Gary Wright, ceo of B.I.S.S. Research writes on his blog about what regulatory changes we can anticipate in the coming months
The analytical period for the world’s worst financial crisis is well underway and due to the depth and breadth of the many problems that need to be overcome, the success of this analysis will be vital in setting the future agenda to rebuild the financial markets and regain lost confidence. The financial services industry always operates in a reactive way and nearly always stops expenditure and slashes budgets while it considers its priorities and the best way forward.
This time the world is suffering the worst financial crisis in history, which has overlapped into the general economies of virtually every country in the world with those countries with large financial markets hurt most. For this reason we can anticipate governments across the globe and certainly all major financial markets will begin debating and consulting with all and sundry, the policies required both domestically and internationally to rebuild the financial services industry.
The process of rebuilding financial services will fall into several periodic phases and need both government and market players to engage in creating objectives and how the industry will work together to meet them.
Domestic concerns will for the first time be secondary to resolving the global financial crisis but of course within this ideal there will be opportunities for some countries to gain from the turmoil at the expense of other countries and markets once dominant in financial services. In this scenario the USA and the UK are most at risk and have the most to lose from hovering competing markets as a new order is created in financial markets.
We can expect umpteen committees worldwide representing an array of business areas to focus on changes to their particular area of business. All will be lobbying for position and trying to gain the best possible situation for their business.
As new laws are created domestically and internationally to produce a more resilient and secure financial services industry, the regulators and compliance officers will begin to take centre stage.
The rewriting of rulebooks is sure to include a concentration on credit risks and capital adequacy. Other areas are likely to be:
– Operational Risk
– Systemic Risk
– The ability of financial firms to manage their business
– Regulators ability to gain the overall picture of business activities from both headquarters and international branches.
This is not a comprehensive list but each item carries a huge potential workload for all the worlds’ financial services firms.
As the new laws and rules are rolled out, the ability to comply, will throw almost total emphasis on systems supporting business activities. Bearing-in-mind the inadequate capability of existing systems to provide management support and future detection or hopefully prevention of the taking on of unintended risks whether in credit or in complex financial instruments that hide the scale of the risk.
This alone will entail wholesale system upgrades or in many cases replacements to cater for new regulatory requirements for risk transparency of credit and counterparty risk. The undertaking for the IT department to produce technical solutions will dwarf any responsibility they have had in the past. The requirement for significant investment in new technologies and new people with a greater understanding of business and systems will be huge. The financial cost will be high for financial services firms and they will have little or no choice but to put systems right if they are to remain in business. There will be high risks as the extent and range of system changes will produce multiple functionality changes which will simultaneously hit the banking industries servers across the world.
As the changes to systems are likely to be symbiotic with new regulations and with no phasing, the workload to the finance industry will be taken to a new higher level; this will increases risks of system and business failures. Ironic then that risk reduction objectives could actually just shift the risks from the front office and compliance to the IT department. Failures in IT will be no less frightening than we have witnessed in the front office and may have similar impacts in the market.
It is with this fear in mind that I recommend a look at Tripwire a global company which is well known outside of Financial Services but which has an increasingly valuable role to play in Financial Services. The capability of Tripwire Enterprise to audit and manage change now looks a ‘must have’ for any bank or organisation engaged in massive technology changes.
The policies created by Tripwire Enterprise can be bespoke to any specific needs and have enormous value in ensuring support at a time when technology is going to be under a great deal of stress.
Tripwire Enterprise was benchmarked last year for its value in assisting banks in MiFID compliance and its subsequent Accreditation by a panel of industry experts underlined its strategic importance in ensuring compliance. The generic MiFID benchmark questionnaire completed by Tripwire showed that their system is of value to financial services firms in a myriad of ways, depending on the technology architecture and business type. Tripwire Enterprise has been proven under a MiFID benchmarking objective and it is certain to be a valuable tool to financial institutions under pressure, as the try and match the demands of new regulations.
Mike Shanahan of Tripwire says “Tripwire has been best known for its strengths in identifying changes across the IT estate. We are often called in after audit failures for Payment Card Industry PCI, Sarbanes Oxley, or even general audits where customers have not been able to show sufficient control of changes to systems. We have recently added significant new offerings to secure and manage Virtual Environments which as we all know have seen strong growth in the financial sector. The financial services industry will be heavily involved in many system changes as it recovers from the financial crisis and the sheer scale will threaten the capability of technology support. Like in other industries where Tripwire has gathered many leading corporate customers because of system changes and unintended consequences causing system breakdowns we believe our functionality has a leading role to play in financial services firms maintaining system performance and regulatory compliance as we proved in the MiFID Benchmarking.”
Change is inevitable in life, as it is in business and technology but the path to success in all three is adaptability. To successfully adapt existing technology the banks and other financial services firms are going to have to manage change far better than ever before. Mistakes in the next few years could be terminal for businesses given the fragile nature of confidence in the financial services industry. IT managers must take the lead and assume responsibility for successfully implementing massive system changes especially with the likelihood of a high percentage of new untried staff. The risks have been huge in banking in the past and they are likely to get bigger in the future. The difference is now the IT department is being pushed into the front line.
By Gary Wright, M.S.I.
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