An integrated cloud strategy for financial markets

5 July 2013

Banks are facing increasingly challenging markets characterized by complex post-Pittsburgh G20 regulations, stricter budgets and heightened competitive pressures, says Stephan Wolf, chief technology officer (CTO) at Interactive Data Managed Solutions. One possible solution is to meet this regulatory reporting challenge and the phenomenon of ‘big data’, direct market access (DMA) and mobile retail investment and banking solutions by turning to outsourced cloud-based technology services, which can provide the compliance and customer technology required.

In a recent ‘2013 Survey of Financial Services CIOs’, the research firm Gartner determined that due to their size, ageing systems and sometimes complex structures, financial institutions (FIs) are often not in a position to deliver cost-effective IT and operations anymore. This is especially evident when they are simultaneously attempting to address the growing requirements placed on them by digitisation and expanding data volumes.

FIs need to react to these changes by implementing a more flexible IT business model that allows them to use software and hardware capacities as a scalable service within a distributed infrastructure. In my opinion cloud computing is the answer because it offers this capability by industrialising these processes, offering a wide variety of modules combined on a unified, standardised platform. It can enable FIs to save significantly on upfront capital expenditure on costs - although there will be on-going fees. The outsourcing of IT structures and services makes for a more flexible organisation, however, while also gaining cost-effective access to the latest technologies quickly.

It is becoming increasingly important for IT teams, particularly those at investment consultants and asset managers to manage data intelligently. In addition to structured data from exchanges, issuers and other financial market participants unstructured information from blogs and social networks is now playing an increasing role in understanding customer behaviour and trading intentions. There is often in-house research at institutions which also has to be meaningfully integrated, filtered and analysed. The objective is to generate data that retains value and that users actually find relevant, including analysis on the use of systems.

Lowering IT Overheads
One of the largest cost centres for FIs is their IT infrastructure. Existing core systems generate high operational and maintenance overheads, especially if they are aging, and often cannot meet the requirements of new business or regulatory reporting processes without bolt-on modules which further complicate the infrastructure. These necessary upgrades have often been implemented on an ad hoc basis and, as a result, created data silos that cause information to be separately managed and maintained. The siloed nature of internal FI IT departments, with numerous systems that have to be patched and connected together to ensure compatibility with new delivery mechanisms, further increases these costs. Synchronising large volumes of data across many channels is technologically complex, time consuming and therefore costly.

These silos persist because breaking them and integrating this data on an enterprise-wide scale takes an increasing effort and expenditure, requiring a sizable, cost-intensive IT team, at a time when budgets are already under pressure.

In tandem, banks are being confronted with new competitors, from outside of the financial services industry: be it PayPal, Facebook, Amazon or Google, who all operate on online marketplace-based models for payment systems or micro-credit management. Financial institutions must reinvent themselves in order to remain competitive. At the same time, these new market entrants serve as valuable role models and provide a range of best practices for an increasingly faster-paced, globally active financial industry.

Using the Cloud and Outsourced Services
In my opinion, it is possible to optimise IT infrastructure to support both growing data volumes and the various channels for interacting with clients by using the cloud. The trend is increasingly to outsource operational areas and focus on the design of services and related processes. On the retail banking side, just look at the recent Sainsbury’s Bank deal to outsource its technology provision to FIS, and there are many similar examples on the investment banking, asset management and other sectors of the financial services industry.

According to a survey by consulting company Steria Mummert entitled ‘Industry Compass 2012 Credit Institutions’, 56% of banks in Germany and Austria plan to deploy cloud solutions in coming years to achieve this outsourced operational, flexible capability.

An important prerequisite for the utilisation of such services is that those providing cloud-based services should be in a position to comply with the necessary regulatory, data protection and security requirements stipulated by national authorities. Local data hosting plays a critical role here.

To realise the benefits of an outsourced or managed service, firms need consistent data and applications that are delivered in an efficient manner. The basis for this is an efficient service management hub. A centralised platform has the ability to gather, harmonise and save structured and unstructured market data from multiple sources, including market quotes, contributor data, master data, indices, news, macro-economic data and proprietary research. These include charting, alerting and complete portfolio reporting, as well as calculated key figures, and extensive financial market data history.

The next step is the development of custom-tailored applications based on the latest technological standards. For example, in-memory databases to allow intelligent searches across the entire inventory of structured and unstructured financial market data as well as proprietary customer content. Complex, and therefore capacity-intensive features, in areas such as charting, can be implemented on all common operating systems and devices, including mobile financial services (MFS) solutions. In addition, customers can use an integrated cloud platform to integrate their own content and manage it entirely on their own internally using the outsourced resources and capacity available to them.

This approach works for a simple reason: it separates the content that powers decision-making from the applications that display and manage this data, resulting in consistent data that can be delivered into different applications and channels.

It offers convenient access to hosting services comprising data collection, storage and delivery, as well as the provision and maintenance of the required technical infrastructure and the operating of business-critical customer applications. Additional software or local servers are not required, thereby reducing technology, maintenance and administration efforts. With the platform acting as a single source that can be extended out to new channels or markets, FIs can offer a wider variety of touch points to their clients.

Conclusion
When examining potential service providers, firms must examine the service level agreements (SLAs) to ensure that a specified cloud solution meets their requirements. The consistent use of IT Infrastructure Library (ITIL) standards in the implementation of projects and processes guarantees measurability and transparency, and should also help to meet auditing and compliance requirements.

By leveraging cloud-based or outsourced services, banks can concentrate on providing attractive products and advising their customers, while also saving on IT investment, running costs and administrative expenditure. You should start seeding the cloud now.

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