Rockall Technologies: Data perfection: real-time assessment – Luke Nestor
Improving data quality is increasingly at the forefront of a new approach to collateral and risk management in international transaction banking. Future Banking speaks to Luke Nestor, executive president of business development, Rockall Technologies about why companies are turning away from Excel spreadsheets and towards new technologies to manage their risk and collateral.
The freewheeling days of big gambles and big rewards in financial markets are over, with a push by regulators for more transparency meaning large institutions are being pressed to expend significant time and money on how they manage risk and collateral. Once an afterthought, banks are now using increasingly high-tech new tools to monitor developments in real time.
For Luke Nestor, executive president for business development at Rockall Technologies, this new climate of regulation and transparency can only be welcomed. In his eyes, many causes of the 2008 financial crisis, and ongoing issues in the financial sector, can be traced back to a lack of accurate, clear data captured in real time.
"If you look at what happened over the past few years since the crisis, there's been a lot of focus on providing risk management tools," says Nestor. "The interim or middle-man solutions have been at play to capture data after the event - instead of effectively doing things in real time, part and parcel of your day-to-day business."
Nestor believes that, in the new climate, institutions who want to think big about lending and international transactions have to provide a large amount of evidence for regulators to back up their claims about their ability to lend in large amounts.
"So banks can minimise the amount of reserves they need to hold, capital reserves, to actively lend," he says. "But to do that, they need to be able to prove their data is of quality and that they can accurately report all their diligence."
Ready to rock: collaborating with one of the industry's leading technologies' companies Nestor's company, Rockall Tech, is filling the hole in the market caused by this demand for real-time assessment data with its STOC (systematic tracking of collateral) software.
STOC is Rockall's all-important software. It is a point system, meaning that it is easily adaptable to different circumstances, such as the contexts of commercial banking, wealth management and wholesale banking, and it claims to offer a more "holistic" view of a bank's collateral, forgoing spreadsheets for a more user-friendly and practical experience. "Data quality is being seen as the biggest gap in the market, in terms of being able to capture data as it happens. As opposed to what we believe has been happening, where middleware solutions have been at play to capture data after the event," Nestor says.
The main argument Rockall Tech makes is simple: banks have focused too much on risk management after transactions have taken place, instead of analysing it in real time as part of the day-to-day running of the business.
Product of the environment: international risk management
Another product of the new climate is that smaller and medium-sized institutions have largely pulled back from operations abroad, and no longer provide representative services to their larger corporate customers overseas, leaving a gap between large institutions and business in emerging markets.
Rockall Tech says this creates a new challenge, meaning that large companies need technical help to navigate the complex world of risk management in an international context.
"To be comfortable with multijurisdictional, multicurrency and corporate responses all over the world, an organisation built on a 'limits perspective' needs to understand where it is in real time," Nestor argues.
Better data quality and management could mean banks can make big savings on what they need to set aside in collateral if they understand the real-time risk in exact terms, as well as avoiding the charges incurred by fines and audits caused by making mistakes. An increased push for banking capitalisation by regulators, too, is squeezing lenders and is pushing demand for good data.
The Rockall Tech approach, which involves the use of software to automate and manage risk and collateral in real time, has wide-reaching implications on European financial markets if widely applied, saving big money while at the same time improving market stability and confidence. It's certainly an attractive package.
Nestor believes that this would allow financiers to lead by example, with good-quality data and more transparency helping to rebuild trust between financial institutions and regulators, as well as setting a gold standard for risk management. "As banks emerge with better data-management standards, the regulators, as usual, will follow those standards and start back to them," he says. "It's real data - it hasn't just been patched together for the sake of reporting."
Credit control: tracking software and knowing the limits
Rockall's technology also has application in the management of credit facilities and credit limits, with its real-time tracking software meaning limits are closely monitored and alerts sent when they are breached.
"If limits aren't managed in real time, you have a situation where limits can be breached at the event, as opposed to after it happens, and they have to go into corrective action," Nestor says. "But they can prevent the problem in the first place, by either readjusting the relationship or selling down some of the risk."
"It's about knowing your position in real time and being able to use that data to reduce risk. That's fundamentally what you want to do."
World view: finding the right partner in a fluctuating global economy
On the broader prospects for the European economy and banking, Nestor is optimistic but not naive, saying that Northern Europe has the soundest financial institutions but is still struggling, with Asia in a strong position to catch up with, or even overtake.
"My view is that the European banking sector is the most sophisticated, but not totally - it's more Germany and the Nordic countries," he says. "They would be what I would see as the most sophisticated and mature banking sectors; mainly because they have been doing business for a long time.
"I'd probably say the US too, because the industry is usually minimalistic. It tends to do what it has to do, compared with European banks that do a lot more than what's required of them. Asia has very little baggage, strictly speaking. So as its economies emerge and develop financial services, I think in time they'll catch up and catch out the European and US systems."
Rockall already has some big-name clients taking on the company's tools for use as they re-evaluate their technology options - from Barclays, HSBC and US Bank, to Nordea, Wells Fargo and the Bank of Ireland. Nestor says that customers choose Rockall Technologies for a number of reasons.
"I think there's a massive pressure to optimise, and we come across extremely experienced and knowledgeable," Nestor adds. "They need to have a more real-time view of the world, and are trying to manage their data through day-to-day activity. Fundamentally, it's more about business, but also it is well-thought-out calculations.
It's a lot to do with a real need to have real-time monitoring of positions.
"Regulators have a much heavier touch than they used to. They are looking more and more into organisations, how they're coming up with the reports and how their values are formed," he says. "Ours are based on real business."