SOS from Financial Institutions: Stop Excessive Spending on Risk and Compliance!

BearingPoint, Inc., a business consulting and systems integration firm, announced the findings of a survey of leading financial institutions, conducted by the Economist Intelligence Unit (EIU), that found wasteful spending and duplication of efforts around risk management and financial transparency, due to the absence of data standards. Without addressing the data issues first, the financial services industry could struggle to successfully complete mergers or acquisitions, as well as achieve overall growth of any kind.

"A majority of financial institutions believe that their current governance is not capable of addressing both risk and financial transparency," said Christopher Formant, BearingPoint's Executive Vice President, Financial Services. "They have reached a 'tipping point' where their spending has become reactionary and ineffective because across enterprises, operating and data management structures are in direct conflict with risk management structures. Documenting and demonstrating their compliance can also incur additional costs into the millions. In particular, access and retrieval costs have become onerous."

The survey, conducted during the fourth quarter of 2003, indicated other possible problems for companies seeking to acquire or merge with another company in 2004, including:

  • The participants agreed that the two biggest obstacles to effective integration are cost and a lack of standardized data models.
  • Only 18% say their risk solutions link up with their customer relationship management (CRM) systems.
  • Just 37% say their risk solutions link with customer data repositories.
  • Less than 50% say their risk solutions link up with enterprise-wide financial general ledger and MIS systems.

More than 190 executives responded to the survey from across the globe, representing the following regions: Western Europe 26%, Eastern Europe 6%, Asia-Pacific 22%, North America 25%, and Latin America 9% with 11% from the Middle East and Africa.

"The challenge facing CIOs today is not unlike the challenge facing the federal government in setting-up the homeland security department," said Christopher Hamilton, a Senior Vice President with BearingPoint. "The government had to figure out how to combine numerous federal agencies under the Department of Homeland Security. Today, companies must figure out how to integrate dozens of new technical requirements so that they are compliant with a host of new security and corporate governance laws and regulations."

Compliance is one issue but demonstrating compliance can be even harder and more costly.

The analysis of the current industry trends show that existing customer initiatives such as customer relationship management (CRM) and risk management can be utilized in harnessing the requirements imposed by Basel II, the USA Patriot Act, and Sarbanes-Oxley. Many of these initiatives have overlapping data, process and technology requirements.

"As a result, data convergence is the key component of many companies' technology strategies this year and includes not only reuse of existing data across different business applications, but also the development of new, converged data models," Hamilton said. "This level of data convergence can only be achieved by applying proven industry practices and techniques from previously disconnected disciplines of data management, information and risk management and information security."

Hamilton noted that chief information officers (CIOs) define the convergence strategy and the framework to include data, governance, technology and processes from areas of CRM, risk management, finance, and information security. "This end-to-end convergence strategy has far-reaching, profound implications on the existing IT infrastructure and organizational structure," he said. To obtain a copy of the survey, please go to http://www.bearingpoint.com/riskstudy.

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