Providing Value by ConvergingFinance, Risk, Compliance & Treasury(FRaCT) Information InitiativesSean O’DowdCapital MarketsJuly 31st, 2012
AGENDATopics discussed in this webinar include:• Trends in converging finance, risk and compliance strategies• Understanding why these intersections are needed• How firms can begin to develop a cohesive information strategy for success Financial services firms are reshaping how their finance, risk, compliance and treasury department processes, information and infrastructures are aligned. External mandates have established the requirements, and business pressures have forced reaction:• Does your firm understand the impacts of its financial and treasury decisions related to customers, transactions, or asset investments?• Are conventional accounting (ledger), financing (capital), and treasury (cash/liquidity) practices yielding the desired outcomes while minimizing your firms risk exposure?These decisions are determining the course and success of strategies. Be itbanking, capital markets or insurance, all financial firms will need to rely on their bestinformation to make the best decision.
Financial Landscape ShiftsForces Change “Soul-searching is Job #1 at a lot of banks”What is currently influencing the market andputting pressure on financial service firms? • Competition • Global economic instability • Complexity • Regulatory uncertainty • Demand (Securities) • Volatility External Factors (Macro) Internal Factors (Control) • Complexity • Profitability (Margin) pressures • Customer Mgmt. • Risk exposure (Credit, IR, FX) • Managing Liquidity • Time to market • Operational Improvement8/2/2012
Change Alters Priorities for Financial Services Firms What are your firms investment priority areas? Compliance Risk ManagementCompliance IT Security Customer Experience Risk Mobility Analytics Finance &Profitability Opertational Excellence Revenue Drivers Busintess Intelligence Cloud Computing Virtualization Social Media Collaboration Mobile Banking Talent Management Globalization Manage File Transfer Executive Search 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Within 12 Months Beyond 12 months Source: IDC Financial Insights
Priorities Require Tighter Alignment to Optimize GoalsFinance & Profitability RiskEvaluate & enhance financial Manage risks performance • Measure and monitor risks• Continued cost reduction to Divisions across across business remain profitable groups remain lines, customers and• Integration of balance securities sheet and portfolio capital • Transparency & proof of management Culture process to regulators Data Treasury Compliance Definitions Maximize the firms liquidity Ensure the firm adheres• Need to hold more capital Perspectives mandates that impacts profitability Tasks • Implement mandates & (scare resource) monitor fraud/non- compliance • Streamline legal and audit processes Collaboration Between Business Units to Drive Synergies Profitability Pressures & Ability to Forecast Results Greater Cost of Regulation Required Transparency Increased Need to Respond Quickly
Market Response So Far…. Financial Institutions are taking action:• Improved counterparty management• Integration of regulatory and economic capital• Daily/frequent stress testing with more complex scenarios, more scenarios and more iterations• Extension into earning variance and volatility testing• Greater operationalization of risk into transactional decisions Financial Institutions are developing more flexible and agile processes to respond to unknown and evolving requirements
Impact of Getting It Wrong?The Task at Hand is Extremely Challenging, Complex & Imperfect $5.8 billion and counting To date, how much JPMorgan has lost on the trade put in place by the London Whale (aka Bruno Iskil) "I think no matter how good you are, how competent people are, never get complacent in risk. Challenge everything” Jamie Dimon, CEO JPMC $7 billion and 10 Years Amount HSBC’s Mexican bank shipped in bulk cash to the firm’s U.S. bank in 2007 and 2008 for laundering. Further, HSBC issued a 335-page report describing a decade of compliance failures by Europe’s biggest bank David Bagley, HSBC’s head of group compliance, offers his resignation at HSBC’s Senate hearing 5,350 Jobs Shed Recent announcement by three of the world’s largest banks due to industry struggles to adapt itself to continuing economic woes and the advent of new regulation. More cuts anticipated. “The whole industry faces structural change. The impact of OTC reform, Volcker and Basel III could lead to a 15-20 per cent headwind on revenues over the next two to three years” Analyst 24 million man-hours and $22 billion Number of man hours estimated to comply with the DFA and the total number of expenses or lost revenue for the 23 largest banks in the US from just two parts of DFA “While the promised benefits of Dodd-Frank are still illusory, the costs are beginning to become crystal clear” Oversight and Investigations Subcommittee Chairman Randy Neugebauer
Impact of Information OverlapsImprove Data Reuse, Question Depth & Analytical Insights ~70% of risk information can be reused for other business groups Improve Short Optimize financial Term Liquidity: decisions ex. Cash calls, exposures, Manage risk with coverage greater financial accuracy Improve longer term financial Financial reporting planning, risk and performance appetite & management business evaluation Infrastructure Risk is moving fromstruggles to deal an oversight function with regulatory to one embedded in agility everything Unknown Siloed risk disciplines requirements make it hard to bringfrom forthcoming together data, mandates systems, organization Stricter polices to understand requiring systemic risk transparency & proof of process Greater insights inand data quality. positions and ability to cover 8/2/2012
Example Scenarios • Capital Adequacy & Regulatory Reporting: Basel III, Dodd-Frank & CCAR (Comprehensive Capital Adequacy Review) • Integration of balance sheet and portfolio capital management • Go forward integrated capital plan • B/S and I/S plans tied to risk portfolio loss, capital and stress test at lower levels of granularity • US FED to review go forward capital plans that must include stress testing and capital to cover all material risks • US FED can stop capital reducing activities like dividends and stock repurchases • Requirement to provide detailed position level data used for stress tests • Pre-trade scenario analysis • Users call for trade, risk, liquidity data and would like to understand the impacts to the G/L or balance sheet. The goal is to determine the merit of a trade with greater insight into broader exposure limits, cash to cover, ledger impacts and profitability. • Onboarding • Integrated data store helps clear KYC requirements once (reduce duplication), with a common identifier understand any existing cross-business product and service touch points. Then understand how profitable an existing customer is and the costs typically associated with providing services.
The Roadmap to Data Reuse & Change Business Cultural Driven Roadmap and alignment and Vision and Prioritization governance Strategy Sustainability Repeatable Technology and Incremental Enablement Continuous Program Improvement
New Initiatives are Changing the Way the Work Has toBe Done Infrastructures are Typically Tangled and Complex• Common Challenges • More frequent and changing reporting increasingly requiring broader & more detailed data • Not all required data is available in the Data Warehouse or ERP • Modelling/Analytics engines source data from multiple locations • Reports from multiple sources result in different answers and need to access multiple systems • Data quality problems • Significant time spent on data validation and reconciliation
Build and fund one step at a time Source Data ORDER ORDER NUMBER ORDER DATE Detailed, STATUS ORDER ITEM BACKORDERED QUANTITY CUSTOMER Normalized Data CUSTOMER NUMBER CUSTOMER NAME ORDER ITEM SHIPPED CUSTOMER CITY CUSTOMER POST QUANTITY CUSTOMER ST SHIP DATE CUSTOMER ADDR CUSTOMER PHONE ITEM CUSTOMER FAX ITEM NUMBER QUANTITY DESCRIPTION Logical View/Logical Data Mart CRS Business Users Compliance
Add More Source Data… and Use It For MultiplePurposes Source Data ORDER ORDER NUMBER ORDER DATE Detailed, STATUS ORDER ITEM BACKORDERED QUANTITY CUSTOMER Normalized Data CUSTOMER NUMBER CUSTOMER NAME ORDER ITEM SHIPPED CUSTOMER CITY CUSTOMER POST QUANTITY CUSTOMER ST SHIP DATE CUSTOMER ADDR CUSTOMER PHONE ITEM CUSTOMER FAX ITEM NUMBER QUANTITY DESCRIPTION Logical View/Logical Data Mart CRS Compl Fin Business Users Compliance Finance Risk
And so on… Source Data ORDER ORDER NUMBER ORDER DATE Detailed, STATUS ORDER ITEM BACKORDERED QUANTITY CUSTOMER Normalized Data CUSTOMER NUMBER CUSTOMER NAME ORDER ITEM SHIPPED CUSTOMER CITY CUSTOMER POST QUANTITY CUSTOMER ST SHIP DATE CUSTOMER ADDR CUSTOMER PHONE ITEM CUSTOMER FAX ITEM NUMBER QUANTITY DESCRIPTION Logical View/Logical Data Mart CRS Compl Treas Fin Business Users Compliance Finance Risk Treasury
Vision State Simplification, Standardization, Consolidation Next Generation Infrastructure Financial Systems HR Calculation Reporting Accounting Engines & & Analytics Hub Applications Operational Accounting Consolidation HR Systems Rules General Ledger Cash Financial Reporting PR Planning Profitability FlowCard Student Sub-Ledger AP Purch AR FA PA Other Loans Management Reporting ALM Risk Capital Alloc.Member Merchant Regulatory Reporting Call OperationalCenter Operations Analytics Data Warehouse Pulse Reference Data Management Tactical Info Delivery Data Customer Introduction & Life-Cycle Maintenance Process System Put customer Set Status to Upload Customers state to Charge ACTIVE Logistics Update logistics information yes yes Sales Rep/ DSD Rep Update Customer Profile Information Overall Data Finance / Steward Hierarchy, Duplicate Resolve Credit Approval Update Billing Update Hierarchy Channel, Review Alerts resolution yes no Duplicates Reqd? Information Information Address info reqd? no complete? Alert respective role no Sales Update Trade Channel Information Hierarchy Security Metadata Data Quality Master Data Management Management Management & Governance Management Workflow Management Rules Management All required data available from a single source Data is reconciled to GL and transactional systems All Analytic applications source and return enriched data to common DW Key reports and analysis produced from the DW with common portal, hierarchies and delivery processes End-to-End data lineage and governance ensures quality, transparency and traceability Governance processes to ensure data quality and consistent use
Case Studies Problem: Integrating different risk exposures across retail, commercial, capital markets, insurance and wealth management Top North Solution: Integrated active risk warehouse. Leverage of current Teradata platforms employed for risk American management. Leverage of Teradata Financial Services Logical Data Model. Integration with risk management functions Bank Benefits: Single name risk exposure system resulting in low losses during credit crunch Problem: Create economic advantage with enterprise stress testing and influence regulatory requirement for stress testing. Issues were: Frequency and latency for complete risk aggregation, Reduction of manual intervention in process, Flexibility of risk aggregation and underlying process Top 5 U.S. Solution: Active integration with risk application: Rapid ingestion and standardization of data, aggregation of risk Bank data. In warehouse risk calculations to minimize risk engine processing. Integration with risk engines Benefits: Daily enterprise stress testing. More complex scenarios and more scenarios. No manual intervention in stress testing Problem: EDW with 60K daily reports; highly concurrent environment caused missed deadlines due to system uptime & scalability limitations. System also had slow performance and weak data quality. Top 3 Solution: Teradata financial data warehouse for core financial reporting on common platform Golden Gate Mover Global used for real time replication of data. Investment Bank Benefits: Reporting performance is approximately 2.5X faster than legacy environment; greater system stability with no major outages; implementation of “swim lanes” to protect heavily used applications. Problem: Difficulty getting a timely, reliable view of financial performance across 20 separate legal entities. Metadata and metric definitions needed to be standardized across the enterprise. Large Solution: Teradata financial data warehouse was installed as the sole repository for all financial data reported by European the CFO. Diversified Bank Benefits: Key strategic business initiative support for compliance, cost reduction, and acquisitions. Subject areas include asset & liability management, capital allocation, and planning & control.8/2/2012
The Way to Success • Focus on a data centric approach to be successful • Provides lowest enterprise cost of ownership and greatest flexibility • Treats data as an enterprise asset and not owned by the application • Build in increments based on business drivers • Technology • Provider should be an ethical recognized leader in the Industry • The platform must be flexible and has strong capabilities to deal with the full spectrum of data (e.x . structured, semi-structured, unstructured) • Allow for complete query freedom & complexity • Strong workload management • High concurrency • Data model flexibility • Experience is required • Partner should solely be focused on Enterprise Analytics • Solutions should be used for not only Finance, Risk and Compliance. Leverage for the entire enterprise is a prerequisite (i.e. Marketing, Customer Management) • Resources should know how to do this and should have done this before • Technologies, methods and tools have to insure firms success • How strong are the data architects? Data strategies proposed and strength of the logical data models?
TURNING DATA INTO AN ADVANTAGE -Webinar link - Replay Link needed -White paper - CFO Whitepaper - Forthcoming Finance, Risk, Compliance and Treasury Convergence Whitepaper -Teradata Financial Services Solutions - www.teradata.com/industry-expertise/financial-services/ Sean O’Dowd Global Director, Capital Markets PHONE: (707) 676-3693 EMAIL: Sean.ODowd@Teradata.com SOCIAL: www.about.me/seanodowd @SeanPODowd