technological solutions for them,” he said. “A semantic layer could link pieces of data held in separate locations that are unaware of each other, just as the World Wide Web links web sites that are separate.”
The combination of semantics and relationships is referred to as an ontology, and work is underway in standards to create ontologies for financial services, he added. “As data travels with its meaning, we can do risk analysis at any point in the process.”
Bank of America CIO interviewed at Sibos
Technology was back on centre stage for a late morning technology session at Sibos 2012 in Osaka, Japan, when the Financial Times’ Paul Taylor interviewed Cathy Bessant, CIO at Bank of America. Like the earlier tech panel, Bessant stressed the importance of business first defining the strategy for technology.
“I don’t know how a CIO would function without a deep understanding of the business,” she said. Her chief clients are the CEO, the chief financial officer (CFO), the chief risk officer and the chief marketing officer at the bank, she added, spelling out how important it was to align any technology programme.
The key topics Bessant discussed were:
• Bring Your Own Device (BYOD) security: Bank of America encourages it and IT controls it. “All applications in the firm need to be owned by technology. All free or open source tech has to come through a technology approval process and be managed by the department. If you have a business that wants an end run around the technology organisation, something else is going wrong. Having come from the business, I know where the shadow IT is.”
• Big Data: “I hate the phrase because it sounds so mysterious,” said Bessant. “It tries to give a label to what we are in the business of doing every single day in FS – namely, understanding data, providing massive amounts of it and using it every day to drive business forward.”
• What keeps her awake at night? The security of Bank of America. Banks need to be on the cutting edge of security and realise it is a shared concern down to the individual user and extending to suppliers such as communications firms.
• Regulatory burden: “We know for sure the requirements will be different tomorrow, so the design of systems has to be relational rather than hierarchical, so they have flexibility and agility to meet demands across different jurisdictions.”
To the question of if banks will ever be governed by a global regulatory system, Bessant replied that: “I believe it is possible but not probable, not in my lifetime at least.”
• Replace legacy? We are all facing choices about whether we hang on, modify and overhaul or replace legacy completely, commented Bessant. Bank of America has just finished a 14-year project to move to a single consumer deposit system, she added although actually it probably took 20 years, all told, she added.
• How to avoid future legacy problems? Architect in a way that preserves flexibility, and which does not create monolithic legacy systems, advised Bessant. Do a lot of work that is enterprise-wide rather than business by business too. Place pressure on the application rather than the infrastructure to deliver results.
Opening Plenary: New SWIFT CEO speaks
Gottfried Leibbrant has been CEO of SWIFT for just 120 days and already people are asking him for his vision, he said during the opening plenary at Sibos 2012 in Osaka, Japan. Perhaps it was the result of jet lag among American and European participants, but sleep did get mentioned more than once, during the opening plenary too. One banking customer told Leibbrant that SWIFT is the reason he sleeps at night, said the new CEO.
While banks are debating whether to tinker with or replace core systems, SWIFT is renewing its core FIN messaging platform in a way that users never even notice, he added, while referring to the launch of Alliance Lite 2 earlier in the year and other planned changes to its inter-bank messaging connectivity options.
A big value of SWIFT is that it brings together big banks and small banks, added Leibbrant. Big banks could connect to each other without SWIFT, but they couldn’t reach the 10,000 member banks around the world that the organisation provides. He referred to this as one of the collective’s key strengths. SWIFT’s pricing has also become far more sophisticated to give large banks what they want and smaller customers the value they need, he maintained, before going on to comment about the increasing politicisation of the world – just look at the withdrawal of the Chinese banks from Sibos for an example – and the on-going Eurozone crisis, difficult economic environment and strong regulatory pressures facing FS.
“The world is more political and more polarised,” said Leibbrant, before ruminating on how you preserve a global franchise like SWIFT, in a world that is becoming more political and polarised?
According to Ywar Shah, chairman of the board at SWIFT in his address to the opening plenary session at Sibos 2012, many of the problems facing the FS industry – the eurozone crisis, increasing regulations and so forth – were there last year too at the Sibos 2011 show in Toronto, Canada. One sign of change, however, that he did identify is that SWIFT now has a compliance forum at Sibos for the first time this year.
Shah said that SWIFT is still under-used in Asia as well, referencing the ‘home’ audience in Osaka, Japan. Asia accounts for 28% of world gross domestic product (GDP) but only 13% of SWIFT traffic, something that Shah said he is keen to rectify.
Both the leaders of SWIFT, Leibbrant and Shah, then went on to describe the new data centre that SWIFT is building in Switzerland. Although the two leaders didn’t say so explicitly, one of the drivers is probably the attraction of a neutral country. Both leaders talked about the political pressures SWIFT faces. The US demanded, and received, access to SWIFT traffic after the 9-11 attacks on New York City and Washington, for instance, against the wishes of the defenders of the European Union’s data protection act. More recently, the US pushed SWIFT to cut Iran off the network as part of its sanctions regime, an action this time supported by the EU.
“SWIFT is a trusted neutral third party, not a lobbying group,” said Shah. “We connect the banks and serve the banks. As the political pressures create certain activity the franchise comes at risk. Our job is to make sure we remain neutral and globally trusted.”
Although he had just said SWIFT doesn’t engage in lobbying, Shah added: “We will continue to educate those who want to use us for other purposes.” The again, with a data centre in Switzerland, beyond the reach of the EU and the US, SWIFT will have a back-up option if education doesn’t succeed and political pressure once again is brought to bear on the organisation.
• Bobsguide is producing a daily Sibos 2012 show report all this week. Please visit our blog section to see the show blog and all the other preview material, blogs and opinions in the lead-up to the show, including our preview of the Innotribe and of the political row between China and Japan, which lead to the withdrawal of the former's banks.