Banks' Data Management Strategies Must Go Beyond Compliance

Although 2010 was unofficially deemed "the year of analytics" in financial services, it appears that this technology and related data management/business intelligence capabilities will be just as "hot" in 2011. The main reason has to do with the compliance challenges related to the new Dodd-Frank legislation, as well as overall demands from regulators, politicians and even customers for better reporting and more transparency, according to Mark DeBenedictus, VP, . DeBenedictus recently provided Bank Systems & Technology with some predictions about the role analytics tools will play in the banking industry in the coming year.

How do you think banks will be leveraging analytics capabilities in the coming year?

Mark DeBenedictus, HP: The recent Dodd-Frank Act is causing financial institutions to implement a whole new financial regulatory architecture that will bring significant changes to how they conduct business. The Act's risk-tolerance and consumer protection requirements will force banks to establish new and multiple touch points, to acquire robust capabilities for data collection, aggregation and integration. It will also provide timely, accurate and on-demand reporting to the new Office of Financial Research (OFR), which has subpoena authority and can ask for any type of information at any time from any financial services firm.

Institutions that are willing to take data management beyond the strict requirements of compliance may also gain a competitive advantage in what will clearly be a more demanding financial services marketplace. Institutions must improve the quality of information and insight within their organizations, as well as reduce the latency in gaining that intelligence. Financial services firms need to look for new ways to transform themselves into real-time, fact-based decision making institutions. In the future, they must have the operational capabilities to meet new, changing and sometimes conflicting regulatory demands for information.

How will this be different from how banks have thought (and acted) previously about deploying analytics capabilities? DeBenedictus: Currently, consumer and legal entity data is typically housed and replicated in multiple systems. Product codes and contract data are seldom standardized across systems because there was no prior need for them to be. As regulatory agencies demand various sets of raw and combined data as a result of the Frank-Dodd Act, technology organizations within financial institutions will be forced to master new and more complex methods of data aggregation and integration. The new regulatory agencies can also be expected to demand new reporting formats, more detailed reporting content and faster responses. Financial institutions will be expected to focus on both the raw numbers that populate their system as well as better ways to view, describe and translate those numbers to make better decisions.

What will be new on the analytics front in 2011 in terms of capabilities, key players, deployment opportunities? DeBenedictus: While business intelligence (BI) has traditionally been used primarily as a strategic tool, in the post-reform environment, banks and other FSI's may be expected to use low-latency BI tools and strategies to improve their short- and long-term view of customers, and to provide precise intra-day views into trade data, market data and positions for each trading system. In addition, firms will need to use a master data management (MDM) strategy to improve analytics and fact-based decision making, to manage the growth and structure of data, and to meet real-time, ad-hoc regulatory information requests. By necessity and logic, financial services firms will need to wield next-generation intelligence tools to meet tomorrow's more rigorous regulatory, market, and business demands.

In addition to regulatory compliance, there is also a competitive advantage in leveraging BI solutions. Financial institutions understand that the strategic use of BI can help contribute to their own risk management efforts, [and help them] make better business decisions and be more competitive.

Are these opportunities mainly for big banks, or will smaller institutions be able to take advantage, as well?

DeBenedictus: Any financial institution will have to deal with the transparency and reporting issues. Big banks will develop internal solutions whereas smaller institutions will need to look for partners. The issues are the same. The devices people use are inconsequential and technology will need to identify, validate and secure them to interact. Institutions will determine not only the profile and information that the individual needs or wants but also their risk level. They will also determine how people interconnect with the services.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio