CGI: navigating the regulatory web – Lode Snykers
Regulatory compliance and reporting is not a choice - it is an obligation. As such, it can seem to be a burden that yields little operational advantage, even though failure to comply could seriously compromise a bank's ability to operate as a business. As banking regulations become more voluminous and complex, it is vital to find a way to make regulatory compliance as efficient as possible.
"Banks face growing demands in the regulatory area and have to comply with over 250,000 pages of regulation," says Lode Snykers, vice-president of global financial services at CGI. "A major effort is required, and it takes a big chunk of their resources in terms of people, money and time. And there are deadlines for compliance.
"To cope with that, financial institutions need to look at whether to focus their internal resources on regulation or take the opportunity to leverage the capability of partners like CGI. We have reusable experience, so there is no learning curve. We have solution components available to reduce risk, and the time required for regulatory compliance and reporting. We have done it or are doing it for many other financial institutions."
CGI and Logica: complementary attributes
Recently, Snykers has been leading global financial services at Logica, which has now been acquired by CGI. As the world's fifth-largest independent IT and business process services firm, with an array of global delivery centres across the Americas, Europe and Asia-Pacific, CGI offers a comprehensive portfolio of services including strategic business and IT consulting, systems integration, application development, maintenance and infrastructure management, as well as more than 100 proprietary solutions. CGI now has a combined annual revenue of over $10bn.
Logica was an ideal acquisition for CGI, given that the two companies had complementary geographies. Logica has a well-established base in Europe, which builds on CGI's strong position in North America. Also, the companies have compatible offerings in systems integration, application management, business consulting and outsourcing. They also have similar cultures, focusing on long-term client relationships. The combined business has over 16,000 people who are able to connect all of the individual pieces of the IT value chain, working with financial services clients. In addition, there was little or no overlap across the two portfolios of software solutions, particularly in the financial services markets.
CGI is seeing many requests from financial institutions in the area of regulatory compliance, especially now with the constant stream of new regulations being brought in - notably the European Market Infrastructure Regulation, liquidity reporting, as well as FATCA and Dodd-Frank from the US.
"The questions financial institutions need to ask are: what do we need to do ourselves?" says Snykers. "What is core to our business and differentiating? What is standardised? As banks differ in terms of strategy and position, there is no standard answer.
"On the one hand, there is market pressure to raise capital and increase profitability, resulting in a constant battle to further reduce costs and lower IT budgets. On the other hand, there is increased effort required for compliance and this is a 'must-do'. The net result being that there is little IT budget left to spend on new business requirements and differentiating services after compliance has been funded."
Value of outsourcing
Banks want and need to focus on business issues such as customer service and loyalty, which require process change and innovation in new services. There is a need, therefore, to maximise the power of the remaining IT budget after running costs and regulation requirements have been taken care of. Handing parts of the regulatory requirements and processes to a third party like CGI is one of the options.
"Financial institutions need to look for external partners that can reduce the cost of meeting regulatory demand," explains Snykers. "They must align and converge their approach to meet different regulations like the Payment Services Directive and Basel III. Often, these are handled separately, though a lot of regulations draw on the same data.
"They need to look holistically and have a consistent approach to data management, not different buckets of data. This idea is having some traction among banks, but they must realise that the challenge is not a technical one; it is an organisational issue. Different parts of a bank often handle different regulations, so the challenge is around alignment."
The value of a consultancy like CGI is its ability to not only leverage its experience of regulatory compliance, but also to look more broadly at issues like data management and IT governance. The firm has its own IT governance model, which it uses to address issues such as operational risk - a big concern for senior executives in any large organisation. It is a way of looking at critical processes within a business and linking them firmly to IT.
In the UK, the Financial Services Authority is pushing to have the CEO or chairman accountable for operational excellence in order to have clear accountability within an organisation, so data management and IT governance have to be top priorities.
CGI's own governance framework, which supports all of its services and is ISO 9001-compliant, provides a sound and robust platform for talking to clients about the industrialisation of IT and the removal of stovepipes of operational risk. It firmly links IT to business strategy and service delivery, which, in turn, helps to achieve high levels of customer satisfaction.
Aligning business process to IT is a crucial step in making sure that IT budgets are effectively allocated, and that after requirements such as regulatory reporting are catered for, there is money left to invest in enhancing customer service.
"With the implementation of regulations, a lot of attention needs to be given to what is required and that is a challenge with 250,000 pages of regulations," says Snykers. "We have the subject matter experts to understand individual regulations, but where we
make a difference is in the next step - knowing how to make it happen.
"We have end-to-end capability from the advisory piece right through to implementation for each individual client. Our IT governance model is a big differentiator. It helps us to build in flexibility in a changing regulatory landscape, creating an environment where new regulations can be complied with, and delivered quicker and at lower cost."
Regulatory requirements, therefore, should not only be a high priority, they should also be viewed in a much wider context. Snykers' advice to banks is to start with
a holistic view of the regulatory environment and data management to build in agility to achieve compliance in reporting processes. This means looking at how regulatory reporting can be aligned with other internal reporting processes, and also at how the data being produced for regulatory reports can be used across the business to support better decision-making and support the management of the institution.
Companies will already be compiling dashboards for management, looking at topics such as liquidity and risk in order to steer strategic and operational decision-making processes. Snykers believes that these could be tied more closely to regulatory reporting processes to increase efficiency, accuracy and value. So far, however, only 13% of banks have a fully integrated regulatory and risk reporting system.
CGI has a long and enviable track record of working with financial institutions across the globe to address the challenges of new regulation and manage change in a cost-effective way. It combines sector-specific expertise with professional consulting capabilities and IT solutions to help organisations define and implement new operating models, and reduce their IT and processing costs. In the financial services sector, it has hands-on experience of the varied challenges that banks face in integrating their reporting processes and maximising their IT budgets.
"We see different attitudes in the market," says Snykers. "Some banks see regulatory requirements purely as a compliance issue and keep their internal management dashboards for measuring other things. We comply with regulations not for the sake of complying, so when a company looks at focusing on dashboards, which extend beyond regulatory reporting requirements, they should take the holistic view.
"They could combine regulatory reporting with their management dashboards so that they simultaneously develop instruments to manage the business and comply with regulations. They could also look at regulatory compliance solutions as a service model, not on a project basis."