Securities Operations:NEWEST RESEARCH SHOWS SECURITIES INDUSTRY
A wave of New Year’s research reports on the state of information technology at securities firms describe an industry failing to keep up with change and in some ways blind to the interconnectedness and importance of IT.
“Half of banks will still lack a formal innovation program and budget by 2013,” says a dismal assessment by Gartner, the U.K.-based research conglomerate.
“Pressure from governments, regulators and consumers is making
some banks risk-averse and creating a culture of introversion and inflexibility,” Richard De Lotto, principal research analyst at Gartner, said in a published statement.
“The predominant view of IT is that it is only useful for cutting costs, so tactical thinking about automation and rationalization overwhelms longer term decision and strategic plans and goals.”
Armanta, a Summit, N.J.-based software- development company whose specialties include designing risk management systems, asserts that much of the industry is crippled by a hodgepodge of incompatible IT systems.
“Come to terms with your firm’s patchwork infrastructure,” Armanta says in a note that has a tough-love tone.
“Although financial institutions spend billions annually on IT, one area that has been consistently neglected is cross departmental integration – a fact that makes it extremely difficult for firms to accurately assess their firm-wide exposures in a crisis.”
“In 2010,” it adds, “firms need to look at solutions that will bridge the divide and produce data that is accurate and meaningful.”
The note is written around a top-five list of what Armanta executives say are actions the industry “must take in 2010 to improve transparency, reduce operational risk and thrive in uncertain markets.”
Peter J. Chirlian, Armanta’s chief executive, said the economic trauma of 2008 and 2009 pulled an industry curtain aside.
The financial crisis revealed that many, if not all, major financial institutions have patchwork infrastructures that make it extremely difficult to understand the firm’s market and counterparty exposures. The crisis may be over, but the data problems are fundamental,” Chirlian said.
He called for “positive operational changes” that would help financial institutions “highlight their exposures across business units, improve their market reaction times, and simplify reporting for investors and regulators.”
Armanta’s list includes – in addition to better systems integration – the following IT-improvement themes:
• Reducing systemic IT risk. The note says mismatched systems “can cause a domino effect of bad decisions throughout an organization, which can have devastating systemic shocks not only for the firm, but also for the economy.”
• Ensuring that new product offerings are adequately supported.
“A fast-moving and responsive financial firm can develop thousands of new products in a short period of time. The mistake many firms make is in allowing business units to develop spreadsheet-based systems to manage those products.
In an already fragmented IT organization, spreadsheets that sit on people’s desktops are difficult to integrate: This is dangerous because particularly complex products can carry risks that don’t get figured into the organization’s firm-wide view of its exposures.”